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What Is Mortgage Relief?

By Eric Goodwill

What is mortgage relief? Find out here how federal mortgage relief programs could help a distressed homeowner.

Due to the recent financial crisis and rising level of foreclosures, the federal government has enacted several programs to help distressed homeowners and help prevent foreclosure. These programs are developed to entice a mortgage lender to offer some form of mortgage relief to a homeowner. There are various ways a mortgage could be partially relieved.

Lower Interest Rate

The most popular form of mortgage relief is to lower the interest rate due. Lenders are often willing to do this because the average mortgage rate offered is below the mortgage rate that most borrowers are paying. By reducing a borrower’s mortgage rate, the borrower could save a significant amount of money each year in interest payments and be better able to afford the mortgage payment. This would then lower the chance of foreclosure

Extend Repayment Term

The next form of mortgage relief is to extend the repayment term. In this form of mortgage relief, the lender will be willing to re-amortize the principal due over a longer period of time. For example, if a borrower took out a $200,000 30-year loan five years ago at 6% interest, their loan balance would be about $186k and a monthly payment of around $1,200. By re-amortizing the loan, the borrower’s payment would drop to $1,115.

Forgive Principal Owed

The third form of mortgage relief is to forgive principal owed. In this form of mortgage relief, a lender is willing to waive a portion of principal balance owed in order for the mortgage borrower to be able to stay in their home. This situation is rare and is the least ideal situation for a lender because the lender is required to waive a portion of their investment and declare it as a loss.

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3. Will Debt Consolidation Affect My Next Mortgage Refinance?
4. How Can I Reduce My Mortgage Debt?
5. What Is Recasting And How Will It Affect My Mortgage Rate?