Source: The Ascent —
It’s been a very difficult time to be an ordinary American homeowner as of late. If you bought a home in the last few years, you might be grappling with higher housing payments due to elevated home values. They climbed in the last three years during the COVID-19 pandemic as Americans changed their priorities and fled city rentals to buy homes in areas with more breathing space. The Federal Reserve Bank of St. Louis reports that the median sale price of a home as of Q4 2022 was $467,700; just three years prior, in Q4 2019, that figure was $327,100.
If you’re in the position of no longer being able to afford your mortgage loan payments, you’re likely panicking and wondering what happens now. I’ve been in your shoes before (thanks to getting laid off the last time I owned a home), and it’s something no one wants to experience, ever. Here’s what to do if you can’t afford your next payment.
Contact your mortgage loan servicer for options
Your first move in this situation should be to contact your loan servicer as soon as you realize you can’t pay your mortgage. It’s a smart idea to run through your costs and budget again ahead of that phone call to make sure you’re truly coming up short and haven’t overlooked a bit of money you could apply to the payment.
Your loan servicer has definitely heard from people in your situation before, and will have options for you to stay in your home (or not, if you decide you want to get out from under your loan). These will include forbearance programs, which can give you the chance to pause your loan payments with the understanding that you’ll make up what you owe later.
Another option might be a loan modification, which changes the terms of your existing mortgage to make it more affordable for you. The change could be temporarily lowering your interest rate or lengthening the term of your loan (say, going from a 15-year fixed-rate mortgage to a 30-year loan instead).
You might be able to refinance your mortgage loan to make it more affordable. If you signed your loan at a high interest rate, those extra costs could be contributing to your difficulties paying. As of this writing, the average interest rate on a 30-year fixed-rate mortgage is 6.12%, per Freddie Mac. While this is a far cry from the salad days of rates in the 3% range at the start of 2022, it might be lower than your rate, especially if your credit score wasn’t so good when you got your loan and you’ve improved it since.
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