What to Do If You Can't Afford Your Mortgage Payment

If cash is so tight you can’t pay your monthly mortgage, one of these plans may keep you out of foreclosure.

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Updated May 28, 2024
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As inflation and the prices of everything go up, your monthly expenses might rise so much that you have problems paying your mortgage. If you find yourself with problems covering your monthly mortgage payment, don’t ignore the problem and hope your missed or incomplete payments don’t matter.

Here are some ways to deal with inflation, reduce your mortgage, and avoid foreclosure — all while preserving your credit rating.

Sell your house

Andy Dean/Adobe home for sale sign

Housing prices are at a peak, and some analysts are predicting that the housing bubble in some areas of the country will burst soon. While extreme, it might make more sense to sell your house now at a great price than to hold onto it if you can’t make your monthly mortgage payments.

If you sell, you could roll the profit into a smaller house with a smaller monthly payment or rent until the market gets affordable again. Not having a huge mortgage over your head is one of the best ways to avoid money stress.

Ask for a forbearance

Andrii/Adobe Mortgage Forbearance Agreement

A forbearance is an agreement with your mortgage lender that reduces or suspends your monthly payments for a period of time, usually up to one year.

The forbearance agreement will require you to pay back payments or missed payments that were accrued before the beginning of the forbearance agreement. However, the mortgage lender agrees not to foreclose on your house during the forbearance period.

Forbearance is not a guarantee but is most likely to be granted to people who can show that they are temporarily unable to make mortgage payments (from job loss, for example) but will be able to make them again in the future.

Pro tip: Not finding the terms you need? Compare the best mortgage lenders and find the one that works for you.

Request an interest modification

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A mortgage modification changes the terms of your mortgage repayment plan, so your monthly payments are smaller. One way is to have your mortgage lender cut your interest rate by several points.

To qualify for an interest modification, you will typically need to be in a position where you’re unable to pay your mortgage or have missed one or more payments and can show financial hardship.

Modify your repayment period

Karen Roach/Adobe paying your mortgage on time

A repayment period modification lowers individual payments but extends the length of time that you pay off your mortgage. This will reduce the amount you pay each month, but it will increase the total amount you pay in interest over the life of the loan.

You may qualify if you are about to or have just missed a payment and can show financial hardship.

Change to a fixed interest rate

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Many mortgage repayment plans have a fixed interest rate that stays the same every month. Alternatively, you may have an adjustable rate that can go up or down based on the national interest rate.

If your mortgage has an adjustable rate that has risen beyond what you can afford, you can ask to modify it to a fixed-rate loan, which could be more affordable.

Reduce your principal

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While it’s rare, you may be able to get your lender to reduce the amount of principal you owe on your house. This could lower your monthly payments as well as the total interest you pay on the loan.

This is technically considered a gift of an increase in equity in your home, so it may have tax ramifications since you would be considered the recipient of the gift.

Refinance your mortgage

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Refinancing your mortgage pairs you with an entirely new mortgage repayment agreement with different terms and a different interest rate. You will be in a better position to refinance and get a lower rate if you apply before you’ve missed or had any late mortgage payments.

Pro tip: You can shop for the best mortgage refinance companies to find out which one will offer you better terms and rates based on your credit score.

Apply for a partial claim

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If you have a Federal Housing Authority (FHA) loan and have missed four to 12 payments as a result of financial hardship, you can file a partial claim. The result is that you may be given an interest-free loan from the Department of Housing and Urban Development (HUD) to pay off the debt.

You will have to pay back the amount of the HUD loan, and a lien will be placed on your house that won’t be released until the HUD loan is paid off.

Rent out your house

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If rental prices in your area are more than your monthly mortgage payment, you could rent out your house and go live with friends or family for a while. Although you’ll get to keep your house and keep up on your mortgage payments, you’ll become a landlord and possibly have more responsibilities than before.

You may also need to do certain repairs to keep your property up to local codes for rental properties.

Short-sell your house

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In a short sale, the mortgage lender agrees to allow you to sell the house and to accept whatever you receive for the house to pay off your mortgage, even if the amount of the sale is less than the remaining balance on the mortgage.

Your bank must approve the short sale of the house, and the short sale could hurt your credit score, although not as much as a foreclosure would.

Sell your house at auction

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If your house is in bad shape and you only owe a small amount on the mortgage, selling the house at auction may be a solution. Set the starting bid on the house at the amount that you need to pay off the mortgage plus fees. Anything the house sells for that’s above that starting bid is profit for you.

A professional house auctioneer can help you set up, publicize, and conduct the sale, and manage the paperwork for you.

Arrange a deed in lieu of foreclosure

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With a deed in lieu of foreclosure, you voluntarily give your lender your deed, which will release you from the total amount of remaining mortgage debt. While this process is similar to foreclosure in that you lose your house, it’s simpler, gives you more control, and won’t harm your credit score as much as a foreclosure would.

File for bankruptcy

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While declaring bankruptcy certainly hurts your credit score, it at least allows you to keep your house. Filing for Chapter 13 bankruptcy is one of the more unusual ways to crush your debt but will allow you to keep your house. That’s because no creditors — including your mortgage lender — can file foreclosure while the bankruptcy is in progress.

Bankruptcy will stay on your credit report for ten years but will not explicitly prevent you from applying for home financing during that time.

Apply for a reverse mortgage

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If you’re over the age of 62, you can apply for a reverse mortgage which lets you take out a lump sum or monthly payments against the value of your house. When you leave the house, the reverse mortgage lender takes possession of your house.

You will be allowed to continue to live in the house until you die or choose to move. The downside is that you won’t be able to leave your house to your heirs.

Bottom line

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There are a number of ways to avoid foreclosure if you are unable to pay your monthly mortgage payments, depending on your situation.

If none of these options appeal to you, check out these legitimate ways to make extra money to help you cover your mortgage.

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Author Details

Elizabeth Rollins

Elizabeth Rollins has degrees in literature and business, and she's combined these loves into a career in writing about personal finance. Her special areas of interest are debt, value, budgeting, education, and retirement.