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Options for Managing Mortgage Payments During Financial Hardship

If you’ve lost your income or are experiencing financial difficulty, it’s crucial to act quickly to avoid missed mortgage payments. Contacting your lender and requesting forbearance or a mortgage modification can help you avoid the fees and negative credit consequences that come with missed payments.

Consider the following options if you can’t afford your mortgage payments. The best action for you depends on the reasons for your financial strain and whether you expect those challenges to be temporary or indefinite, plus what makes the most sense for you and your family.

1. Forbearance

If you can’t pay your mortgage due to temporary financial hardship, you can ask your lender for mortgage forbearance. This reduces or even suspends your mortgage payments for up to 12 months until you can resume payments. During the forbearance period, the lender will agree to refrain from foreclosure. However, you’ll need to repay any suspended payments, typically in a lump-sum payment or through a repayment plan.

2. Refinancing

If your credit is good, refinancing your mortgage to secure a lower monthly payment could make your house payments more affordable. Refinancing works best if you have at least 20% equity in your home and can get a new loan at a substantially lower interest rate. The process can take weeks or even months, and you may need to pay origination fees. Missing payments on your current loan could hurt your chances of approval for a new mortgage.

3. Mortgage Modification

In a mortgage modification, your lender permanently adjusts the terms of your loan to make your monthly payments more manageable. This typically extends the length of your loan, which means you’ll pay more in interest over time. Lenders usually grant modifications to customers with strong credit who can show they’ll be able to keep up with payments under the new terms.

4. Sale of the Home

If your home is worth more than you owe, selling it may be the best financial decision. In current real estate markets, a home in good condition may sell relatively quickly. However, missed mortgage payments during the sale process can negatively impact your credit. Try to keep up with all payments while selling your home.

5. Renting Out the Home

If you can move in with friends or family at little or no cost, renting out your home could be a viable option. Ensure the rent covers your mortgage payments. As a landlord, you’ll face increased property insurance costs and be responsible for maintenance and repairs. Additionally, if you go into foreclosure after renting out the property, tenants could have grounds to sue you.

6. Short Sale

In a short sale, the lender allows you to sell your home for less than what you owe and accepts the sale amount to settle your loan. While a short sale will negatively impact your credit, it does less damage than foreclosure and may help you avoid paying a deficiency judgment. Note that some states consider forgiven deficiency judgments to be taxable income.

7. Deed in Lieu of Foreclosure

With a deed in lieu of foreclosure, you agree to vacate the home and turn the keys over to the lender in exchange for being released from your mortgage obligations. This can be less costly and time-consuming than foreclosure and may include a “cash for keys” arrangement. While it negatively impacts your credit, the consequences are typically less severe than foreclosure.

The Bottom Line

Struggling to pay your mortgage or any other bill is never pleasant, and the options listed above may require you to give up your home or harm your credit. However, being decisive and proactive can help you avoid foreclosure or bankruptcy and move you closer to financial stability. Understanding your financial situation can help you make informed decisions. For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate these challenging times.

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