How a Mortgage Repayment Plan Works

Sometimes life can be overwhelming. A temporary lack of funds due to the national economic crisis, loss of a job, illness and medical bills or a natural disaster may mean you aren’t able to make your mortgage payments on time or at all. A mortgage repayment plan can give you a chance to catch up once your finances are in a better state.

A mortgage repayment plan is a pledge to pay back those delinquent payments little by little. When you have been approved for this sort of refinancing, the lender will divide the overdue amount over a certain number of months. During this repayment period, some of the overdue sum is added to your regular payments. Once the repayment period expires, you’ll be current, and your payments will revert to the previous amount.

How long the repayment plan is in effect depends on the amount overdue and how much you can afford to pay each month. Many times late fees are included as well. Mortgage repayment plans are often three to six months, but a loan repayment plan up to 12 months is not unheard of.

A mortgage repayment plan might be a smart move if you:

  • Are having a short-term financial hardship
  • Are not eligible to refinance
  • Do not want to refinance
  • Are a few months behind on payments
  • Can afford the new mortgage payment amount

The Benefits and Logistics of Mortgage Repayment Plans

A mortgage repayment plan will help you bring your mortgage payments up to date and avoid foreclosure. You will be able to remain in your home while you make the past due payments. Although delinquent payments damage your credit score, they are not as catastrophic as a foreclosure. Experts say that a loan repayment plan is a good option if you are fewer than five months behind in your payments. More than that and the new monthly payment amount may be more than you can handle.

When you apply for consideration at your lending institute, be sure to bring your mortgage statements, evidence of your other monthly debt payments like car or student loans, and proof of income such as pay stubs or tax returns. You’ll need to explain why you are unable to make your mortgage payments and how long you expect this financial problem to last. The lender may have you sign a contract outlining the length of the repayment period and other terms.

If you can’t begin to make payments immediately, then you can ask for a period of forbearance for a time. In this situation, the lender agrees to hold off on foreclosure proceedings for a while for you to catch up on your mortgage payments. If the economic issues you are having will be resolved in a few months, then the lender may agree to hold off on scheduling repayments until a specific date, which is called a moratorium. Late fees and interest will still accrue.

A lender could also authorize reduced payments, interest-only payments, reduced interest rates, or split mortgage. Once the forbearance period is over, the mortgage reverts to the original terms unless a new mortgage repayment plan has been agreed upon. You also may be able to pay back payments in a lump sum when the forbearance ends.

Setting up a Repayment Plan Through Bankruptcy

Chapter 13 bankruptcy is another way you might be able to set up a mortgage repayment plan if you are unable to bounce back from this financial crisis within a matter of months. If you have a regular income, filing for Chapter 13 bankruptcy may allow you to keep your mortgage home provided you agree to use your future income to pay off the debt in a period of three to five years. After you have made these payments, you’ll be granted a discharge of certain debts.

Chapter 13 is the last resort. The court must approve the repayment plan, making it a somewhat risky option. A bankruptcy will be on your credit report for ten years, which can make it more difficult for you to buy another home, get credit, or maybe even get a job. It is, however, a legal option that allows you to repay your mortgage and avoid foreclosure.


As you can see, a mortgage repayment plan might be the solution you are looking for if you’ve fallen behind in your payments. Requesting a period of forbearance while you get back on your feet, then negotiating a repayment plan that you can afford can prevent foreclosure.

While not the best option, Chapter 13 bankruptcy could also provide you a way to repay your debts over several years while being able to keep your home. You should discuss these possibilities with your loan servicer as soon as you fall behind in your payments and see what courses of action are available to you.