7 Solutions for Homeowners Struggling With Their Mortgage

Mortgage relief and other solutions

Fact checked by Amanda JacksonReviewed by Margaret JamesFact checked by Amanda JacksonReviewed by Margaret James

If you are facing financial hardship and struggling to make your mortgage payments, solutions exist that can help you get caught up. Defaulting on your mortgage can put you in danger of losing your home to foreclosure, which is when the lender repossesses the home to resell it. More than 177,000 homes were in foreclosure throughout the U.S. as of the first half of 2024.

However, there are several programs designed to provide mortgage relief to borrowers and prevent foreclosure. Discover seven potential solutions for homeowners struggling with their mortgage.

Key Takeaways

• If you can’t make your mortgage payments, contact your lender.
• Forbearance temporarily suspends your payments, but you must repay the unpaid amounts following the forbearance period.
• A loan modification can change the loan term, such as the payment, rate, and length of the loan.
• Refinancing to a lower rate and payment, eliminating private mortgage insurance, and lowering your property taxes can save you money.
• Taking out a home equity loan or line of credit (HELOC) can provide you with funds if you have equity in your home.

1: Request Mortgage Forbearance

With mortgage forbearance, you and the lender agree to reduce or suspend your payments for a set time. Forbearance is a temporary solution if you’re facing financial hardship. However, following the end of the forbearance, the borrower must begin the payments and come to an agreement with the lender to repay the money owed during the forbearance period.

Some lenders may work with borrowers to modify loans to lower the monthly payments. Additionally, any related mortgage delinquency won’t be reported to the credit bureaus, so missing payments won’t hurt your credit score.

2: Refinance to a Longer-Term Loan

Refinancing to a longer-term loan can help reduce monthly mortgage payments, especially when cash flow is a problem. A refinance refers to taking out a new mortgage loan to pay off your existing loan. Refinancing is done to take advantage of lower interest rates and lower your monthly payment.

However, it’s important to note that you could end up paying more in the long term if you extend the loan term to a longer period, such as from 20 to 30 years. To offset this, you can make higher payments whenever you have extra money in your budget since mortgages don’t usually have a prepayment penalty, but be sure to check the terms of your loan.

Using a mortgage calculator is a good resource for budgeting these costs.

3: Refinance to Change Your Interest Rate Terms

Refinancing to an adjustable-rate mortgage (ARM) is a viable option if you’ve almost finished paying off your mortgage. If the homeowner refinanced to an adjustable-rate mortgage, they could reduce their monthly payment.   

However, if a home is nearly paid off, the majority of the monthly payments are likely going to equity and not interest. Refinancing to an ARM might solve short-term cash flow issues by reducing the monthly payment but result in higher subsequent payments.

Alternatively, if you have an ARM, switching to a fixed-rate mortgage may not lower your current monthly payments, but it can stop your payments from increasing in the future.

4: Challenge Property Taxes

If the value of your home has dropped, challenging your property tax may provide some financial relief, says Cara Pierce, a certified housing counselor at Clearpoint Credit Counseling Solutions, a national nonprofit organization. “You’ll need to contact the county tax assessor’s office in the county in which the house is located to see what type of information they will need as proof that the housing values have dropped,” Pierce says.

However, Pierce says this is a short-term strategy. She warns that as property values increase, property taxes rise. Also, be advised that it may cost several hundred dollars to have your home appraised. 

5: Modify the Loan

A loan modification is an alternative for those who cannot refinance their loan but need to lower their monthly house payment. However, unlike a refinance, it requires a hardship. Pierce says borrowers must show the lender that, as a result of financial hardship, they are not able to continue making the regular monthly house payment.

A loan modification involves the borrower and the mortgage lender agreeing to change the loan terms, which can include:

• Extending the loan term, such as from 30 to 40 years
• Reduce the loan’s interest rate to lower the payment
• Reducing the outstanding loan balance called the principal

She recommends that homeowners get counseling through a HUD-certified organization to fully understand their options and get help contacting the lender. “However, not all lenders offer loan modifications or may just offer short-term loan modifications,” says Pierce.

6: Get a Home Equity Loan

Getting a home equity loan or line of credit (HELOC) may provide immediate assistance to struggling homeowners, but this strategy only works if you have a lot of equity in your house, which means that your home is valued at much more than you owe on it.

Anthony Pili, first vice president and cash management director at Orange Bank & Trust Company in New York, advises struggling homeowners to consider paying off a mortgage with a home equity line. “Banks usually cover all closing costs on home equity lines. The savings in closing costs can be used to pay off the principal balance quicker,” says Pili.

He adds that this strategy is highly effective for borrowers who have the self-discipline to pay more than what is owed each month since the minimum payment is usually just the interest accrued during the month.

7: Get the Lender to Eliminate Private Mortgage Insurance

Depending on how much equity is in your home, eliminating the private mortgage insurance (PMI) can lower your mortgage payments.

“If you have at least 20% equity in the property, I recommend contacting the lender about dropping the mortgage insurance,” Pierce says. She explains that borrowers who usually don’t pay 20% down are required to have PMI for at least two years, but says there may be exceptions to the two-year rule. For example, if the homeowner made improvements to the house that increased the value, the requirement may be waived.

Important

Mortgage lending discrimination is illegal. If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report, either to the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD).

Frequently Asked Questions (FAQs)

What Is PMI and its Purpose?

PMI, or private mortgage insurance, is applied to many home loans in which homeowners put down less than 20%. It protects the lenders if homeowners fail to repay their mortgages. Private mortgage insurance lowers the lender’s risk but increases the homeowner’s monthly payment.

Does a Forbearance Hurt Your Credit?

A forbearance may hurt your credit if the lender reports your late payments to the credit bureaus. If you are struggling to repay your mortgage, contact your lender as soon as possible to work out a solution that has a minimal impact on your credit.

How Long Does Forbearance Last?

Mortgage forbearance usually lasts about three to six months, but you can request an extension from your lender. The exact term of a forbearance will depend on your lender’s terms.

The Bottom Line

If you’re struggling with your mortgage, don’t throw in the towel. There are various solutions that can help you stay in your home and manage your monthly mortgage payments. If you can’t make your mortgage payments, contact your lender. Mortgage forbearance may help temporarily suspend your payments. Other options include refinancing the loan to lower the payment and a loan modification for those experiencing financial hardship.

Read the original article on Investopedia.