A homeowner who is experiencing a hardship and is considering applying for a mortgage modification may come across the term capitalization of arrears or capitalization of missed mortgage payments, and wonder what it means.
When a homeowner misses mortgage payments without an agreement from the mortgage company (such as a forbearance or other type of agreement), the mortgage is considered to be delinquent or in arrears. Each month that the mortgage is delinquent, more fees, interests, and penalties are added on, increasing the total amount that is due to the mortgage company by the homeowner.
In order for the homeowner to become current again, the missed payments, interest, fees, and any other penalty that may apply needs to be paid. However, the amount due can add up quickly, especially if the homeowner has missed a few payments. This is where capitalization of arrears comes in.
The mortgage company will take the total amount that the homeowner needs to pay to become current, and will add it on to the principal amount of the loan. Although this may extend the length of time that the homeowner needs to pay on the home, it is actually a very helpful tool because it allows homeowners to be current on the mortgage without paying a large sum of money upfront. This is also very helpful if the financial hardship was temporary, and the homeowners can make the mortgage payments otherwise.
The Mortgage Modification Center
This is one way in which a mortgage modification may be accomplished. If you have any questions about a mortgage modification, or wonder if one may be appropriate for you, please reach out to the Mortgage Modification Center at (401) 467-7998. Attorney John S. Simonian offers a free initial consultation to determine the best course of action for your particular situation.