Recently, I wrote a series of posts about applying for a loan modification to avoid foreclosure on your home. If you haven’t yet read those posts, you can find them here:

How to Avoid Foreclosure

Loan Modification

Qualifying for a Loan Modification

Today, let’s look at another option for avoiding foreclosure — the mortgage repayment plan.

A mortgage repayment plan is a good choice if you can’t qualify for a loan modification, or if you’ve already been through a modification trial and couldn’t get the modification permanently approved.

In a repayment plan, the mortgage lender divides the past due amount over several months, and tacks it on to your normal monthly mortgage payment. Once you’ve completed the plan, your loan is current and life goes back to normal.

Benefits of a Mortgage Repayment Plan

The process of getting a repayment plan is typically a bit less formal than a modification. You’ll still have to provide income and expense info, but most lenders will take this information over the phone if you can repay the past due amount in less than six months.

Also, a lender typically won’t tack past due amounts on the end of your loan, which means you won’t have to make a huge payment later.

And, of course, if you can’t catch up your loan all at once, and can’t qualify for any other type of assistance, a repayment plan can keep your home off the auction block.

Getting on a Mortgage Repayment Plan

Setting up a mortgage repayment plan is pretty simple. Get your income and expense information together, just like you would for a mortgage modification, and call your lender.

Don’t be embarrassed about calling your lender for assistance. That’s what they pay their representatives for. Lenders understand that bad things happen, and you’ll look a lot better in the of your lender if you are proactive about getting your mortgage loan caught up.

Besides, foreclosure is very expensive for your lender. It has to pay an attorney, plus filing fees, appraisal fees, auction fees, etc. And if you owe more on your home than it’s worth, the lender is probably going to take a hefty loss when it sells it at an auction. It might get a deficiency judgment against you for the difference between the sale amount and your mortgage balance, but let’s face it – if you’re having trouble paying your mortgage, are you really going to have the assets to pay a deficiency judgment anytime in the foreseeable future.

Drawbacks of a Mortgage Repayment Plan

The biggest drawback of a repayment plan is that you’ll have a larger monthly payment until you complete the plan – sometimes much larger. For example, if your normal monthly mortgage payment is $1,ooo, you’re four months behind, and your lender wants the loan caught up in four months, you’ll have to come up with $2,000 a month.

The other main drawback is that it typically won’t stop collection calls and letters. So you can plan on explaining at least once a week that you’re on a repayment plan, just to have a collection representative go, “Oh, I guess you are. Sorry about that.”

Admittedly, agreeing to a repayment plan isn’t the best scenario. But if it comes down to committing to a mortgage repayment plan or losing your house in foreclosure proceedings, well, there’s really no contest.

One other note: Repayment plans aren’t exactly a secret in the mortgage lending industry, but when you call your lender, expect the representative who answers your call to act like you just dropped in from Neptune. You may have to hang up and call back a few times before you get a representative willing to admit he knows what you’re talking about.