Mortgage Debt

If you have mortgage debt, you either have a loan with a financial institution or mortgage broker. In either case, it’s important to know and understand the terms of this loan.

First, make sure you know:

how much you have to pay,
when the payment is due,
who to send the payment to (lender or mortgage servicer) and
where to send the payment.

If you got a payment coupon book, use it. The booklet contains a coupon for each monthly payment you have to make. The coupons include the amount you have to pay and the date the payment is due. Each month, tear off the coupon and send it with your payment to the address listed on the coupon itself. It’s an easy way to keep up with your payments. Because your mortgage is likely on a 15- or 30-year term, you may have to order a new booklet in a few years.

When paying your loan, you may send payments directly to your lender or to a mortgage servicer. If you are unsure, check your monthly mortgage billing statement or payment coupon book. You can also Dial the MERS® Servicer Identification System toll-free at 888-679-6377 or visit the MERS® website to see if your loan servicer’s identity is listed in the MERS system.

If you don’t have a coupon book, most lenders will allow you to pay online or with an automatic transfer or debit to the lender or dealer. This payment can come from your savings account, checking account, or even your credit card. If using your savings or checking account, make sure you have enough money in the account each month to cover the payment.

Second, understand what happens if you are late with or miss a payment. Remember, that a mortgage is secured by your home. Missing payments can have negative consequences for you:

A negative entry on each of your credit reports.
Decrease in all of your credit scores.
Additional late fees.
After 120 days, the foreclosure process can begin. Foreclosure is a legal process that involves the lender taking possession of your home.

Don’t let this happen. Get help from a HUD-approved housing counselor. You can also call 888-995-HOPE (4673).

Finally, if you are experiencing a hardship, contact the loan servicer lender immediately. Generally you will have options[1] depending on how many months you have not paid your mortgage:

Reinstatement—you pay the lender or loan servicer the entire past-due amount, plus any late fees or penalties, by a date you both agree to. This option may be appropriate if your problem paying your mortgage is temporary.
Repayment plan—the lender or loan servicer gives you a fixed amount of time to repay the amount you are behind by adding a portion of what is past due to your regular payment. This option may be appropriate if you’ve missed a small number of payments.
Forbearance— you and your servicer agree to reduce or suspend your mortgage payments for a set period.. At the end of that time, you resume making your regular payments as well as a lump sum payment or additional partial payments for a number of months to bring the loan current. Forbearance may be an option if your income is reduced temporarily. Forbearance isn’t going to help you if you’re in a home you can’t afford.
Loan modification—you and your lender or loan servicer agree to permanently change one or more of the terms of the mortgage contract to make your payments more manageable for you. Modifications may include reducing the interest rate, extending the term of the loan, or adding missed payments to the loan balance. A modification also may involve reducing the amount of money you owe on your primary residence by forgiving, or cancelling, a portion of the mortgage debt. Under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt may be excluded from income when calculating the federal taxes you owe, but it still must be reported on your federal tax return. A loan modification may be necessary if you are facing a long-term reduction in your income or increased payments.
Before you ask for forbearance or a loan modification, be prepared to show that you are making a good-faith effort to pay your mortgage. For example, if you can show that you’ve reduced other expenses, your loan servicer may be more likely to negotiate with you.
Selling your home—depending on the real estate market in your area, selling your home may provide the funds you need to pay off your current mortgage debt in full. This is generally the right option if you are in a home that you cannot afford.
Bankruptcy—personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching.

If you have a mortgage through the Federal Housing Administration or the Veterans Administration you may have other foreclosure alternatives.

[1] The list of options is from the Federal Trade Commission