What is a ‘mortgage default’? The term refers to a situation where a homeowner failed to keep his or her promises which was made through the signing of the mortgage contract and promissory note. When you’re falling behind on your mortgage payments, you’re automatically in default.
In this uncertain economy, homeowners may be facing financial hardships. If you find yourself in an unfortunate situation like losing a job and are unable to make mortgage payments, you are not alone. While the prospect of foreclosure is nerve wrecking, you still have a few options to avoid defaulting on your mortgage. Here’s how:
- Work with your mortgage lender Most banks don’t like to foreclosure on properties as it’s costly and the process takes too much time. Instead, they’d rather work with borrowers to come up with a solution that works for both parties. One of the solutions is to reduce monthly payments by extending the mortgage term. While you’ll end up paying more, it’ll give you enough time to pay and saves you from defaulting on your mortgage. Make sure to set up the right repayment plan. The short-term option is to try the Interest Only Mortgage, which reduces your mortgage payments.
- Refinance mortgage One of the most effective and easiest methods, you can work to get a better deal when asking to refinance your mortgage, provided you’re on the existing standard rate of your bank. If you decide to go with this option, make sure you choose the right plan which will work on your favours in the long run.
- Get mortgage insurance Protect your home from unfortunate events by getting a mortgage insurance. The type of mortgage insurance you need in Malaysia depends on the benefits you want. Some of the benefits of getting mortgage insurance include reducing the amount of capital you may lose, removing financial burdens from your loved ones, allowing you to maintain your family’s lifestyle and keep your dream home in case bad things happen, and covers you against total and permanent disability and death. Check out the Mortgage Insurance by OCBC Bank.
- Seek help from a financial adviser When you’re on the brink of defaulting on your mortgage, you should seek help from a financial adviser or accountant immediately. Your financial consultant will provide you with the right resources and expertise you need to plan and manage your finance and come up with a solution based on your circumstances.
- Resell and downsize Reselling and downsizing your property is the drastic option that you can take in case everything else fails to take off. Once you’ve managed to sell your house, you can purchase a cheaper house or rent a cheaper place in a different location. This way, you’ll be able to pay off all of your mortgage using the money saved. While this option is costly and time consuming (as it requires you to move), it gives you long-term benefit.
Try any of the solutions mentioned, and if all else fails, you can always resell and downsize. As devastating as that is, it might have saved you from getting stuck with more financial problems in the future. Take action now and don’t procrastinate when it comes to managing your finance.