Why Would you Need to Negotiate a Lower House Payment?
If you bought your home in the beginning part of the 21st century or earlier, recent changes in the housing market may have you, like many other people, in a tough financial situation for a couple of reasons:
Higher interest rates
Interest rates have generally declined in the past few years, setting record lows that have not been seen for 40 years or longer. If you are still paying a monthly mortgage based on a high interest rate, it means you are making a higher payment than you would be paying if you financed your home today.
Lower property value
With the current economic turmoil in the United States and other parts of the world, there has been a rash of foreclosures as people have been unable to continue to make their mortgage payments. The large number of foreclosures has flooded the housing market with a higher-than-normal number of available properties. This surplus has led to a decrease in general in the value of real estate. As a result, if you are one of those who have been lucky enough to be able to continue to make your mortgage payments, it is likely that the value of your home has decreased. This means you may be making payments on a mortgage where you owe more money than your house is actually worth.
If you are in a situation where you face one or both of the above issues, along with other strains on your finances such as a loss of employment or high interest payments on credit card debt, you may be considering bankruptcy or other options to reduce your outgoing cash flow. One option you may not have considered is negotiating a lower house payment.
While mortgage companies would certainly prefer to keep receiving regular monthly payments in full at your current interest rate, they are well aware of the large number of people who are no longer able to maintain those payments. Therefore, it may be in the mortgage companies’ best interest to work with you to keep you making some form of payment, rather than being stuck with a house they do not want.
You heard me right: a mortgage company or bank does not really want your house. Banks and mortgage companies are structured to in large part make money on the interest they earn by loaning people money. When they finance your mortgage, they generate revenue through the interest you pay (as well as late fees if you cannot pay on time). They would prefer not to have to take your home. When they do, this means they lose the revenue stream related to your payment and the interest while they incur expenses related to seizing and selling the house (e.g., attorney fees, real estate fees, loss in value if they have to sell the home at a lower amount than it was originally worth on their books). Therefore, mortgage companies can at times be incented to work with you in negotiating a lower house payment.
Ways to negotiate a lower mortgage payment
Ask for it
You are not the first person who has considered requesting a lower mortgage payment. Mortgage companies and banks generally have a Loss Mitigation Department (although it may be known by a different name than this) to which you can present your case for a reduced mortgage payment. Through a loan modification, the mortgage company may extend the term of your loan, convert the loan to a different type of loan (e.g., a fixed rate from an adjustable rate), or add missed payments to the loan balance so that you can resume normal mortgage payments going forward. If a mortgage company is willing to work with you on reducing your payment, they will want to see financial statements and other documentation to prove you are experiencing financial hardship. But keep in mind that although a mortgage company may in theory have incentive to work with you on a loan modification, they are often very inefficient at carrying out the process. This may mean that stepping through the process in its entirety may be long and time-consuming.
Should I Refinance my Home?
If current interest rates are significantly lower than what you are paying at present, refinancing your mortgage to that lower rate can reduce your payment. Even though you will have to pay various fees for the mortgage company to carry out the finance, which may be rolled into the balance due on the mortgage, the lower interest rate and longer payment term that come with refinancing can reduce your monthly payment.
While declaring bankruptcy should not be done lightly, it is an option that may allow you to re-negotiate your mortgage with your lender. But a bankruptcy is generally not going to allow you to reduce the principle balance you owe on your mortgage outright; rather, it is going to lead the mortgage company to work with you in performing a loan modification as described above. Therefore, bankruptcy should only be considered as a last resort if you have unsecured debt or other financial issues that bankruptcy can help address.
Whatever your situation, it can be tricky to gather all the needed information to make an informed decision about what to do without obtaining professional help.
Hiring a Bankruptcy Lawyer?
A bankruptcy attorney can help you perform this analysis. A bankruptcy attorney will have experience in working within the bankruptcy and other laws applicable in your state to determine, based on your current situation, what makes the most sense for you. Such a consultation is available free of charge and with complete confidentiality, if you simply fill out the short form available below. So please get the help you need today in making this tough decision.
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