In the time we are living, we get asset finance facilities for all the property that we want to acquire. We take a loan to own a home or to owning a land etc. We while planning for acquiring property or asset through asset finance, our future cash flows are the major considerations. The loan helps us in meeting our current obligations.
Often times we are seduced by attractive loan offers and tend to buy assets. Usually at the beginning customers are very much regular for the loan repayment. However, as the time passes, the borrower may realise that he is not in a position to pay the instalments well on time as per the repayment schedule. Behind on mortgage payments need help.
There are several reasons such as losing a job, i can t afford my house anymore, continuous sickness or death etc. Lending institution gives alternatives to their customers for repayment of a loan in case of default. It varies from case to case. However, some of the common remedies available to the customers are discussed below.
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Modify repayment schedule:
The borrower shall approach his lending institution as soon as he comes to know that he is not in a position to pay the loan and explain the hardship of the repayment of a loan. If you think that the entire instalment of the loan is not manageable then you can ask your lending institution to give a new repayment plan with the lower equated monthly instalments.
Defer the loan instalments:
If you have the hardship to repay the loan which is caused by some temporary economic conditions, you can approach your lending institution and convince them that the cash crunch is temporary and things will be better soon. In this case, Lending Institution gives some extension of time in repayment of the loan. It is referred as holiday period in banking terms. The Lending Institution charges loss of interest as a penalty for postponement of a loan.
When the borrower finds helpless in a short term and the current cash flow situation is not under his control, in that case, he should discuss the issue with the lending institution and ask the lending institution to restructure the loan.
In the restructuring of the loan, all the terms and conditions of the loans are modified and made more in favour of the borrower such as reduce the interest rate of the loan, extension the tenure of the asset finance, reduce the processing and ancillary charges.
Settlement of the loan:
This situation usually arises in case of recurring defaults of repayment of loans. In this case, the interest liability exceeds the outstanding principal amount of the loan. Under this situation, often times the borrowers become bankrupt in the eyes of law. This is often referred as non performing assets.
In this situation, the lending institution offers settlement option to a customer through one time ad-hoc payment to repay the loan.
Give your house property on loan:
If the borrower is really struggling to make the repayment plan work, then this option can help if the borrower has alternative option to stay which is quite cheaper than his own mortgaged home and the difference of rental income and rental expense can be used to repay the loan instalments.
The borrower might think that this option is complicated. However, if he thinks that this can help to repay his loan instalments easily than it is recommended to go for this option.
Selling a mortgaged property:
This is less frequently used but the most obvious option available with the borrower. Behind on mortgage payments need help. If the price of the property is good, in this case, the borrower can consider this option. Often times, the borrower may end up selling at a very lower price than the current market price because of the urgency of the repayment of the loan.
Further, the borrower also needs to take care of foreclosure or prepayment charges because while making the actual payment of the loan, a borrower may end up paying the prepayment charges as well.
In some of the cases, the government helps in repaying the loan in part. It depends on the country and its prevailing law. If the borrower meets conditions such as financial hardships or medical emergency or loss of job etc. as specified in the law, he can get the help from the government.
Take expert advice while assessing the financial situation and capability of repayment of a loan. Make your cash flow projections which are realistic and are in alignment with the current income structure. The borrower should reduce expenses which are not essential. Plan Better, Choose Better, Act Better!!!