Getting behind in payments raises a flag in refinancing

Dear Mr. Azrael,

I am currently in a forbearance plan with my mortgage company. My forbearance occurred a few years ago [and] I now owe over $8,700 in interest arrearage. In addition, my interest rate is at 10 percent.

I'm now in the position to repay the $8,700 arrearage, but I want to know should I pursue inquiring of a lower rate interest from my mortgage company, or go elsewhere.

What options do you suggest? Sherman Moore Pikesville

Dear Mr. Moore,

Any time a borrower wants to refinance an existing mortgage it's usually a good idea to check with the existing lender to see if it will offer a lower rate. Sometimes, refinancing through the existing lender can save settlement costs.

Since you have been in a forbearance plan with your current lender, you may have trouble securing a refinancing loan with a lower rate. Your failure to keep your payments up to date almost certainly will adversely affect your credit score.

You will have to demonstrate that you are no longer in financial distress and can meet the monthly mortgage payments. Lenders may require that you demonstrate that you are creditworthy by establishing a track record of timely payments. Clearing up the interest arrears may not be enough.

When a borrower runs into temporary financial difficulty and has not made the scheduled mortgage payments, lenders of HUD-insured loans can offer a forbearance plan. The lender agrees not to foreclose on the property. The borrower agrees to bring the loan current by making additional payments over a period of time.

Since you now are in a position to pay the interest, which had fallen in arrears, the forbearance plan will be satisfied. You will now be expected to make the regularly scheduled mortgage payments.