The recent news about mortgage lending and the 1% rise in mortgage rates in New Zealand has left New Zealanders with a massive amount of debt, and that includes covering mortgage payments.
A mortgage is perhaps one of the biggest debts you will ever have, with monthly repayments eating almost half your salary. If you feel like you're one paycheck away from losing your home, there's no need to worry yet, as there are some ways you can consider to get out of your mortgage.
Renting out your home doesn't mean getting rid of your mortgage, but it helps you find a much easier way to pay your monthly dues.
Not only is this option practical and easy to sell in a strong rental market, but it's also one of the fastest ways to help you get out of your financial slump. It doesn't require overhaul repairs (especially if your home is still in pristine condition), doesn't need lender approval, and will still keep you as the homeowner.
While this requires you to find another place to live, you can opt for a cheaper home or move in with your friends and relatives to save more.
Instead of spending a lot and going through the hassle of foreclosing, you can try to request a loan modification where the lenders can reduce the interest rate, extend the term, and even forgive the principal. Note that it's not guaranteed that the lender will provide the modification, but it wouldn't hurt to ask.
At the end of the day, your lender wants to get paid, which means they're often willing to work with you on a solution that will also benefit them.
Another easy way to get out of your mortgage is to sell your house and use the money to pay it off. The whole process, from preparing to finding a buyer and closing the sale, can take up to several weeks.
This option is even more ideal for those who have high home equity enough to sell the property at an amount that could actually pay off the loan.
If it's a short sale, you can contact companies that can fix up your home and resell it so you can avoid negative equity. You'll get paid a smaller amount for the house, but at least it's not going to damage your credit, and you don't have to worry about selling it yourself anymore.
Avoid foreclosure with a deed in lieu of foreclosure, which means you'll voluntarily turn over the ownership of your house to your lender. This means you'll have to convince your lender to take back the deed to the property and release you from the mortgage. This option can be quick, especially since you won't need to prepare and list the property. Do note that you might need to prove to your lender that you can no longer afford to pay, and this may hurt your credit score, but at least it's not as bad as an actual foreclosure.
You must also be prepared in case your lender doesn't accept the deed in lieu of foreclosure and decides to recoup more of its money through a traditional foreclosure or sell the home for less than the balance on your loan, which means you will have to pay the difference.
Walking away from your mortgage also referred to as "strategic default" during the last recession, is your best option if you can't sell your house, rent enough to cover the payments, or convince your lender to give you a break. Of course, this doesn't mean to literally just walk away and disappear. You have the option to tell your lender about your plans, and they might give you some alternative solutions.
Be prepared with the outcome though. This may either convince your lender to modify the loan that will allow you to stay with a smaller payment, or they don't and the foreclosure can affect your ability to buy another home for years.
Buying a house is not an easy task, but with proper research and the right tools, you'll be getting your dream house in no time.
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