What Should I Do When I Can't Pay My Mortgage?

Change happens. When you bought your home you may have budgeted carefully and never anticipated having difficulty making your mortgage payment. But maybe, like millions of Americans, you have had a change in your financial situation or your finances can’t keep pace with larger economic trends. Perhaps you took on an interest-only mortgage to buy your home but after 13 interest rate hikes in the last 2 years you are having trouble meeting your monthly mortgage payment. Or perhaps you are facing unexpected expenses related to an illness, a move, an addition to the family or special needs for an aging parent. Maybe you have suffered a loss of income due to a job layoff, corporate downsizing, illness or injury, change in career or return to school. If you are a homeowner, a change in your financial situation – or the economy at large – can affect your ability to make your monthly mortgage payment.

Whatever the reason behind your current financial situation it’s reasonable to think that it is a high priority for you to remain in your home. You can start by getting a clear grip on your home-related expenses…in other words, how much it is really costing you to live in your present home. Here’s a list of home and home-related costs to tally up:

Monthly mortgage amount:
Homeowner’s insurance:
Homeowner’s/condo association fees:
Property tax:
Home repair/maintenance fees:

Compare that amount with your current income. Do your mortgage and housing-related expenses add up to more than 40 percent of your family’s income? That percentage is the rule of thumb that some experts use to determine what is financially reasonable for you to be able to afford for monthly housing payments. It might quickly become clear why your current home is putting you in a financial pinch. While you probably can’t do anything about your homeowner’s/condo fees, property tax and insurance costs you could probably make minor changes to lower your utility costs, home repair fees, and landscaping work. But the crux of the matter is zeroing in on how to make your monthly mortgage payment IN FULL and ON TIME.

If you’re at the point where you could easily envision yourself getting behind on your mortgage payments – and especially if you are already behind – consider taking the following steps:

  • Contact your lender. While you may be afraid or embarrassed to face this situation head on, the truth is that most lenders WANT to work with you. They have a financial stake in seeing you avoid foreclosure – it can cost lenders up to 20 percent of the remaining principal balance on your home to foreclose. Lenders want their money back – not a physical home to have to resell.
  • Do not ignore your lenders’ letters or calls. If you can’t make your mortgage payment, or you can’t make the total mortgage payment amount, contact your lender immediately. Technically your mortgage is in default when you have not made your payment by close of business the day it’s due. Lenders can begin the foreclosure process anytime after that point. The good news, however, is that most lenders want to avoid foreclosure and will work with you to do so. In fact the secondary mortgage market associations — Fannie Mae, Freddie Mac as well as the Federal Housing Administration (FHA) — require their mortgage companies to work with borrowers to avoid foreclosure if at all possible.
  • It is your responsibility to get in touch as soon as possible with your lender and let them know that you want to remain current on your mortgage but you may need help. Your lender will probably put you in touch with a workout specialist in its Loss Mitigation or Loss Recovery Department. Be prepared to explain why you can’t make the payment/s, how much income you’re currently making and what your other monthly expenses are. Keep a record of when you call and who you talk to and follow up each phone conversation with a letter if possible, keeping a copy for yourself.
  • If you are contacted by someone by phone, ask them to send you something in writing to verify that they are employees at your lending institution. Do not send payment by check made out to anyone other than your lender to any address other than your lender’s address. Do not authorize anyone to charge a mortgage payment to your credit card by phone. Fraudulent collection agents have been known to contact homeowners posing as a lender’s workout specialist but they are really just going to collect their commission from your check and allow the foreclosure proceedings to continue.
  • Stay in the home. If you abandon the home and don’t make your payments, your bank will assume that you are not able or wiling to maintain the mortgage and they will foreclose quickly so they can re-sell the home and minimize their losses.
  • Get legal advice or professional help. Possible sources of help are your neighborhood legal services office, a bar association panel of pro bono attorneys or local programs who provide legal assistance for the disabled, elderly or poor. Don’t be rushed to sign anything, especially if you feel someone is pushing you to file for bankruptcy or to allow foreclosure to happen before you understand and have considered all your options.
  • Contact a local housing counseling agency. These agencies offer help free of charge and can provide you with information on local services and programs that may be of help to you. Click here for a list of U.S. Department of Housing and Urban Development (HUD) approved counseling agencies.
  • Pay your mortgage first. It’s your choice, but if keeping your home is a high priority, you may want to consider making your mortgage payment first or keeping it as a main financial priority when repaying other debts including student loans, credit card payments, etc. If you are unsure about how to prioritize your debt repayments talk with someone at a reputable credit counseling agency or afinancial professional.
  • Explore assistance options. A nonprofit housing agency or your lender may be able to give you information on assistance options you may qualify for. For example, you may qualify for Supplement Security Income (SSI) if you are an older homeowner, or local tax abatement programs. If utility and energy costs are becoming an increasing cost and concern, contact your utility companies to discuss possible payment plans and assistance options.

In addition to working with your lender, to make your mortgage payment you will most likely need to consider how to increase your income and/or reduce your expenses. Let’s look at both options.

To increase your income, consider possible sources and opportunities such as:

  • Securing a regular part-time job, temporary or seasonal work.
  • Considering how you could be able to make some additional money from home with a skill (i.e. tutoring, writing, bookkeeping, etc.) or from a hobby.
  • Determining if you are eligible for Social security benefits, pension benefits, life insurance benefits or disability benefits.
  • Make sure you have been paid or repaid loans you may have made or past due child support or alimony.
  • Did you get a tax refund last year? Look at that as money you could have been getting back in your paycheck every month except that you were lending it to the government for free! Talk to someone in your office’s Human Resources department about how to change your withholding and increase your monthly take-home pay.

On the other hand, you should also consider how you could trim expenses. If you’re not sure what you’re currently spending money on, you could begin by creating a budget to track what you’re spending money on. Click here for our Budgeting for Beginners section including our Budgeting for Beginners worksheet to get started.

You may be able to make some relatively minor lifestyle changes to reduce your expenses which you can then use to make your monthly mortgage payment. Some tips for reducing expenses include:

  • Go grocery shopping ONLY with a list – compulsive or unplanned shopping leads to greater spending.
  • Try eating out less and eating at home more – or switching and going out for lunch instead of dinner to save money (lunch is almost always a less expensive meal than a dinner entrée).
  • Talk with friends and neighbors about “swapping skills” to get repair work done on your home, landscaping, etc. for one another instead of hiring (and paying for!) a professional.
  • Get a free energy audit from your utility companies to determine what small improvements and changes you could make to cut back on your home energy costs. For example, could you change your regular thermostat setting to save money? Could you plant shade trees and shrubs near the house and lower blinds during the day time to lower cooling costs? If you anticipate needing to replace major appliances, look for energy-saving appliances. Click here for more tips on lowering home energy costs.
  • Try comparison shopping for big-ticket items online and at outlet stores and discount centers before making a final purchase. Keep the receipt and check to see if the item goes on sale – often stores will refund the difference in price.
  • Call current service providers (i.e. your phone company(ies), internet service provider, etc.) to see what discounts they can give you to keep you as a customer. If you have paid your bills in full and on time many companies, including credit card companies, will reduce your fees and/or interest rate to keep your business if you ask.
  • Review your bills carefully to see if you are paying for any services (i.e. cable TV features, internet service, phone features, etc.) that you don’t use or really need and cancel those services.
  • Check your bank statements to see what automatic deductions/payments you are having made from your account(s) that you may not even be aware of – or that you no longer really use/want to support. For example you may have a gym membership or cell phone service you don’t use.
  • Comparison shop for better rates on insurance policies or consider changing your current deductibles – particularly on car insurance – to save money.
  • Perform regular maintenance on your car (i.e. tune-ups, oil changes, etc.) to keep it running well and to reduce the possibility of costly repairs in the future.
  • Look for free or inexpensive entertainment options in your community rather than a high-priced vacation. There are endless possibilities including state and national parks, museums, galleries, zoos, memorials, libraries, festivals and fairs, etc.!
  • For family entertainment look for restaurants offering “kids eat free” nights and movie theaters that have matinees and cut-price movies.
  • Consider vacationing with another family (or two) to trim costs.
  • Cut back on gift-giving or substitute homemade gifts or “coupons” to spend time together at a fun activity.
  • Consider implementing an allowance or chore system with your kids so they have to earn money for their discretionary purchases instead of you feeling the pressure to finance their every desire.

As much as you may want to avoid dealing with this frightening financial reality you know – deep down – that this problem is not going to solve itself. You may want to think about how important your home is to you, and after looking at your budget, if you can cut back enough, or make additional extra money, to hold onto your home. Take a deep breath, get a grasp on your current financial reality and then work with your lender and your family to determine how you could lower your expenses and/or increase your income and stay in your home. As difficult as it can be to hear, this is a good example of a situation where ignoring it won’t improve it. It will take work to keep your home and stay current on your mortgage but you can look into options and make changes that will prevent you from this significant loss for you and your family.