The Five-Step Mortgage Management Plan: What to Do if You’re Over Your Head

Has your mortgage payment become too large for your comfort? If so, take swift and informed steps toward a resolution.

Step one: Know your shortfall
First, identify how close or far you are from being able to meet your mortgage payment. Just subtract the total of your monthly expenses from your monthly income—the final number represents the amount of money you’ll need to make up so you can pay your mortgage as agreed. Accuracy is key, so avoid overestimating income or undercounting expenses.

Step two: Explore your spending plan changes
Now identify ways to close the deficit. Consider increasing your income with a second job, part-time employment, adding work hours, or have a family member contribute to the income pool. Carefully review your expenses and pinpoint areas where you can cut down to free up cash. Be realistic with what you can and can’t do. After all, you may be able to sell some assets to meet next month’s shortfall or live frugally for a couple of weeks, but what about after that? Plan for the long-term.

Step three: Contact your lender
If you are unable to make your normal mortgage payment on a regular basis by adjusting your cash flow, pick up the phone and call your lender. Be ready to discuss your financial situation in detail. When speaking with your lender, be honest and clear about your desires and abilities. As tempting as it can be, never promise something you cannot follow through on.

Step four: Be open to options
You and your lender will discuss ways you can keep the home, which may include modifying the terms of the existing loan, making lower or no payments for a period of time, or refinancing the loan. None of those solutions work? Consider selling the home or deeding it back to the lender. If it is worth less than the loan balance, you may be able to sell it for its current market value. Ask about the benefits and drawbacks of each option before making a decision.

Step five: Take action
Whatever you decide, don’t wait with what you need to do. For example, if you gave your word that you will be back on track in three months by getting a second job, make sure you do so. If you know that it will be impossible to afford your mortgage payment, find another living situation now and put the home up for sale or deed it back to the lender before the foreclosure process begins. Delaying action wastes precious time and money.

Not being able to make your home payment is scary. However, if you approach the problem quickly and knowledgeably, you may be able to turn a negative situation towards a more positive one.

Revised January 2016

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