Repayment

What is a 'Repayment'

Repayment is the act of paying back money previously borrowed from a lender. Repayment usually takes the form of periodic payments that normally include part principal plus interest in each payment. Failure to keep up with repayments of debt can force a person to declare bankruptcy and severely affect his credit rating.

BREAKING DOWN 'Repayment'

Borrowers should explore every alternative, such as earning additional income, refinancing and negotiating with creditors before declaring bankruptcy. There are multiple options for a borrower who is unable to repay loans according to a contract.

Federal Student Loans

Federal student loans allow for a lower payment amount, payment postponement and, in some cases, loan forgiveness. The options provide repayment flexibility as a recipient's life changes. This is especially helpful if a recipient is faced with a health crisis or a financial crisis.

Standard payments are the best option. The loan is paid off fastest with the least amount of interest. Extended and graduated payment plans allow for paying less now and more later. These plans cost more, as more interest is accrued over time. Income-driven plans may start at $0 per month. Of course, the longer the payments are drawn out, the more interest is paid and the greater the cost of the loan.

Forbearance allows loan recipients who missed payments to recover and start over. In addition, various deferment options are available for recipients who are unemployed or not earning enough income.

For recipients with multiple federal student loans with varying monthly payments and due dates, the loans may be consolidated into one loan with a fixed interest rate and single monthly payment. Recipients may be given a longer repayment period with a reduced number of monthly payments. Special scenarios such as teaching in a low-income area or working for a nonprofit organization may provide eligibility for loan forgiveness.

Mortgage Repayment

Homeowners have multiple options for avoiding foreclosure due to delinquent mortgage repayment.

A borrower with an adjustable rate mortgage (ARM) may attempt refinancing to a fixed-rate mortgage with a lower interest rate. If the problem paying the mortgage is temporary, the borrower may pay the loan servicer the past-due amount plus late fees and penalties by a set date for reinstatement.

If a mortgage goes into forbearance, payments are reduced or suspended for a set time. Regular payments then resume along with a lump sum payment or additional partial payments for a set time to bring the loan current.

With loan modification, one or more of the terms in the mortgage contract is altered to become more manageable. Changing the interest rate, extending the loan term or adding missed payments to the loan balance may occur. Modification may also reduce the amount of money owed by forgiving a portion of the mortgage.

Selling the home may be the best option to pay off the mortgage. This may help avoid filing for bankruptcy.

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