Repayment Plan

What is a Repayment Plan?

A repayment plan is a structured agreement between a lender and a delinquent borrower. Under this arrangement, the borrower commits to making additional payments to reduce the arrears while making regularly scheduled payments. This plan helps avoid default and foreclosure, providing a means for borrowers to catch up on missed payments and regain financial stability.

Examples

1. Mortgage Scenario:

   • A homeowner misses several mortgage payments due to financial hardship. The lender agrees to a repayment plan that requires the homeowner to pay an extra $500 a month on top of the regular mortgage payment. This additional amount will cover the missed payments over an agreed period.

2. Personal Loan:

   • A borrower with a personal loan falls behind due to unexpected medical expenses. The lender offers a repayment plan where the borrower makes an added payment of $200 monthly until the overdue balance is settled.

Frequently Asked Questions (FAQs)

1. How does a repayment plan differ from loan modification?

A repayment plan focuses on catching up on missed payments by requiring additional payments besides the regular ones. Loan modification, however, involves altering the terms of the loan itself, such as interest rate reduction or term extension, to make payments more manageable.

2. What happens if the borrower cannot stick to the repayment plan?

If the borrower fails to adhere to the repayment plan terms, the lender may initiate foreclosure proceedings or other delinquent actions as specified in the mortgage agreement.

3. Do repayment plans affect credit scores?

Successful completion of a repayment plan can positively affect credit scores by showing that the borrower has resolved past due amounts. However, missed payments leading to the plan’s necessity may negatively impact credit initially.

4. How long do repayment plans typically last?

The duration of a repayment plan varies based on the amount owed and the borrower’s financial capacity. Plans can often last from a few months up to several years.

5. Can a borrower negotiate a repayment plan on their own?

Yes, borrowers can negotiate a repayment plan directly with their lender. However, it can be beneficial to consult with a financial advisor or lawyer.

Related Terms and Definitions

• Loan Modification: An alteration in the original terms of the loan, which can include changes to the interest rate, repayment term, or monthly payment amount.
• Forbearance: A temporary postponement of mortgage payments granted by the lender to the borrower due to financial hardship.
• Default: The failure to make mortgage payments within the due dates stipulated in the loan contract, leading potentially to foreclosure.
• Foreclosure: The legal process by which a lender takes control of a property if the borrower fails to make required payments.

Online Resources

1. U.S. Department of Housing and Urban Development (HUD): HUD Repayment Plans
2. Consumer Financial Protection Bureau (CFPB): CFPB Mortgage Help
3. National Foundation for Credit Counseling (NFCC): NFCC Resources

References

1. U.S. Department of Housing and Urban Development. (n.d.). Repayment Plans. Retrieved from HUD.gov
2. Consumer Financial Protection Bureau. (2021). Mortgage servicing rules. Retrieved from ConsumerFinance.gov

Suggested Books for Further Studies

1. “The Book on Managing Rental Properties: A Proven System for Finding, Screening, and Managing Tenants with Fewer Headaches and Maximum Profit” by Brandon Turner and Heather Turner.
2. “Real Estate Finance & Investments” by William B. Brueggeman and Jeffrey D. Fisher.
3. “The Real Estate Wholesaling Bible: The Fastest, Easiest Way to Get Started in Real Estate Investing” by Than Merrill.

Real Estate Basics: Repayment Plan Fundamentals Quiz