When a mortgage company adds payments to the end of your mortgage loan, it does so through a payment deferment or a loan modification. Adding payments on to the end of your loan, through deferment, is temporary, and your ability to do so depends on your mortgage company’s lending practices. Deferring payments, through mortgage modification, is permanent once you complete the modification process.
If your reason for missing mortgage payments is temporary, you may be able to defer your missed payments simply by adding them on to the end of your loan. Mortgage companies limit the number of these types of deferrals you can do over the life of the loan. You need to speak to your lender about its deferral policies to see if you qualify and to determine if this is a good option for you.
If you know your current financial situation is temporary and you will be back on track to making regular mortgage payments within a month or two, a payment deferral may be a good option for you. If you are unsure about when your financial situation will improve or do not know if you can continue to afford your monthly mortgage payment after the deferral, you should discuss other solutions with your lender, such as a permanent loan modification.
In a loan modification, your lender either adds your past due payments to the end of your loan or adds them to the principal balance of the loan. The lender then increases the number of years you have to pay back your mortgage. To determine the number of years to add on to your mortgage loan, your lender calculates your debt-to-income ratio. This ratio is the percentage of income you use to pay your monthly fixed expenses. Your lender will continue to add years to the end of your mortgage until your debt-to-income ratio is 31 percent.
Loan Modification Considerations
When a lender completes a repayment extension modification, it generally only takes the total amount of past due mortgage payments into consideration. This means you are responsible for paying applicable fees, including late fees and attorney’s fees. The lender typically requests these payments upfront before completing your modification. This type of modification also requires your payments on or before the due date, without the benefit of a grace period. If you miss a payment, your lender can cancel your modification and demand you pay your total past due amounts or risk having your home go into foreclosure.