What is a mortgage loan restructuring?
Mortgage restructuring most often implies a reduction in monthly payments due to an increase in the term of the loan. Such a process is possible if the client’s financial situation deteriorates due to job loss or other circumstances. Restructuring a mortgage loan is not much different from a similar procedure for consumer lending.
It should be borne in mind that with an increase in the term of the contract, the overpayment increases, and the amount that the borrower will pay in the end will be more than the original schedule.
But there are other forms of mortgage lending restructuring, which will be discussed below.
Provision of restructuring
In the conditions of a difficult economic situation in the life of every borrower circumstances can occur that can significantly worsen the financial situation. And if there is no possibility to pay monthly mortgage lending payments, then it is better to contact the bank immediately in order for them to provide restructuring. You should not allow arrears, as this can only aggravate the situation. Fines will be charged, there will be regular calls threatening from collectors and credit history will eventually worsen.
Depending on the reason for the deterioration of the financial situation, the borrower needs to contact the bank and write a free-form application with a request for restructuring. It is necessary to attach the relevant documents and specify the desired monthly payment.
- A certificate from the Pension Fund of the Russian Federation indicating the pension if you have retired.
- Help on the format 2-NDFL with a job, if the salary has become lower.
- Help from the labor exchange if you lost your job.
The bank will carefully review your application on an individual basis and make its decision on the possibility of granting a restructuring program. However, there are various forms of such a program. One of which is the so-called credit holiday, when within 12 months the borrower has a grace period on monthly payments. The minimum threshold for a monthly payment may be 500 rubles, and the maximum term of a loan holiday is 12 months.
It should be understood that the restructuring is not the responsibility of the bank, but only its right. And every borrower can get a waiver without giving a reason.
Usually, the bank motivates its refusal by the fact that the borrower has property that he can realize in favor of repaying loan commitments.
Forms of mortgage lending restructuring program
One of the best options for the borrower would be to draw up a loan agreement with a lower interest rate than in the original contract. In this case, the bank’s client will save the total amount of the overpayment, and also, possibly, reduce their monthly payments by completing the on-lending procedure, i.e., drawing up the contract in another bank on more favorable terms. In addition, financial institutions can provide:
- grace period of up to 1 year with a significant reduction in monthly payments, which will have to be compensated in the future;
- payment of interest only on the contract while the amount of loan debt remains unchanged;
- reduction of monthly payments due to an increase in the term of the mortgage;
- reduction of the monthly payment by 50% for a certain period due to an increase in payment upon completion of the grace period;
- change of currency on which the mortgage was issued.
Banks will not be able to cancel the following contract terms:
- full exemption of the client from monthly payments;
- cancellation of fines and penalties accrued for arrears;
- exemption from property insurance. For such types of insurance as title and life and health insurance, you should contact the insurance company. If the rules of insurance for such contracts have the opportunity to prematurely terminate the contract and receive part of the insurance premium, then this may contribute to temporarily solve financial problems. But it should be borne in mind that this may lead to an increase in the interest rate on the mortgage.
Restructuring in Bank
Bank offers its customers such a type of restructuring program as a loan holiday. This is when the borrower pays only interest on the loan agreement, and the amount of the principal debt remains the same. Restructuring in Bank, like many other financial companies, has the right to refuse such a grace period and consider all applications individually. So, for example, the restructuring should not count on the category of citizens who quit their jobs at will.
For the grace period apply those who:
- was fired by reduction;
- got disability of the first or second group;
- Received maternity leave and child care. As well as a number of cases that are solved individually.
Bank can also provide other schemes to improve the terms of the contract in the current situation:
- The increase in the term of the contract, while reducing the monthly payment.
- Full renewal of the contract. In this case, it is possible that the bank will go forward and will decide on the abolition of fines assessed for arrears.
- Changing the payment schedule, taking into account the seasonality of customer income.
The client needs to contact Bank in order to write a statement in which it is necessary to state in detail the current situation and attach documents confirming the deterioration of the financial situation:
- certificate of reducing income from accounting;
- a workbook with a record of dismissal for the reduction of staff;
- child’s birth certificate and certificate of maternity leave.
If you want to increase the term of the mortgage, but reduce the monthly payment, the bank can offer loans, the maximum term of which should not exceed 30 years. If you originally had a mortgage for a period of 30 years, then this option will be unacceptable for you.
It is also worth noting that in a number of contracts executed at Bank, the refusal of title and life and health insurance does not entail an increase in the annual interest rate.
Loans at other banks
You can apply for restructuring not only at the bank that issued the loan to you, but there is an opportunity to apply to another bank, which will assume obligations to repay the mortgage. At the same time, the bank will provide you with a loan on more favorable terms, with a lower interest rate or with a reduced monthly payment. In essence, this is the same contract for consumer lending to provide non-earmarked loans, only here the goal is defined – it is to pay off the mortgage.
The conditions for granting such a loan option are as follows:
- down payment from 35%;
- contract term up to 5 years;
- the maximum amount is 80% of the value of the property pledged to the bank.
In order to formalize such a contract, you will need two documents that would certify your identity, a certificate of income from work. In this case, the loan amount may exceed the amount owed to the bank that issued the mortgage to you. The rest of the money can be used on your own.
What documents may be required for restructuring?
- Statement in which you must provide comprehensive information about the current situation due to the deterioration of the financial situation. Usually such a statement is made out in free form. But in a number of banks there are standard forms or questionnaires. Such information is better to clarify directly with the financial institution that issued the loan to you.
- Passport of the borrower, copies of passports of family members and the birth certificate of the child.
- Employment record with a record of dismissal to reduce the state.
- If you are currently not working anywhere, then you must provide a certificate from the labor exchange.
- Certificate from USRR to the owner of the apartment and everyone living in it.
- Certificate of income from the accounting, which would confirm that the income was lower.
- Certificate of property valuation at the time of registration of the mortgage.
- For those who have their own IP, you may also need an extract from the ledger on income and expenses and a certificate of payment of taxes.
In conclusion, it is worth noting that restructuring is a rather frequent phenomenon due to the difficult economic situation in the country. Many banks make concessions because it is not profitable for them to have clients who allow arrears and stop paying at all. Appeals to the court and long trials have a negative impact on the reputation of banks.
If you have a situation in which it became difficult for you to pay your monthly payments, we recommend you immediately prepare a list of documents and contact your bank. You should not allow arrears and accumulate fines; it is still impossible to avoid liability for credit obligations. But to reduce the monthly payment or get a grace period is quite realistic, which will positively affect your family budget. It is also worth carefully studying the insurance contract, it happens that such a contract can be terminated ahead of time without consequences for the loan agreement.