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A mortgage may become a financial hardship for you if you happen to lose your job or have insufficient savings and income to pay the lender the borrowed amount. This is an even bigger problem if you bought more home than you can afford at a time when housing prices were high.
Deciding whether or not a mortgage payment is a financial hardship requires you to look at your personal situation to determine the best course of action regarding your monthly payments. This may include seeking refinancing opportunities, downsizing the home, or simply selling it.
Assessing the Financial Situation
When looking ahead, you should make an assessment of your current financial situation. This includes a loss of income because of job loss. This requires an in-depth look at your spending and savings habits to determine the amount of income, revenue and expenses in cash that are happening on a monthly basis. In many cases, people have much more money going out than coming in. Often, you need to establish a budget to exercise better control of spending. These budgets should be communicated to each family member and strictly adhered to.
Analyzing Current Mortgage
After the assessment, you might want to take a closer look at whether or not there are any options to refinance the loan. There are other options as well. If the payments on the mortgage have been timely so far, you might qualify for lowered interest rates. This means monetary savings that can help tide over the hardship.
Adjustable Rate Mortgages
If your loan is on an Adjustable Rate Mortgage (ARM) basis, then you need to keep looking at the prevailing interest rates. If they are lower than what you are currently paying, you will only be required to pay at those lowered rates. But the opposite of that can become true as well—if the prevailing rates increase, you will have to pay more.
Selling the Home
Although no one likes to think in these terms, there may come the time when you have to face the fact that you can no longer afford your home. With this realization, you should look to sell the home and use the proceeds to purchase another one that is more within your budget range and needs. The need to keep up with the Joneses, with respect to owning a home, does not mean much if you have to face foreclosure down the road due to your inability to pay the mortgage. Selling the home and downsizing into a smaller one may be a sensible and responsible decision to make.
No one knows definitively whether owning a home or paying a mortgage will cause financial hardship in the future. Being a responsible borrower and considering all of your options when making a purchase decision may help avoid some of the issues and concerns of those homeowners who are facing financial hardship.
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