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Behind on your mortgage? 6 ways to catch up

With interest rates rising, inflation still elevated and concerns about a recession, you might find yourself worrying about what would happen if you fall behind on mortgage payments. If you’re struggling to afford your mortgage, take constructive action now with these steps.

6 ways to catch up on your mortgage payments

If you’re falling behind on your mortgage payments, consider these ways to get back on schedule:

  1. Forbearance: Best for borrowers facing a temporary hardship or loss of income

  2. Repayment through installments or a lump sum: Best for borrowers who are back on their financial feet

  3. Loan modification: Best for people who need a slightly reduced payment to catch up

  4. Refinance: Best for people who have the money to resume payments but need help to catch up

  5. Lower associated costs of homeownership: Best for people who are just short of making their monthly payment and can cut other homeownership costs to make up the difference

  6. National and local assistance funds: Consideration for borrowers who qualify and agree to program terms

1. Forbearance

This option is best for people who know they’re only facing temporary financial challenges. Forbearance temporarily suspends or reduces your mortgage payments for a set period. During the forbearance period, the record reflects that you’re current on your mortgage. Once the pause period ends, you’ll need to repay the paused payments with a lump sum or through installments.

This option tends to be the best fit for “people facing a short-term financial hardship or disruption of income,” says Matt Ribe, general counsel and corporate secretary with the National Foundation for Credit Counseling (NFCC). “It’s simply a way to stall payments without being considered delinquent.”

This option doesn’t involve underwriting or much work on the servicer’s part. The downside is you’ll pay more interest by effectively stretching out your mortgage term.

2. Repayment through installments or a lump sum

If you’ve gotten back on your feet financially, a repayment plan is a great way to catch up on your payments – if servicers allow it. With a repayment plan, you make your regular payment amount, plus an additional amount, for as long as it takes to make up for the late payments.

However, you’ll have to convince servicers that your financial situation has improved to the point where you can handle a larger monthly obligation.

“Sometimes dealing with a servicer can be difficult,” says Ira Rheingold, executive director of the National Association of Consumer Advocates. Yet, Rheingold says, a housing counselor, including those affiliated with the NFCC, can help you communicate with your servicer and understand your alternatives.

This may be an option for homeowners who have remedied their financial problems and can handle an even larger monthly obligation. “It can work, but [you must] know your financial situation,” says Rheingold.

If you can pay back mortgage payments in a lump sum, the servicer makes your account current and reinstates your loan. But fees may up the total.

The challenge is coming up with a chunk of money. And borrowing it is probably not a good strategy if you’re just recovering from financial woes.

3. Loan modification

Modification is best for people who are largely ready to resume payments but need some help catching up on what they missed.

A loan modification is almost like a refinancing. You get a new loan through your current lender with a longer term or a lower interest rate. With a loan modification you can avoid another round of closing costs and a potentially higher interest rate you would get with a refinance. But you must be able to prove a financial or personal hardship to your servicer.

“It brings you current and funds a new payment level that’s affordable to you,” says Ribe.

It’s not incredibly common, but you can also modify your loan by getting a  principal reduction — if your lender is willing to do it. This option is when the servicer can reduce the principal on your loan, based on underwriting and the actual value of your home. Reducing the amount you owe on the loan can reduce your monthly payments.

Fannie Mae and Freddie Mac allow lenders or servicers to do principal reductions, but not all will, so ask your lender or servicer.

4. Refinance

Like a loan modification, a mortgage refinance might be for you if you’re ready to restart mortgage payments but want to secure a lower monthly payment. If interest rates have dropped, you can save money on your payments by refinancing to a new lower rate. Or, you can change your loan term to spread out payments over more time.

A refi does require underwriting and some work on the servicer’s part, but the servicer already has all your documentation and can get it done quickly.

Keep in mind, you’ll need to pay closing costs to refinance, so make sure you plan to stay in the home long enough to recoup those costs. Otherwise, refinancing might not make financial sense.

You can check current refinance rates here and estimate what a refinance would cost you with Bankrate’s refinance calculator.

5. Lower associated costs of homeownership

If you are just short of making your monthly mortgage payments, another route is to seek to lower the costs associated with owning a home.

  • Property insurance: Shop for a better price on your property insurance to reduce your total monthly home-related costs.

  • Property tax abatement: Find out whether you’re eligible for property tax abatements in your area. This can lower your monthly mortgage payout, especially for seniors.

  • Private mortgage insurance (PMI): Contact your lender and see if you have enough equity (at least 20 percent) to get rid of private mortgage insurance. If you’re eligible to have it removed, you’ll see a drop in your monthly payments.

Keep in mind you can sometimes use PMI to save your home if the servicer is threatening to foreclose. In this event, you can file a partial PMI claim. Rather than paying a full claim to your servicer to prevent foreclosure, the insurance company pays the servicer just enough to cover your missed mortgage payments. To see if this would work, read your PMI policy documents carefully or consult a real estate attorney.

6. National and local assistance funds

Using assistance funds is another option to consider for those who qualify for each program. Nationally, you can get help through the Homeowner Assistance Fund, a $9.9 billion dollar fund created by President Joe Biden to help those struggling to make mortgage payments due to the COVID-19 pandemic.

In addition to national programs, some areas are rich in resources for struggling homeowners. One example is North Carolina, where an available resource includes the Foreclosure Prevention Fund.

Homeowners with a financial hardship can get help creating a repayment plan or have the NC Foreclosure Prevention Fund cover three years of mortgage payments while the homeowner retrains and gets a job in a new field, says Phyllis Caldwell-George, president and CEO for Financial Pathways of the Piedmont, an affiliate of the NFCC.

Check your state, county, city and any professional organizations like a union you may belong to and see what assistance programs are available.

Next steps

If you’ve fallen behind on your mortgage and need help, you have options to help you stay in your home. As tempting as it is to ignore the problem and hope it goes away, that will not work. Contact your lender right away and let them know what’s going on to make a plan and avoid foreclosure.