What to Do When You Can't Make Your Mortgage Payment

Brian Page
Jun 7
5 min read

For many homeowners, the mortgage payment is the largest monthly expense. But what happens when you find yourself unable to make this payment? Whether due to unexpected job loss, medical emergencies, or other financial difficulties, knowing the steps to take to manage this challenging situation and protect your home from foreclosure is crucial.

What I share in this post moves post the impact of your credit score and plunges into the most important priorities to protect your family. Consider using the FICO Credit Score Estimator to estimate how various choices affect your credit score.

For this post, I'm also assuming you've already trimmed your budget as much as possible, sold some assets, considered refinancing, and are maximizing your current income stream opportunities.

If I were overwhelmed with debt, I would seek the assistance of a debt specialist. The United States Department of Housing and Urban Development (HUD) certified housing counseling agencies. Contact them at 800-569-4287 or www.hud.gov.

Also, consider reading Surviving Debt: Expert Advice for Getting Out of Financial Trouble by the National Consumer Law Center. Much of what follows derives from that book and material from the AFC credentialing process.

Your Relationship

Above all, accept that this will be an emotionally challenging experience. It is critical, and I mean of the most importance, to see your spouse as a teammate tackling the problem together. You need to be a source for each other's strength, not identify your spouse as a source of the problem.

Your Overall Circumstances

I strongly urge you to seek the assistance of a debt specialist now if you can't afford to make your monthly mortgage payment and have little hope of doing so in the months that follow. Here's a primer on why.

Not All Debts Are Equal

If you’re having trouble making your mortgage payments, you’re likely struggling with credit card payments and other debts. Here are a few fast facts to help you prioritize your debts:

Prioritize paying secured debts (e.g., auto loan and mortgage)
Alimony, child support, and back taxes should be prioritized
Unsecured debts (e.g., credit cards) should be the first debt you do not pay on
Medical debt should be negotiated directly with hospitals

Do not treat your mortgage in isolation. Consider all of your debts and prioritize what to pay.

Understand Your Mortgage Terms

It’s essential to understand the specifics of your mortgage agreement. Different types of mortgages have different rules regarding late payments and defaults.

Mortgage default begins the first day a payment is late, which can occur before a late penalty is assessed. Review your loan documents to uncover the details, including when foreclosure proceedings might begin.

Pro Tip: Do not make partial payments unless you have agreed to a special forbearance.

The Homestead Exemption

A homestead exemption is a legal provision that shields a home from some creditors following the death of a homeowner’s spouse or the declaration of bankruptcy and minimizes property taxes for homeowners.

Key Takeaways (according to Investopedia)

A homestead exemption reduces homeowners’ state property tax obligations.
The exemption can help protect a home from creditors or during bankruptcy.
The exemption only applies to one’s primary residence.
Most states have homestead exemptions, but the rules and protection limits vary.

Communicate With Your Mortgage Servicer (Not Your Lender)

Occasionally, the wonder of your mortgage, the service, and the original lenders are the same entity. Far more likely is that they are three different companies.

As soon as you realize you might have trouble making a mortgage payment, contact your servicer. Mortgage servicers usually have programs to assist borrowers in financial distress. The earlier you reach out, the more options you might have, including:

Workout Options

Workout options to retain the home include the following:

Redeeming: taking out a new loan to pay off the old loan in default; only an option if credit has not been damaged
Reinstating the loan: curing the default by catching up on missed payments.
Recasting in one of two ways:
- If payments are missed, the lender takes the missed payments and adds them to the end of the loan.
- If a large extra payment is made, the lender may restructure the loan with lower payments.
Special forbearance: the lender agrees to suspend or accept reduced payments for a specific number of months, and the homeowner agrees to pay the total delinquency at the end of the period or enter into a repayment plan.
Repayment: for a period of time, the borrower pays their regular house payment plus a portion of the amount they are in arrears.

Loan Modifications

Loan modifications are any permanent changes made to the loan terms, such as an interest rate reduction, re-amortization, extension of the loan's payment period, capitalization of arrears, cancellation of a portion of the principal, or a combination of such modifications.

The lender takes the following issues into consideration when determining whether or not to modify the loan.

Whether the borrower's current payment is unaffordable
Whether it can make payments affordable by altering some aspect of the mortgage
Whether a loan modification will be beneficial for the investor who owns the borrower's loan

Disposition Options

Additionally, there are options for the borrower who cannot afford, or does not want, to keep the home. Disposition options include:

A pre-foreclosure sale: the borrower tries to sell the home either by themself or through a realtor, likely leading to a higher price than foreclosure.
A short sale: the lender agrees to sell the property through a realtor at a discount with no deficiency balance due.
A deed in lieu: a formal agreement to turn the property over to the lender as an alternative to foreclosure.

Foreclosure

If workout options fail, there will be a foreclosure sale. This sale ends any possibility of a workout and ends ownership of the property. The former borrower could end up with a deficiency balance due to the lender, or in rare cases, a surplus refunded to the borrower.

Borrowers can also fall into foreclosure if they default on a second mortgage or a home equity line of credit. Anytime the home is used as collateral, payments should be paid on time every month. Other default triggers can include failure to pay real estate taxes, failure to carry hazard insurance, and not maintaining the property to required standards.

Seek Professional Assistance

Seek the assistance of a debt specialist before acting. The United States Department of Housing and Urban Development (HUD) certified housing counseling agencies. Contact them at 800-569-4287 or www.hud.gov.

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