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What happens when I can't pay my mortgage?
When you take out a mortgage on your home, you are agreeing with the bank that they will lend you enough money to buy the house, in return, you will pay off the loan with monthly installments. Plus a small interest rate. This is how the bank makes its money back, and then some. Simple, right? However, when you can no longer pay your mortgage off the bank starts to lose money. Or at least, lose revenue. This is when the bank will start trying to collect payments from you. Since you most likely took out your mortgage with the same bank that holds your money, they have a good idea about how much money you have. They can tell the difference between you have no money and being unable to pay and having money squirreled away and choosing not to pay.
Which one of the above criteria you meet will affect what happens next. Ordinarily, the bank will begin by sending you letters in the mail and emails explaining that you are behind on your payments. They will normally give you time to rectify the issue. How you get the money is normally of no interest to them, so long as you do get it. If they can see that you have money in your account but refuse to pay, they can then sue you to access that money. If you genuinely can't pay the mortgage, the bank will begin the process of foreclosing on your home.
What is foreclosure?
Foreclosure is, simply put, the process of the bank selling your home to recoup the losses on their loan to you. They can only do so if you fail to make payments, and can not find another way to pay off the loan. The bank will do their best to sell the house quickly, as the longer it sits empty the more money they are losing. This can lead to the house being sold for far below market value. There is a reason houses that are foreclosed on by the bank are in demand, buyers know they can get a good deal. Since the bank is trying to sell the house as quickly as possible, you are likely only going to be given a short amount of notice. This might seem unfair, and in some extenuating circumstances it is, but that's the way mortgages work. that's what you agreed to when you signed your name and took their money.
What long-lasting effects can foreclosure have on me?
Foreclosure can have very long-lasting effects on you. These are almost all tied to being unable to pay in the first place. A mortgage is an agreement, and assurance, that you the lendee will make good on the money you owe. This relationship extends to third parties not involved in that transaction. If you cant pay your mortgage, then what will make other lenders believe you can repay their loans? Not much. This reputation for being unable to pay is quantified by your credit score. Just as a good credit score will get you better deals on loans, with lower interest rates, a bad one will get you poorer deals or make ineligible altogether. This poor financial situation can follow you for years, the rest of your life even if you don't do something about it now. If you find yourself homeless, which is sadly a real possibility, this can lead to other issues. You might struggle to keep a job, your relationships will become strained, and life will become just generally difficult. Many people fall into a depressed slump. This isn't being said to scare you, just to ensure you understand the harsh realities of your situation. Or, at least, what your situation may become.
What to do if you can't pay your mortgage
Being unable to pay off your mortgage is a nightmare scenario. You will be unsure what to do and who to turn to. There are predatory payday loans that will target people such as yourself. They will offer you enough money to get by until next month, but they will offer it at an extortionate interest rate. Your mortgage may be on a 3-5% annual interest rate. A payday loan may be in the multiple thousands. Imagine, owing 10 times what you borrowed in just a month. They are predatory and should be avoided. There are other options available. Options that will genuinely benefit you. Here are four such options:
Refinancing
Refinancing your mortgage is one of the best ways to get out from under your debt. Ordinarily, your mortgage will be on a 30-year basis. Now, imagine that you have paid off half your loan. You only owe, say, $100k still. But your monthly payments are the same. Now, with refinancing, you could essentially stretch that remaining loan out. You could stretch the remaining half of your loan out for another 30 years, rather than the 15 that remain. This can drastically reduce your monthly payments. If money is tight, perhaps you lost your job for example but your spouse can still work, then these reduced payments might be exactly what you need until you get back on your feet. You still only owe the same amount of money, so if you manage to come back into better financial standings, you can just pay off the loan in the same increments as you were before. It just gives you a little more breathing room. The bank is normally happy to do this because they keep getting their money back. And, in theory, they will make more money as the interest rates will build up the amount that you owe. This is assuming you don't do as suggested above and pay off the loan as aggressively as you can.
A loan
One way to get the money to pay off the bank is to take out a loan from somewhere else. Make sure you take out a loan that isn't going to end up costing you a lot in the long run. If it has an extortionate interest rate, stay well away. This loan could be from another bank, that is structured in the same way. You take out a loan for the money that you owe, that you will then pay back over a longer period in smaller installments. You could take out a loan for some of the remaining mortgage payments or all of them. A loan doesn't need to be a structured loan from the bank. It could be a loan from friends or family, you could even borrow against your pension (this isn't advised though). Be warned that when it comes to borrowing money from friends and family it can put a strain on your relationship. Money complicates things. It is best to only borrow money, or lend money when both parties understand that there may be a long time before it can be paid back. If it ever gets paid back at all. There is a common saying that when you lend money to a friend you should always assume that you never get that money back. If you have someone who can lend you the money, and it won't ruin your relationship, great! Just be warned.
Sell your home
One of the best ways to pay off your loan is to sell the home. This can, in most cases, cover the remaining balance on your loan. The reason being that who gets what % of the sale is divided up based on who owns what equity. When you buy a house, you usually pay a deposit. This can be anywhere from 5% to 25% of the cost of the house. This means you own 5% to 25% of the house, so you will immediately be entitled to that much of the sale. Let's assume that you have paid off half of your loan and own about half of the house. In reality, you would probably own 65-70% of the house. But let's play with conservative numbers. If you owe, say $100k on your loan still, but the house is worth $250km when you sell it you will get at least $125k. There are realtor costs etc, but they are almost a nonfactor in this scenario. That $125k would give you enough to pay off the remainder of your loan and give you $25k to either rent somewhere or pay the deposit on a smaller, cheaper, house.
Our Partners
Our goal is to help people who are about to be foreclosed on, by buying their homes. The theory behind this is very similar to the scenario mentioned above. You need to sell your home to get out from under your loan. The difference is, our trusted partners are here to work with you.
When you sell the home, you will ordinarily be left with a decent amount of money to help you get by. It isn't always enough to buy a new house, but it can cover your rent for long enough until you can. Our partners will buy your home off you, and then many times allow you to live in it as a tenant. This means you can sell your house without ever having to leave. Ordinarily, when you sell your house, the new owner intends to live there. Since the new owner is a company and not a person, they are using it as an investment. They want a tenant who is going to pay rent and appreciate the property.
Who could appreciate it more than you? It gets better. Since it's an investment property, We intend to eventually sell the property. To you, if you still want it. In many cases we allow you to buy back the house once your financial situation improves. At the end of the day, everyone comes out a winner. You swap ownership for being a tenant for a few years, the bank gets their money back and our partners get a reliable tenant. This is by far one of the best options available to you. If you are interested in this or would like to find out more about it, feel free to submit a form here.
Conclusion
So, you now know what your options are if you find that your house is about to be foreclosed on due to missed payments. Just because foreclosure is looming doesn't mean you should give up hope. There are some great options available to you. Getting your home refinanced, if that's possible, is often a good idea. It is up to you whether you use this opportunity as a temporary measure to help you get out from under your debt, or as a more long term measure to give you more money for other things. Be it bills or frivolities. Selling your home, be it independently or to our partners, is perhaps the best method to hit the reset button. Depending on how much of your loan you still owe and how strong the housing market is you may come away from the sale with enough money to move to a new, better house if you so wish. It is important to explore all your options before making your final decision. Hopefully, this article has helped you do just that.
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