How Can I Lower My Mortgage Interest Rate Due to Financial Hardship?

Facing a large mortgage payment during financial hardship can be stressful. As of 2009, 250,000 homeowners faced foreclosure every three months, according to the Federal Deposit Insurance Corporation (FDIC). Requesting an interest rate reduction, loan modification or forbearance agreement can give you some breathing room when recovering from a difficult financial situation.

Instructions

1. Ask about loan modification programs. Mortgage holders who are struggling with financial hardship may be eligible for a loan modification program (which lowers their interest rate). To qualify for this program, however, the account holder’s debt must be 55 percent or more of their total gross income.

2. Negotiate a repayment plan. In addition to lowering your interest rate, lenders may be willing to create a catch-up plan if you’re behind on mortgage payments. The lender will create a contract that outlines a plan to catch up over a specific period of time (instead of making a large sum payment). This isn’t a new loan, but an agreement between the borrower and financial institution.

3. Apply for the HomeSaver Advance Program. If your loan is owned by Fannie Mae, you may qualify for this program. The HomeSaver Advance Program was created to help families struggling with financial hardship catch up on missed payments. This program gives borrowers an unsecured loan to catch up on missed payments. The borrower pays back the loan over a long period of time.

4. Apply for a forbearance program. If your lender denies your request for an interest rate reduction, check out forbearance programs. According to Fannie Mae, forbearance programs are designed to help families facing financial hardship stop mortgage payments for an agreed-upon period. Once the time period has expired, the borrower will start making normal payments again, and will need to pay back missed payments over a stated time period.

Tips & Warnings

• Loan modification programs don’t last forever. The new interest rate stays intact for a specific period (typically up to five years). After the term expires, the borrower’s interest rate will revert to the previous amount.

• Don’t wait too long to contact your lender. After the account has been turned over to collections, the lender is less willing to work with you and your credit will be negatively affected.

References

• CNN Money: Mortgage Help: Do you qualify
• Fannie Mae: Avoid Foreclosure
• FDIC: Foreclosure Statistics