6 Options When You Can’t Pay Your Mortgage

  • When you miss a mortgage payment, you incur late fees and hurt your credit score.
  • After three missed payments, your lender can begin the foreclosure process. You risk losing your home.
  • Before you miss payments, call your loan manager to discuss alternatives that may be available.

If you lose your job or experience other financial difficulties, it may be difficult to pay your bills or even cover your mortgage.

But skipping mortgage payments has serious consequences that could include losing your home.

Are you having trouble making your monthly mortgage payment? Here’s what to know about missed payments – and some alternatives that may be available.

What happens when you miss mortgage payments?

When you miss a mortgage payment, certain things happen. First, your mortgage agent will assess a late fee – up to 5% of the missed payment – and add it to your mortgage balance.

Once the payment is at least 30 days past due, they will also report it to the three major credit bureaus. According to FICO, this could lower your credit score by up to 83 points.

“Missing your mortgage payments will directly affect your credit score,” says Austin Horton, director of sales and business operations for Homie Loans.

If you continue to miss payments, your score will continue to drop each time the lender flags it. Once you are 90 days late, your score can be 47 to 180 points lower. The exact amount depends on your starting score, account balances and other factors.

What happens if you don’t catch up on your mortgage payments?

If you are unable to get your mortgage up to date, your lender may decide to foreclose on the home. Typically, this happens after you are between three and six months behind on your payment.

Here’s what that process typically looks like:

  • Your lender will contact you to request the refund. They can call, send letters or both.
  • You will receive a demand letter or an acceleration notice by mail. This will give you 30 days to catch up on payments.
  • If you are unable to update your loan, your lender will schedule a Sheriff Sale or Public Trustee Sale, this is when they will sell your home to recoup their losses. You should receive notification of the sale date by mail and with a notice taped to your front door.

If your state has a buyback period, there may still be a way to get your home back after it’s sold. To do this, you may have to pay overdue amounts, your lender’s attorney fees, additional interest, and other charges.

6 options if you can’t afford your monthly payments

If you think you won’t be able to make a monthly payment, call your mortgage agent as soon as possible. They may be able to work with you.

“Generally, managers and lenders view foreclosure as a last resort,” says Craig Martin, managing director and global head of wealth and loan intelligence at JD Power. “It’s very expensive and can be a lengthy process that they’d rather avoid.”

Here are some options you might consider instead of missing payments.

1. Forbearance

One option is to call your loan manager and inquire about forbearance. This allows you to suspend your mortgage payments for a period of time or, in some cases, make reduced payments instead.

There is usually no charge or penalty for this, and you will not be charged any additional interest during the forbearance period.

However, you will eventually have to repay any missed payments. Your lender may allow you to set up a repayment plan and spread these costs over time, or you may have to pay it all off at once. You may also be able to defer missed payments until the end of your loan term. Your lender will contact you near the end of your forbearance period to discuss options.

2. Refinancing

Refinancing can allow you to lower your monthly mortgage costs, making payments more affordable.

For this strategy to work, you must qualify for a lower interest rate than you have on your current mortgage, or you will need to refinance to a longer-term loan. This would allow you to spread your balance over several months, thus reducing your payments.

Keep in mind that refinancing comes with closing costs. Freddie Mac estimates these cost around $5,000 per loan. Some lenders may allow you to roll these closing costs into your loan balance. But remember: this will increase your long-term interest costs.

3. Modification of the loan

Modifying your loan may also be an option. This is when your lender agrees to change the terms of your loan to make it more affordable. This may include extending the term of your loan, lowering your interest rate, or in some cases even reducing your loan balance.

“If you are experiencing financial difficulties, you may consider a mortgage modification to adjust the terms of your loan to alleviate the financial crisis,” says Christian Mills, home equity conversion mortgage (HECM) specialist at Reverse Mortgage Funding. “You may be able to extend your repayment term or lower your interest rate, depending on what options your lender is willing to offer.”

4. Repayment plan

Another strategy is to ask your lender to set up a payment plan. These allow you to catch up on your missed payments over time.

“The lender wants to get paid, so they’re often willing to work with you on a plan to get caught up,” Martin says.

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$1,161
Your estimated monthly payment

  • pay one 25% a higher down payment would save you $8,916.08 on interest charges
  • Lower the interest rate by 1% would save you $51,562.03
  • Pay an extra fee $500 each month would reduce the term of the loan by 146 month

5. Contact a housing adviser

A professional housing counselor can help you determine the best course of action. There is generally no cost for these tips.

If you’re not sure where to find a counselor near you, the US Department of Housing and Urban Development’s online search tool can help. All results are from HUD-approved consulting agencies.

6. Other Options

Your lender may also be willing to offer other options. One of them could include a short sale, which allows you to sell your home for less than you owe on the mortgage.

A deed in lieu of foreclosure is another potential strategy. With these arrangements, you return your property to the lender and avoid foreclosure. This helps you keep foreclosure off your credit report. In some cases, your lender may also cover relocation costs.

How to avoid falling behind on your mortgage

The best strategy is to avoid missing mortgage payments in the first place. To do this, make sure you have a healthy emergency fund. This ensures that you have the money to cover your payment if you lose your job or run into financial difficulties.

“It’s a great idea to have a six-month reserve in case something happens,” says Horton. “That would give you six months to get back on your feet and keep making your mortgage payments.”

You also need to have a good family budget and make sure your credit score is strong as well. A good credit rating will give you more options, like refinancing, if things go wrong.

Finally, if you think you might have a problem making your payments, call your loan officer immediately.

“Be proactive in engaging your repairman,” says Martin. “There are different options available, and waiting probably won’t improve your situation.”

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