Can't afford your mortgage right now? Here's what you can do

Over 2.6 million homeowners are in mortgage forbearance programs. Here are 6 ways to pay the mortgage and avoid foreclosure. (iStock)

The coronavirus pandemic has made it difficult for many households to pay their mortgage each month. Approximately 5% of all mortgages, or 2.6 million homeowners, are currently enrolled in a forbearance plan, according to the Mortgage Bankers Association.

It’s possible to avoid defaulting by requesting a mortgage forbearance. You're able to save money on mortgage payments upfront but must pay the missed principal and interest payments later.

Homeowners with federally-backed mortgages can request forbearance until June 30, 2021, for up to 15 months. Private mortgage servicers also offer forbearance plans.

If you're struggling to pay your mortgage, consider pursuing the options below to help. And if you're interested in a mortgage refinance, consider using Credible. You can ​use Credible's free online tool​ to easily compare multiple mortgage lenders and see prequalified rates in as little as three minutes.


Ways to save on mortgage payments

  1. Refinance your mortgage
  2. Contact your lenders while on forbearance
  3. Apply for a loan modification
  4. Reduce monthly expenses
  5. Declare bankruptcy

1. Refinance your mortgage

Mortgage refinancing can help reduce your monthly payment toward your home loan. And right now, refinance rates are near historical lows.

Most lenders let homeowners refinance into a 30-year or 15-year mortgage with a minimum 620 credit score, a maximum 50% debt-to-income ratio and a healthy credit utilization ratio. Borrowers with a strong credit history can qualify for lower mortgage refinance rates.

An online mortgage refinance calculator can help you estimate your new monthly costs and potential interest savings.  You can also explore your mortgage refinance options in minutes by visiting Credible to compare rates and lenders. Check out Credible and get prequalified today.


2. Contact your lenders while on forbearance

Lenders and mortgage servicers may be willing to extend the forbearance period beyond the initial timeline. This is the case for federal mortgage loan types due to coronavirus stimulus bills and presidential actions. Additionally, COVID-19 mortgage forbearance plans won't negatively impact your credit score like a traditional forbearance period.

Borrowers should speak with their servicer before the mortgage exits forbearance in order to review repayment options and determine when the deferred payments are due.

Lenders can also arrange a "short sale" with homebuyers to sell a house for the current mortgage balance. This sale type prevents foreclosure from showing on the current homeowner’s credit history.

If you need help, you can also use Credible to get in touch with an experienced mortgage loan officer to answer your questions.


3. Apply for a loan modification

Mortgage borrowers experiencing financial hardship can request a loan modification to their existing home loan. Both federal and private loan types are eligible for this.

Banks may offer you these modification options:

  • Reduce interest rate
  • Extend repayment length
  • Switch to a fixed interest rate

Modifying a mortgage can be a better choice in order to avoid refinancing costs or if the refinance rates are similar to the current mortgage rates.

Loan modifications are also different than getting a mortgage refinance, which will show on your credit history as a new loan.

4. Reduce monthly expenses

Looking for ways to reduce monthly spending can free up more cash for the mortgage payment.

Paying off debt with high interest rates while the mortgage is in forbearance is one option. Cutting non-essential expenses, like monthly subscriptions or getting lower insurance premiums, is a second idea.

5. Declare bankruptcy

Declaring bankruptcy can be a difficult personal finance decision, as it can negatively impact your credit history for up to 10 years and make it harder to qualify for future loans.

Most outstanding consumer debt can be forgiven and you may not lose your home during bankruptcy. But you must continue making payments.

Chapter 13 bankruptcy lets homeowners keep their mortgage and restructure the payment plan. A Chapter 7 bankruptcy filing is a "total bankruptcy" and homeowners may need to sell their home to pay off the debt, depending on the situation.

Final thoughts

If you're struggling to pay your mortgage, it doesn’t have to mean an automatic foreclosure or having a damaged credit history. Current low interest rates make choosing to refinance your mortgage a strategic way to keep up with your monthly payments. And temporary relief programs like forbearance and loan modifications are other options to consider.

If you think refinancing is the best move for you, Credible can lend a hand. Credible can help you compare mortgage lenders and discover the best refinance rates available today so you can lower your monthly payments and meet your personal finance goals.


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