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With interest rates rising in an effort to curb inflation and recession fears escalating, you may find yourself worrying about what happens if you fall behind on your mortgage.

The percentage of mortgages 30 or more days delinquent but not in foreclosure edged up to 1.89 percent in July 2022, according to data firm Black Knight. While the rate is relatively low, if we do end up in a full blown recession it will certainly skyrocket.

If you’re falling behind on your mortgage payments because of inflation blowing up your budget, or for other reasons, it’s important to seek help now. The first step is to contact your loan servicer to explain your situation. Many are reluctant to take this step because they are scared and intimidated–for good reason.

1. Forbearance

Best for people facing a temporary hardship or loss of income

Forbearance puts your mortgage on hold temporarily. The payments are suspended or reduced for a set period, and you agree to pay with a lump sum or through installments once the pause period ends. During the forbearance period, the record reflects that you’re current on your mortgage.

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This option tends to be the best fit for “people facing a short-term financial hardship or disruption of income,” says Matt Ribe, senior director of legislative affairs with the National Foundation for Credit Counseling (NFCC). “It’s simply a way to stall payments without being considered delinquent.”

This option doesn’t involve underwriting or much work on the servicer’s part. The downside is you’ll pay more interest by effectively stretching out your mortgage term.

 

 

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