Mortgage obligations often lead to frustration, when payments become overwhelming, and there is a risk of losing secured housing. The question arises how to get rid of the credit burden. The situation is not hopeless. The choice of action depends on the intentions of the borrower and his plans for the acquired property: save or sell it to close the debt.
Mortgage involves the design of the purchased apartment as collateral, guaranteeing a refund to the bank. For 10-20-30 years, borrowers have to correlate their life plans with obligations to the bank, when even the sale of housing is impossible without coordination with the lender.
Why is there a desire to get rid of the mortgage?
At one time, 15% per annum on mortgages seemed like an excellent offer with a minimum overpayment. The growth in property prices has remained stable and confident for a long time. Now these percentages seem too high, which means it’s time to adjust their plans for a mortgage.
Releasing mortgage debt to the bank, the borrower solves 3 problems:
- Keeps credit reputation, which will allow in the future to take profitable loans at low interest rates.
- It gets rid of unreasonable overpayment on interest, since new contracts are concluded with 2 times less than it was 10 years ago.
- Also pay insurance. If you do not pay, you will have to pay the full amount.
Sometimes the obligations are so much the borrower that there is a desire to sell housing and pay off the bank. Other borrowers are willing to make an effort to save the property by lowering the mortgage payment. The decision on how to get rid of the mortgage should be made without haste.
The borrower can reduce losses and negative consequences to a minimum by adjusting actions to reflect the changed situation in real estate and in the banking sector.
Is early mortgage repayment always profitable?
The first thought that visits the mortgage debtor is related to the early repayment of the loan by any means. With early repayment take into account that in the second half of the term such a measure is not economically feasible. The interest overpayment to the bank, pledged at the annuity form mainly in the payments of the first years, is almost paid by the middle of the mortgage payment. Early repayment will not save the borrower from interest overpayment, but only give moral satisfaction to the exemption from mortgage bondage.
As a rule, a borrower who does not have enough money to pay the lender. Borrowed money from relatives, taken at interest from individuals, removed from credit cards.
Any of these ways of eliminating mortgage debt is inefficient and threatens to lose the trust of relatives and problems with new lenders.
There will be careful calculations of the economic benefits of different solutions. The borrower should carefully examine the insurance contract and check the applicability of the insurance case to the current situation (illness, injury, disability, loss of employment). In each contract with the insurer, situations treated as an insurance event should be accurately described, in which the company assumes responsibility for paying the remaining debt to the lender.
Legal ways to get rid of the mortgage
Caught in an unpleasant situation with the further impossibility of continuing payments, the difficult question remains: whether to keep mortgage housing or to refuse further struggle, leaving the bank to pick up collateral to liquidate the debt. To eliminate debt, there are other, less stringent measures. In certain circumstances, it is possible to involve the state in resolving the issue.
Method 1. Sale of the collateral object
The most painful way to eliminate debt, when borrower loses the apartment and overpaid interest, while maintaining the reputation and good relations with banks. It is not recommended to wait until the delay leads to the charging of fines and penalties. Sale of housing in the bankruptcy of the borrower forcibly carries a lot of complications:
- A bank on lending to other banks will make it inaccessible to purchase a loan for new housing with a lower cost at low interest rates.
- Selling at a price below market means that the borrower will not receive anything from the proceeds.
- A person declared bankrupt will not be able to take a management position and manage a business for 5 years.
- If the money from the sale of the auction is not enough, the bank through the court will sell the other property of the debtor on a completely legal basis.
If the sale is initiated by the borrower, the consent of the lender who is not interested in the loss of interest income on the mortgage is to be achieved. The bank reluctantly takes a risk, therefore, the pledge will be removed only in the course of the transaction, when a buyer has already been found and an advance payment in the amount of the remaining debt has been made. In fact, the bank will offer to close the debt first and then arrange the sale. In such conditions, it is difficult to find a buyer who is ready to wait a month to complete the procedure for removing encumbrances and re-issuing documents for the transaction.
Method 2. Mortgage restructuring or refinancing
If payments have become too high compared to income, it is worth considering options for maintaining real estate rights through a change in credit conditions. If the job was reduced, or the borrower has lost the ability to work, it will be easier to get approval from the bank for new mortgage parameters. The borrower’s task is to provide the bank with solid evidence that further payments are impossible due to serious negative circumstances (illness, disability, job loss due to reasons beyond the control of the client).
Mortgage restructuring is the revision of the parameters of the loan agreement in order to reduce the mortgage burden. This is achieved by:
- bank interest reduction;
- increase the term;
- temporary deferment of payments for the borrower (“holidays”).
Most banks are willing to increase the repayment period without reducing interest. Such a situation is in the interests of a financial organization.
To achieve a reduction in interest overpayment, you have to contact another bank for refinancing your mortgage. Thanks to the refinancing program, it is possible to reduce the interest on the mortgage, to review the terms and conditions of insurance. The disadvantage of such a product is that the borrower has to renew the contract with the bank and collect all the necessary certificates for the mortgage.
The difficulty of refinancing is the impossibility of reconciliation in case of delay in the previous mortgage. The new lender needs guarantees that the borrower will cope with new obligations, and a violation of financial discipline during the previous repayment will have a negative impact on the decision.
Refinancing provides savings on interest overpayment, however, the cost of the new appraisal expertise and the purchase of insurance will not pay off if the rate decreases less. by 2-3%.