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Catching Up On Mortgage Payments: A Step-By-Step Guide

ByWallstreet Observer

Quick answer

  • Contact your mortgage servicer immediately to discuss your options.
  • Explore repayment plans, forbearance, or loan modifications.
  • Understand the potential impact on your credit score.
  • Avoid ignoring the problem, as it can lead to foreclosure.
  • Gather all relevant financial documents before contacting your servicer.
  • Prioritize catching up to protect your home and financial future.

Who this is for

  • Homeowners who have missed one or more mortgage payments.
  • Individuals facing temporary financial hardship affecting their ability to pay their mortgage.
  • Borrowers worried about the consequences of missed mortgage payments.

What to check first (before you act)

Goal and timeline

What is your ultimate goal regarding your mortgage? Is it to get back on track as quickly as possible, or are you seeking a more long-term solution due to a persistent change in your financial situation? Understanding your timeline will help you and your mortgage servicer determine the best course of action. For example, if you anticipate your financial hardship will be resolved within a few months, a temporary solution like forbearance might be suitable. If the hardship is expected to be long-term, a loan modification could be more appropriate.

Current cash flow

Analyze your income and expenses to understand your current financial reality. How much money is coming in each month, and where is it going? This will reveal how much you can realistically allocate towards your mortgage payments, including any back payments you need to catch up on. Creating a detailed budget can highlight areas where you might be able to cut back temporarily to free up funds for your mortgage.

Emergency fund or safety buffer

Do you have an emergency fund or any savings that can be used as a temporary buffer? Even a small amount can provide some breathing room and prevent further missed payments while you work with your servicer. While it’s generally advisable not to deplete your emergency fund entirely, using a portion of it might be necessary in a dire situation. Consider what level of savings would provide you with peace of mind.

Debt and interest rates

Review all your outstanding debts, including credit cards, personal loans, and any other loans. Note the interest rates associated with each. This information is crucial for prioritizing which debts to tackle and understanding the overall financial pressure you’re under. High-interest debt can significantly drain your resources, making it harder to catch up on your mortgage.

Credit impact

Understand how missed payments can affect your credit score. Late payments are typically reported to credit bureaus after 30 days and can significantly lower your score, making it harder to obtain credit in the future or leading to higher interest rates on other loans. Knowing this potential consequence can be a strong motivator to act proactively.

Step-by-step (how to catch up on mortgage payments)

1. Acknowledge the Situation:

  • What to do: Recognize that you’ve missed payments and that immediate action is needed.
  • What “good” looks like: You are no longer in denial and are committed to finding a solution.
  • Common mistake: Ignoring the problem or hoping it will resolve itself.
  • How to avoid it: Schedule a specific time to address this issue and commit to making the first call.

2. Gather Your Financial Documents:

  • What to do: Collect recent pay stubs, bank statements, tax returns, a list of all your debts and their interest rates, and any documentation related to your financial hardship (e.g., layoff notice, medical bills).
  • What “good” looks like: You have a comprehensive folder or digital collection of all necessary financial information.
  • Common mistake: Not having documents ready, leading to delays and frustration during conversations with your servicer.
  • How to avoid it: Create a checklist of required documents and gather them before you schedule any calls.

3. Contact Your Mortgage Servicer Immediately:

  • What to do: Call the customer service number on your mortgage statement. Be prepared to explain your situation honestly and calmly.
  • What “good” looks like: You are speaking with a representative who understands your situation and is ready to discuss options.
  • Common mistake: Waiting too long to call, by which time options may be more limited.
  • How to avoid it: Make the call within days of realizing you’ve missed a payment.

4. Explain Your Hardship:

  • What to do: Clearly and concisely explain the reason for your missed payments and how long you anticipate the hardship will last.
  • What “good” looks like: The servicer understands the root cause of your problem and your expected timeline for recovery.
  • Common mistake: Being vague or overly emotional, which can hinder productive conversation.
  • How to avoid it: Stick to the facts and be direct about your situation.

5. Inquire About Available Options:

  • What to do: Ask specifically about repayment plans, forbearance, loan modifications, and any other programs your servicer offers.
  • What “good” looks like: You have a clear understanding of at least two potential solutions.
  • Common mistake: Not asking enough questions or accepting the first option presented without understanding its implications.
  • How to avoid it: Prepare a list of questions beforehand and take notes during the call.

6. Evaluate Repayment Plans:

  • What to do: If offered, understand how a repayment plan works. This usually involves adding a portion of the missed payments to your regular monthly payments over a set period.
  • What “good” looks like: You can afford the increased monthly payment without jeopardizing your ability to cover other essential expenses.
  • Common mistake: Agreeing to a plan that makes your monthly payments unaffordable long-term.
  • How to avoid it: Simulate the new payment amount in your budget to ensure it’s sustainable.

7. Consider Forbearance:

  • What to do: If offered, understand that forbearance allows you to temporarily suspend or reduce your mortgage payments for a specific period. Crucially, you need to know how you’ll repay the missed amounts later (e.g., a lump sum, repayment plan, or loan modification).
  • What “good” looks like: Forbearance provides the necessary short-term relief to get back on your feet, with a clear plan for repayment.
  • Common mistake: Not understanding the repayment terms of forbearance, leading to a larger payment due later.
  • How to avoid it: Ask detailed questions about what happens after the forbearance period ends.

8. Explore Loan Modifications:

  • What to do: If your hardship is long-term, a loan modification may be an option. This permanently changes the terms of your loan, potentially lowering your interest rate, extending the loan term, or even reducing the principal balance.
  • What “good” looks like: You secure a modified loan that makes your monthly payments affordable on a long-term basis.
  • Common mistake: Not realizing that loan modifications are for long-term issues, not temporary ones.
  • How to avoid it: Be honest about the expected duration of your financial challenges.

9. Get Everything in Writing:

  • What to do: Once you agree on a plan, ensure you receive all the details and terms in writing from your mortgage servicer.
  • What “good” looks like: You have a signed agreement or official documentation outlining the new payment schedule, terms, and any fees.
  • Common mistake: Relying on verbal agreements, which can be misremembered or disputed.
  • How to avoid it: Always request written confirmation of any agreement made.

10. Make Your Next Payment on Time:

  • What to do: Adhere strictly to the new payment plan or modified loan terms.
  • What “good” looks like: You are consistently making your mortgage payments on time according to the agreed-upon schedule.
  • Common mistake: Falling back into old habits and missing subsequent payments.
  • How to avoid it: Set up automatic payments if possible and continue to monitor your budget closely.

11. Monitor Your Credit Report:

  • What to do: Periodically check your credit report to ensure missed payments are being updated correctly and that your account status reflects the new arrangement.
  • What “good” looks like: Your credit report accurately shows your mortgage account in good standing or as per the agreed-upon modification.
  • Common mistake: Not checking your credit report, allowing errors to persist and negatively impact your score.
  • How to avoid it: Use free credit report services to review your report at least annually.

Common mistakes (and what happens if you ignore them)

| Mistake | What it causes

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