What to do if you fall behind on mortgage payments

Staying in contact with your lender is key to overcoming late payments on your mortgage. (iStock)

Falling behind on mortgage payments can be terrifying. Unfortunately, it’s also a common occurrence. In the second quarter of 2020, mortgage delinquencies increased by nearly 4%, according to the Mortgage Bankers Association. While the number of late payments decreased in the third quarter, they were still higher than at the same time in 2019.

While it might feel easier to hide the bills or ignore calls from your lender, that’s the worst thing you can do. If you want to keep your home, you’ll need to be proactive.

How can I catch up on my mortgage payments?

Here are a few ways you can take steps to address your late payments and, hopefully, stay in your home.

  1. Call your lender
  2. Consider a refinance
  3. Ask about loan modification
  4. Ask about mortgage forbearance
  5. Chapter 13 bankruptcy

1. Call your lender

Call your lender as soon as you know you won’t be able to make your payment. They may be able to extend your grace period. If you have an otherwise clean payment history, they may even let you defer a monthly payment. Keep an open line of communication so that if you do need to take more radical action, they’ll have your information ready.

Make sure to use an online mortgage calculator to determine what lower rates or a longer repayment term could do for your mortgage payment. You can also head to Credible to compare mortgage refinance rates if you believe that will help make monthly payments more affordable and help you in the long-run.

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2. Consider a refinance

As mortgage rates sit near historic lows, now may be an excellent time to consider a refinance. Lower interest rates could help you reduce your monthly payment. Additionally, adjusting your loan terms to an extended repayment period would also reduce your monthly payment.

Refinancing could make your monthly payments more affordable, but it’s not free. A refinance will likely cost several thousand dollars. To see how much you could save on monthly mortgage payments by refinancing now, crunch the numbers and compare rates using Credible’s free online tool.

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3. Ask about a loan modification

When you refinance a loan, you must qualify with a good credit score and income. A loan modification allows you to work directly with your lender to change the terms of your current mortgage. You won’t have to deal with underwriting, but you’ll need to get your lender to agree to changes. Modifying your loan could affect your credit score, and if you miss a payment, the lender may be less forgiving. But you could get more affordable monthly payments without the cost of a refinance.

If you’re unsure whether a loan modification or refinance is a better option, visit Credible to get prequalified rates without affecting your credit score.

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4. Ask about mortgage forbearance

Mortgage forbearance allows you to suspend or reduce your monthly payment temporarily. President Biden extended the deadline to ask for forbearance until March 31, 2021. It's worth contacting your lender to explore this and other forbearance options base on your circumstances.

5. Chapter 13 bankruptcy

A Chapter 13 bankruptcy is the nuclear option, and you should avoid it if possible. A bankruptcy will affect your credit for several years and make it difficult to qualify for other lines of credit. However, you may be able to save your home with Chapter 13. This type of bankruptcy stops all foreclosure proceedings, but you must continue to make your monthly payments on time. If you file for a Chapter 13 bankruptcy, you’re still responsible for your debts, but you’ll pay them through a trustee over three to five years.

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Today’s mortgage rates

The average 30-year fixed-rate mortgage was 2.77%, and the average 15-year fixed-rate mortgage was 2.21%, at publication, according to Freddie Mac. Interest rates on both the 30-year and 15-year mortgages have dropped 0.83% from the same time last year.

While rates are already low thanks to the Federal Reserve’s efforts to spur the market, there are likely other factors as well. There is a considerable demand for homes in many markets. This demand, paired with a low supply, can cause interest rates to dip. Other factors that influence mortgage rate fluctuation include location, current events, and the bond market.

Millions of homeowners are facing financial difficulties after a trying 2020. However, there is help available. Most lenders are more than willing to work with homeowners while they’re working on getting back on their feet. If you’re behind, contact your lender as soon as possible to see what type of options you have available.

Don’t forget to visit Credible to get in touch with experienced loan officers who can answer your mortgage questions and help you decide if a mortgage refinance is a good option for your financial situation.

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