When you purchased your house, you likely never imagined a time when you wouldn’t be able to afford your mortgage payment. But, if the last two years have taught us anything, it is that sometimes life throws major curveballs that nobody could see coming.
If you’re struggling to make your house payment and don’t know what you should do next, this article can help you narrow your options to move forward with a little more clarity. This piece covers the main reasons your mortgage payment may be too high and your options for working your way through or out of your financial situation.
Why is my house payment so expensive?
For decades, housing prices have been a talking point among economists, politicians, and everyday people. Multiple factors influence the cost of a mortgage payment, including:
- Your interest rate
- Supply and demand
- Your neighborhood
The federal reserve heavily influences interest rates. While the federal reserve doesn’t dictate the rates lenders charge, they influence those decisions. For example, the federal reserve dropped its interest rate to near 0% during the pandemic. This meant that lenders could lower their rates to attract consumers without losing money. The federal reserve raised rates in the spring of 2022 to avoid more economic issues, like a recession. The result is higher interest rates on new mortgages.
If you purchased your home when interest rates were high, your monthly payment will reflect the higher interest rate.
Here’s an example:
A $350,000 mortgage loan with 30-year repayment terms and a 5% interest rate would cost $1878 per month. But, if the interest rate on the same loan were reduced to 3.5%, the monthly payment would sit closer to $1572.
Your credit history can also affect what type of interest rates you receive from lenders.
Other factors that could affect the cost of your home include supply and demand and your neighborhood. If you purchase a home in New York or California, you’ll likely spend more for your house than you would in North Carolina or Idaho. Supply and demand and local housing markets affect the total cost of the house, which also affects your monthly payment.
I don’t want to lose my house. What are my options?
Circumstances change. You may have been able to afford your house payment in the past, but if you’re finding it difficult to continue making those payments, you have options. You may even be able to avoid a foreclosure.
If you want to stay in your house, but your payments aren’t affordable, you have three basic options:
Seek a loan modification: If you aren’t behind on your payments by more than 30 days, you may be able to get a loan modification if you first contact your lender. A loan modification can change your payment terms to lower your monthly bill. Changes may include a longer repayment term or lower interest rates. Your lender is not required to agree to a loan modification, but they may be willing to help if you contact them as soon as you know you won’t be able to maintain the monthly payment.
Refinance your home loan: If you have a good credit score and some equity in your house, you may be able to refinance your loan to a lower interest rate. Lowering your interest rate by as little as 1 percent could save you a hundred dollars or more per month. You should know that your lender will charge between 1 and 2% of the total loan amount for your refinance, so you should do the math to make sure the cost makes sense for your finances.
Ask for a loan forbearance: Your lender may allow you to put your loan on a temporary hold. Forbearance would allow you to skip monthly payments for up to a year. Your loan could accrue interest, and your lender may require that you repay the back amount due at the end of your forbearance. However, if you’re financial setback is temporary, this option may allow you to keep your home.
If the above options don’t work, you may have to consider alternatives that require you to leave your house and find something more affordable.
Some options you might consider include:
Sell your home for cash: You can list your home and sell with a real estate agent on the MLS. However, selling with a real estate agent can be expensive, and it takes time. If your buyer needs financing, it can take even longer for the sale of your home to close. Alternatively, you can sell your home to a cash buyer like brick. A cash buyer can speed up the sales process and help you get out of your house quickly.
Short sale: If your home is worth less than what you owe, you may need to consider a short sale. Your lender must agree to accept less than what you owe on the loan, and some states allow the lender to ask you to pay the difference between the sales price and what you owe. While a short sale isn’t ideal, it does minor damage to your credit score, and you’ll be able to buy another home faster than a foreclosure.
Deed in lieu of foreclosure: In a deed in lieu of foreclosure, the lender takes the title of your home. You could walk away (in most cases) without having to repay the loan. The lender would sell the house to repay your loan. A deed in lieu will affect your credit score, but it’s more private than a foreclosure, and the damage won’t be as long-lasting.
If you can’t afford your mortgage payments anymore, you have options. You can avoid foreclosure and move on to a better financial position. If you know you can’t afford to keep up payments taking action as quickly as possible will make moving forward much easier.
Ready to sell your house for cash? Reach out today. We make cash offers fast.