Michael S. Fabinski Law

The coronavirus has changed the entire landscape of mortgage payment and repayment options.  Millions of borrowers have fallen behind on their mortgage payments.  Most banks gave homeowners the option to pause their mortgage payments for up to one year.  But what happens when that year is up?  What happens when the bank comes asking for the last 12 months of mortgage payments?  Homeowners are generally persuaded to the bank’s favorite option: Refinancing.

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For purposes of this example, let’s look at an AVERAGE Mortgage payment in Illinois.  The Average home value is approximately $247,000.  The average monthly mortgage payment is $1437 ($974 principal & interest, $346 real estate taxes, $117 property insurance). 

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Now, let’s assume you go 1 year (12 months) without making a mortgage payment.  You would be $17,244 in arrears, and that is BEFORE the ridiculous late fees and legal fees, which also accumulate interest.  In reality, you are likely closer to $20,000 in arrears.

 

Option 1: Refinance your loan

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If, and that is a big IF, you have good credit score and qualify for refinancing, a home valued at $247,000 (the average value), at a 3.86% interest rate, would give you a new monthly mortgage payment of $1,622, including your real estate taxes and insurance. 

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Sounds reasonable, right?  For that ever so slight increase of only $185 per month, the amount you were behind just gets lumped into a brand new loan.  You avoid foreclosure and keep your home!

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What the bank and real estate agents will not tell you:

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1. Your home would not be paid off for 30 more years.

2. That slight increase in your monthly payment over the next 30 years adds up to a monstrous $66,600 in extra payments you would make over the life of your loan!

3. PLUS, you need to include the closing costs and title fees they will lump into that loan.  That means, in the long run, it costs you an extra $70,000 if you’re lucky!

 

Option 2: Chapter 13 Repayment Plan

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You simply take the $17,244 in arrears, and pay it off over the next 60 months (5 years only as opposed to 30 years).  No refinancing, no agency fees, no closing costs!

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You keep your same $1437 mortgage payment, and simply make an additional $300 payment for the next 5 years.  That extra $300 would slowly, over time, pay off the $17,244 in arrears.

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After 5 years, or less if you can pay it off sooner, your $17,244 in arrears would be completely paid in full, and you would then be current on your mortgage payments.

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Sounds like a no-brainer, right?  Then why isn’t the better option ever advertised?  Simple: because banks and real estate agents will lose that $70,000 in fees and interest.

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What could you do with $70,000 if you didn’t have to pay the banks?

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1. Two brand new vehicles?

2. Two years college tuition for your children?

3. Invest it in a retirement account that could grow to over $150,000 in the next ten years?

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The money you can and will save will be life changing for you and your family!

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If you or someone you know are behind on mortgage payments, contact MSF Law, to schedule a consultation with an experienced attorney who can help you assess your legal options.