5 Moves to Make When You Can't Pay Your Mortgage

young couple looking at the exterior of their house

If you find yourself struggling to pay your mortgage, you are not alone.

According to the Boston Globe, during the height of the recent pandemic, "homeowners skipping payments because of lost jobs or income represent(ed) 5.5% of borrowers with $651 billion in unpaid principal.”

The short and long-term consequences of defaulting on your mortgage can have far-reaching repercussions that are especially disruptive to your general and financial well-being.

Fortunately, there are options available to support you if you're struggling with your mortgage. Here are five important steps to take if you can’t pay your mortgage right now.

1. Evaluate your budget

Nearly a third of people don’t maintain a budget, and even the most fastidious financial planners may be working with outdated information. When things are going well, it’s common for “wants” to masquerade as “needs.” To maintain a healthy financial outlook, now is the right time to evaluate your budget, prioritizing critical expenses and identifying opportunities to save money.

If you haven't before, now's the time to create a true and thorough budget. If you're comfortable leveraging technology to help you understand your financial situation, there are plenty of money management apps available that can help you pull together a budget.

2. Request a deferral 

While many of the federal protections that were enacted to protect homeowners during the Covid-19 pandemic have begun to expire, help is still available. In March 2023, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac will allow borrowers facing financial hardship to defer up to six months of mortgage payments. Eligible borrowers facing a hardship can move past-due amounts to the end of the loan as a non-interest bearing balance.

Contact your loan servicer directly to request a deferral and see if any other relief programs are available. Unfortunately, the process isn’t standardized, and different loan providers will have different procedures for obtaining a deferral or forbearance.

Keep n mind that a mortgage deferral or forbearance comes with some caveats so make sure you understand what you're agreeing to before making any major decisions. 

3. Consider refinancing

For some borrowers, refinancing a mortgage can be a way to lower monthly payments while taking advantage of low interest rates. However, homeowners will want to rigorously vet this path before proceeding.

Most prominently, refinancing is often contingent upon equity, with banks looking for borrowers to have between 10 and 20% equity before refinancing. This will restrict this option to those with home equity and those who can carry the immediate costs of refinancing.

For instance, closing costs often range between 3-6%, which means borrowers will need significant cash-on-hand to take advantage of this option. Also, refinancing carries other costs, including appraisals, inspections, attorney fees, and other expenses.

Of course, under the right circumstances, refinancing can be a compelling opportunity for borrowers to lower their monthly payments, making their mortgage payment more tenable and freeing up funds for other priorities.

4. Sell your home 

Downsizing your space or moving to a more affordable area can relieve the financial pressures posed by your current mortgage payment. So while selling your home wont necessarily provide immediate relief, it may be a compelling opportunity to stabilize your finances moving forward. This is particularly true if you find yourself underemployed after the pandemic.

5. Sublet your property

Similar to home sales, subletting your property or harnessing your home for additional income through temporary rental services, like Airbnb, can be a way to generate extra income from your house that can help you make your mortgage payment. Undoubtedly, relying on renters can be fraught with difficulties, but it can be a helpful opportunity for some.

Connect with a housing counselor 

Even in the best of times, maintaining your mortgage payment can be uniquely stressful. If you need help navigating your options or finding the best path forward, our trained counselors are ready to provide support. In addition to HUD-approved housing counseling, we offer free, confidential credit counseling to help you balance your finances and find the best solution for your challenges. 

"I didn't want to leave, but I realized, when you know where you have to go, you have to make sacrifices in order to get to certain places in life."

Hear how MMI client Brittney made the difficult decision to move back home on her path to repaying $57,000 in credit card debt.

Tagged in Managing a loss of income, Mortgages and foreclosure, Expert insights, Coronavirus

A corporate headshot of Jackie Boise.

Jackie Boies is Senior Director of Partner Relations at MMI with over 40 years of experience helping families achieve and maintain their dreams of homeownership.

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