The monthly payment charged on a
mortgage loan consists of
interest rates, fees, insurances, and the principal balance. But payment doesn’t really work as you may think. The
lender earns from the interest rate that he charges you. To secure his interest rate the first several monthly payments go towards the total interest rate and very less to the principal amount. After some time the interest will either be completely paid or very little left and your monthly payments will go towards the principal balance until the loan term is over.
The mortgage payment is one thing during the loan term that you must not miss. Don’t put it behind your back for a reason that looks important like buying a new suit and shoes but in-fact not necessary at all. Why we say it? Because there are huge risks involved with mortgage that are explained below.
Risk of Not Paying your Mortgage
Buying a mortgage is a tiresome job but the repayment of this long financial commitment is even more difficult then most of us expect. The mortgage payments have certain risks involved with it which must be known to you. The biggest risk is foreclosure.
Foreclosure
If you default on the mortgage payments the lender can take your house and put it on sale because until the loan is paid the legal ownership of the house rests with the lender. This repossession is a night mare and you will simply be sitting outside of your house.
Mortgage shortfall
There is a very common misconception that when a house is repossessed then the lender has what he wants and the borrower is free to leave. In reality, things are different. If the house worth is less than the amount of loan that is left is known as mortgage shortfall and by law a lender can pursue you for this money for about 12 years. Foreclosure is just the worst risk of not paying on time.
Can you Avoid Foreclosure
There are options by which you can save your house. The first thing that everyone advices is, always pay your monthly payment. Life is not that simple and it may happen that an emergency hits you but this doesn’t mean that you are out of options. You can do the following things.
Pre-foreclosure sale
In this option you can sell the house before repossessions and can give the amount directly to lender. The mortgage shortfall can then be paid back in monthly form. Although you loose the house but in this case your
credit report is safe.
Special forbearance
You can go to the lender and tell him about your shortcomings. The lenders also don’t want to get into a house sale and they may be willing to setup a new repayment plan. You may be allowed to pay the interest for some months. Other repayment plans include flexible current account and offset mortgage.
Pay your monthly bills on time and in any case if you are not able to make one you should immediately contact the lender and clear up things before it is too late.
