Behind on Your Mortgage? Here’s What You Can Do Right Now
When you start missing mortgage payments, it can escalate into a financial disaster involving late fees, damaged credit, and eventually foreclosure. The sooner you start looking into your options, the better.
Here are seven practical solutions to consider when you’re struggling to pay your mortgage.
- Consider bankruptcy
For many people, the threat of foreclosure is the spark that triggers the choice to file bankruptcy. Although it’s often seen as a last resort when you’re absolutely desperate, it’s something to consider early on. Bankruptcy can provide immediate legal protection against collections by imposing an automatic stay that temporarily halts the foreclosure process.
If foreclosure is looming, you’ll want to consider filing Chapter 13 rather than Chapter 7. Chapter 7 will eliminate unsecured debt like credit cards and medical bills, but it won’t give you the chance to catch up on missed mortgage payments. If you’re significantly behind, your home may be at risk of foreclosure even after the automatic stay ends. However, when you file Chapter 13, you’ll get three to five years to catch up on past-due mortgage payments while keeping your home as long as you make your current payments. This is the only option that stops foreclosure.
- Request a loan modification
Sometimes it’s possible to change the terms of your mortgage to get lower monthly payments. However, it’s not the same as refinancing. It’s an adjustment to your loan that extends the term, reduces your interest rate, or adds missed payments to your total balance. Some lenders will extend a 30-year loan to 40 years, which will lower your monthly payments. Your lender might even be willing to lower your interest rate. Just a 1-2% interest rate reduction can be helpful.
If you’re struggling, contact your lender right away to discuss your options. A simple modification can stabilize your situation if you can prove you meet the qualifications.
- Refinance your mortgage
If you have strong credit and aren’t behind by more than a couple of months, you might qualify for refinancing. This will lower your monthly payment by issuing you a new loan with better terms. If you qualify, you can convert an adjustable rate mortgage into a fixed rate loan for more stability, or you can opt for a cash-out refinance and use some equity to pay off other high-interest debt. However, this option will increase your total loan balance.
- Ask your lender for a repayment plan
If your hardship was only temporary, call your lender to request a repayment plan to avoid modifying your loan. Some lenders will approve a structured repayment plan where you’ll make overdue payments in installments in addition to your regular mortgage payments. If your lender is agreeable to a repayment plan, make sure you get the agreement terms in writing before making any payments.
- Apply for mortgage forbearance
Getting approved for mortgage forbearance will pause your monthly payments temporarily. You can pause payments for several months or longer to give you some breathing room if you’ve lost your job or are unable to work for a period of time. If you can’t get full forbearance, ask if you can make partial payments.
- Sell your home before foreclosure
Sometimes the best decision is to sell your property. If you have equity, selling can protect your credit score and make it easier to relocate. If your home’s value exceeds your mortgage balance, selling can fully resolve your debt. If it’s worth less than what you owe, your lender might approve a short sale where you sell your home for less than the balance to resolve your debt in full. Since a foreclosure will stay on your credit report for seven years, selling is often the best way to protect your credit.
- Contact a HUD housing counselor
HUD-approved housing counselors can provide you with free or low-cost help to evaluate your options. If you qualify, a counselor will review your income, expenses, and debts and provide advice on your best course of action. They’ll explain timelines and your rights regarding foreclosure and help you avoid costly mistakes.
Act early – don’t wait
Falling behind on your mortgage payments can have serious consequences, but it’s fixable when you act fast and communicate with your lender. Whether you pursue bankruptcy, loan modification, refinancing, or sell your home, the strategy you choose can give you significant leverage without collateral damage.
