When a Mortgage Overwhelms, Change the Terms

The first step to avoiding foreclosure is calling your lender.

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Dear Alpha Consumer,

Two years ago, my husband and I purchased a home for $217,000. My husband works in construction and is paid a salary plus a bonus, but the new-home-building industry in our area has hit an all-time low, and he has not received any bonus pay in at least six months. Also, part of his wages are garnished to pay child support fees. We are now unable to make our monthly mortgage payments, but the option to sell the house for something smaller is no longer possible. Our $217,000 home is now valued at $165,000. Our savings are depleted, and we have lowered all the other expenses that we can, but we still cannot pay our home loan on time this month. What options do we have besides foreclosure?

That's a tough situation, but you may be able to avoid foreclosure yet. The first step is to call your lender. Lenders don't want to see customers fail to make payments and lose their houses, either. Your lender will most likely work with you to get you back on track.

According to Pam Hamrick, vice president of LendingTree Loans, one option is forbearance, where borrowers temporarily make reduced payments or none at all. To qualify for this option, borrowers usually need to show that they are experiencing a temporary problem and that a tax refund, future bonus, or other form of income will let them catch up. Also, interest may still accumulate, so you may have to make bigger payments down the road.

Another option is to ask the lender to modify the terms of the loan so the payments are more affordable, Hamrick says. For example, you may be able to extend the term of the loan so monthly payments are lower.

When asking your lender for these options, Hamrick recommends showing that you are making a good-faith effort to pay your mortgage. "If you can demonstrate that you've reduced other expenses, the lender will be more inclined to negotiate," she says. If your situation is more long term, however, then it will be harder to persuade the lender to change its terms.