Home ownership is the dream, until it turns into a nightmare. Financial pressure means that it can sometimes be difficult to make your next mortgage payment.

Maybe you’ve been let go from a long-time job and struggling to find new work that pays the same.

Perhaps you’ve become a caregiver for your partner or parents, or your own medical problems have led to both mounting bills and a drop in income.

Either way, missing mortgage payments is no joke. You could end up losing the home on which you’ve spent years or possibly decades building up equity. And a home isn’t just a financial asset – it’s full of memories and associations that it will hurt to even think about losing.

Saying “don’t worry” seems a little ineffective – you’re clearly going to have concerns. However, if you plan carefully, record all dealings with the lender, and find ways to prove your good-faith efforts to repay what you owe, all is not lost. Resources are available that can help you get yourself back on level footing, find advice, or at least provide some time while you recover financially.

If it helps, Federal law doesn’t usually allow loan servicers to start foreclosure proceedings until 120 days of missed payments. Missing one payment is still far from ideal, but you’re not going to lose your home until you miss four months in a row. 

How to approach a conversation with your lender if you can’t make the next mortgage payment

This isn’t your average conversation with a financial service. It’s a conversation you need to prepare for, as what happens over that phone call will define whether your family stands a chance of hanging on to their home and avoiding foreclosure.

You have to prepare for this conversation. Make sure you record all of your income and regular expenses, as well as any potentially major one-off expenses you have coming up, such as surgery or care costs.

It’s also worth calculating the equity you already have in your home. You can do this by subtracting the value of your first and second mortgage from the value of the house.

Prep answers to the following questions:

  • How did you come to miss your payments? Do you have documents to support this?
  • What steps have you taken to remedy the problem?
  • Is your problem temporary, long-term, or permanent?
  • What do you want to happen? Do you want to keep the home or would selling up or leveraging your equity be a desirable outcome?
  • What type of payment arrangement would work for you?

Keep notes of all communications including:

  • The date/time/method of contact
  • The name of the rep you speak to
  • The outcome of the conversation

Follow up oral requests with a letter to the servicer confirming everything you discussed in writing. Keep copies of all correspondence, and send any letters by signed or certified mail to receive return receipts.

Once you’ve had this conversation, do what you said you were going to do. Make any adjustments you can to your monthly expenses to meet all the proposed deadlines.

Don’t move out, otherwise you might not be eligible for some types of assistance. Avoid renting your home if you can, as doing so changes how the property is viewed in terms of debt relief, and you might not qualify. Some people choose to rent their home out to cover the mortgage, but make sure the rental agreement covers you enough if you do decide to rent out your property.

The first order of business, however, is to keep a cool head and avoid getting too distressed. The underlying cause of your financial difficulties is likely giving you enough stress as it is, but you need to keep as calm as possible and think your way out of the problem. Your family needs you, and you need them. Lean on each other.

People in intensely emotional places don’t traditionally make well-thought-out decisions. Team Vippi is here to help you stay level-headed and develop an awareness of your options.

Please note: this piece accounts for people in trouble with US mortgage lenders. Debt relief options may vary in each state, and different avenues are available for people in different countries.

1. Get familiar with your mortgage before applying.

Knowing the terms of your mortgage will not only help you prevent difficulties further down the line, but also let you know your options if you run into payment problems.

It’s worth calling your loan servicer to check exactly how your mortgage works if you can’t work it out from the mortgage documents. This will help you plan and prepare finances to avoid missing payments in the first place.

These are just a few examples of mortgages. Fixed rate mortgages are much easier to plan for than adjustable mortgages. Make sure you know how your own agreement fits with your joint income.

Hybrid Adjustable Rate Mortgages (ARMs)

These will have a fixed rate for a number of years before turning into an adjustable loan. There are different types of ARMs. A 2/28 hybrid ARM, for example, means that the interest rate will be fixed for 2 years and then become adjustable for the next 28 years. You can break down 3/27 hybrid ARMs the same way. 

Other types might be 5/1 or 3/1 hybrid ARMs. The first number indicates the number of years for which the rate stayed fixed, and the second shows you how often the rate changes after that. A 5/1 hybrid ARM stays fixed for 5 years, and the rate changes in every following year.

Adjustable Rate Mortgages (ARMs) 

These mortgages have rates that vary from the start. Your payments will regularly change.

Fixed rate

You will pay the same amount for the life of the loan. Payment changes would come from taxes and any changes in insurance if you’ve got an escrow account with your mortgage lender.

Ask whether you can change to a fixed rate without incurring a penalty. This can make payments more predictable. Review your contract, and speak to your broker or wealth adviser about refinancing under a different type of mortgage.

You can use a mortgage calculator like bankrate.com to calculate how much you can remortgage for. However, if you’re in financial difficulties, think carefully – remortgaging comes with fees, including:

  • A fee for ending your current mortgage. Remortgaging with the same lender might help you reduce or remove these costs from the equation. You may have to pay an exit fee if you switch loan servicer.
  • Setup costs: As well as an exit fee for the previous mortgage, you might incur loan arrangement fees, legal fees, and the cost of a property valuation, also known as setup costs. These vary a lot between lenders, so pick the option that works best for you and your family. Set up costs can mount. (Some deals offer a “fee-free” remortgage – approach them with extreme caution, as the terms of the mortgage itself may not be great. Bouncing from one mortgage you can’t afford to another isn’t helping anyone.)

Make sure any remortgage deal you choose is worth switching for.

Credit score warning

Suggestions 2 and 3 may help you make the next payment and follow a more manageable payment plan.

Be warned though – these will put a dent in your credit score and make it difficult to take out credit cards, other loans, and even overdrafts. Emergencies call for emergency measures, but these measures can have lasting consequences.

2. Apply for a loan modification.

You could speak to your loan provider and arrange for a permanent change to one or several terms of the agreement. This may make repayment more manageable for you. They may:

  • Reduce the interest rate.
  • Have the loan run for longer at lower repayment instalments.
  • Add missed payments to the overall loan balance rather than calling them in immediately.
  • Cancel part of the mortgage debt.

You will have to demonstrate that you’re making efforts to pay your mortgage though, such as reducing other expenses. This may make your lender much more likely to come to new terms with you.

The Mortgage Forgiveness Debt Relief Act of 2007 states that you may be able to exclude forgiven debt from your income when it comes to reporting for taxes.

3. Request forbearance from your lender.

Your lender may be able to reduce or suspend payments for a short period if your circumstances mean that your income is temporarily too low to make payments. For example, you may need time off work for surgery but still be due to return later.

If this happens, you may be able to request a reduced payment for an agreed period. Lenders agree to this with the understanding that you’ll resume normal payments after this period with an extra lump sum on to cover the temporary shortfall.

For example, a COVID hardship forbearance was made available under the Coronavirus Aid, Relief, and Economic Security (CARES) Act during the pandemic for people who’d been hit financially by lost earnings.

This can help a great deal for the many people who hit an inevitable bump in the road. Approach this solution with caution though – it will affect your credit score and reduce your options for future borrowing. 

Be warned, if you’re in a home you can’t afford, forbearance will never be the solution – those payments are always going to be too high.

Housing and credit counseling

If mortgage finance isn’t exactly your field of expertise and this is becoming a confusing minefield, it can add to the panic. So get support. Free or low-cost housing counseling services are available to help you work through your situation with an informed, outside perspective.

They can help you:

  • Assess your situation. Is it as bad as you think? Is it worse?
  • Answer questions. You will definitely have them. Think about what you want to ask ahead of your consultation.
  • Run through your options. Housing counseling can help you find that lifeline you didn’t know was available.
  • Help you request loan modification or foreclosure. Some housing counselors may be able to directly connect you with the debt relief you need.

Get in touch with your state housing authority or Department of Housing and Urban Development office. Alternatively, the Homeownership Preservation Foundation can help you modify a loan and hang on to your home. Get in touch with them on 888-995-HOPE.

Beware high fees and lofty promises, though. They shouldn’t be charging the earth, and no forbearance or loan modification is guaranteed. Scammers may be trying to get the best of you, so exercise caution.

4. Sell your home.

This is far from ideal, but it’s better to sell your home than go into foreclosure, and it can help you pay your mortgage debt in full.

Obviously this creates massive upheaval for you and your family and depends on real estate in your area. House sales can also take a while – it’s unlikely you’ll close a sale within a month. But loan servicers will generally pause foreclosure if your home is on the market.

You might have to give up your home without entering foreclosure

Giving up your home is a painful notion. But it’s one you might have to consider to gain some semblance of control over your situation.

Foreclosure hangs around your credit report like a bad smell, and can mess with future borrowing and financial arrangements. Anything you can do to reduce the impact of foreclosure or stop it altogether is an option to consider.

  • Sell your house. Some lenders will put a hold on foreclosure proceedings if you have a sales contract in progress or your home is on the market.
  • Short sale. Your loan servicer may let you sell the home before foreclosing and forgive any difference between how much you sell the house for and the amount left to pay on the mortgage. This can make foreclosure less damaging on your credit report.
  • Deed in lieu of foreclosure. You transfer homeownership back to the mortgage lenders and your debt is cancelled. You still lose your home, but your credit score takes less of a hit. You lose equity on the property, but you can still exclude the debt from IRS taxes (even though you need to report it on your tax return).

We know it can be heartbreaking and disruptive, but your family’s future is your priority now.

5. The last resort: Bankruptcy

This really is the last possible way you should consider trying to get debt relief. You can file with your state legal authority for personal bankruptcy if you’re out of options.

Even though it provides a fresh start, a personal bankruptcy stays on a credit report for 10 years, making it wide reaching and deeply disruptive. You’ll have an incredibly difficult time applying for another home, a loan, a credit card, and life insurance. And it can even mess up job applications while it’s on your record.

However, if you’re simply not in a position to fulfil your obligations with your loan servicer, you’ll have a blank slate – just one with some very heavy baggage attached.

Chapter 13 bankruptcy, or a wage earner’s plan, allows you to keep some property if you still have regular income. This type of bankruptcy allows you to arrange a court-mandated payment arrangement based on future income and keep your car/house. After making the payment, certain debts are discharged.

Don’t get scammed.

Scamming someone out of the roof over their head is the lowest of the low – but people still do it. Look out for the following:

  • Foreclosure prevention specialists: They fulfil tasks you could easily do yourself just by being prepared and charge extortionate fees for their services at a time where you really don’t need any extra financial commitments.
  • Lease/buy back: The scammers get homeowners to sign over the deed to their property then rent it back under nigh-on impossible terms. Sure enough, the original homeowner gets evicted and the scammer walks off with most of the equity.
  • Bait and switch: The scammer convinces homeowners they’re signing documents to bring the mortgage up to date – when in fact it’s the deeds to their home. And the homeowner may not even know they’ve been scammed until getting evicted.

Be extremely careful about what you sign and avoid unnecessary intermediaries where possible.

The round-up

Missing mortgage payments can be a huge deal. But there are steps you can take with your mortgage lender to work around the shortfall, and resources like the Homeowner Preservation Foundation that can give you guidance on how to get back on your feet.

The most important thing to remember when buying a home is that it’s a near lifelong commitment to payments, with severe consequences if those payments are missed. You might want the bigger, fancier house, but if it’s not within your means, choose a more sensible option. 

You may feel the pressure of carrying a family on your back, but you are not out of options. Take a deep breath, plan thoroughly, and communicate clearly with your lender.

Article resources

Chapter 13 – bankruptcy basics. (n.d.).https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics 

Home foreclosure and debt cancellation. (2019). https://www.irs.gov/newsroom/home-foreclosure-and-debt-cancellation

Learn about forbearance. (2021). https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/help-for-homeowners/learn-about-forbearance/ 

Loftsgordon, A. (n.d.). https://www.nolo.com/legal-encyclopedia/how-soon-can-foreclosure-begin.html 

Mortgage calculator. (n.d.). https://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx 

Remortgage fees. (n.d.). https://www.remortgage.com/guides/remortgage-fees.php 

S.3548 – CARES Act. (2020). https://www.congress.gov/bill/116th-congress/senate-bill/3548/text?q=product+actualizaci%C3%B3n 

When paying the mortgage is a struggle. (2009). https://www.consumer.ftc.gov/articles/0187-when-paying-mortgage-struggle