What To Do If You’re Struggling With Your Mortgage Payments

May 08, 2018

Losing your home to foreclosure and potentially being homeless is one of the biggest financial hardships you can face. However, there may be situations in which walking away from your home actually makes sense. Here are some questions to ask yourself: 

Do you have equity in your home or are you underwater?

Home equity is the difference between the value of your home and what you owe. You get to keep any equity leftover after a foreclosure sale, but that equity is likely to be reduced by late payment and foreclosure fees assessed by the mortgage company. Mortgage companies will typically also accept offers for less than the home’s value in order to sell it quickly and because they won’t benefit from selling it for any more than the mortgage value. On the other hand, if your home value is significantly less than what you owe, a “strategic default” can be your best financial choice even if you can afford the payments.  

How much can you afford to pay?

Start by look at your bank and credit card statements over the last few months and record your expenses on a worksheet like this. Then see if you can find ways to reduce any of those expenses to make the mortgage payments. If you want to keep your home, you may want to prioritize the mortgage payments even over unsecured debt payments like credit cards and personal loans. After all, defaulting on either type of debt will hurt your credit but the latter can be wiped out in a bankruptcy without losing your home. A bankruptcy can hurt your credit score more, but a foreclosure can make it harder to get a mortgage in the future. Plus, we all need a roof over our head.

Are there alternatives to foreclosure?

Once you know how much you can afford to pay towards your mortgage and it’s not enough to get current, contact your mortgage company and see if you can work out a plan with them to avoid foreclosure. This may mean modifying the terms of the loan to make it affordable for you or giving the home up through a short sale or a mortgage release/deed-in-lieu of foreclosure. These options will hurt your credit score but not as much as a foreclosure. 

If you’re having trouble making your mortgage payments, don’t despair. There are options that can keep you in your home or you may even be better off walking away from it. If you’re not sure what to do, see if your employer offers a financial wellness program with free access to an unbiased financial planner who can help you decide which option is best for you.