Rest assured that you are not the only person who is struggling to come up with the money to pay off their mortgage. Many people are in the same boat as you.

The Boston Globe reports that during the apex of the recent pandemic, 5.5% of borrowers with an unpaid principal of $651 billion had to forgo payments because they had either lost their jobs or suffered a decline in income.

Defaulting on your mortgage has both immediate and prolonged consequences that can wreak havoc on your general and financial well-being.

Thankfully, if you are experiencing difficulties with paying your mortgage, there are several options that can help you get back on track. Presented below are five crucial steps you can take if you are unable to make your mortgage payments currently.

1. Examine your budget

Research shows that nearly one-third of people do not maintain a budget, while even the most meticulous financial planners may be operating on outdated information. When things are going well, it is easy for “wants” to be disguised as “needs.” To sustain a robust financial outlook, it is time to review your budget, prioritize essential expenses, and explore opportunities to save money.

If you have not done so before, now is the right time to create an accurate and comprehensive budget. If you are comfortable leveraging technology to help you comprehend your financial situation, there are plenty of money management applications available that can assist you in assembling a budget.

2. Petition for deferment

While many of the federal safeguards enacted to safeguard homeowners during the Covid-19 pandemic are expiring, help is still available. In March 2023, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac will permit borrowers experiencing financial difficulties to defer up to six months of mortgage payments. Eligible borrowers facing hardship can move past-due amounts to the end of the loan as a non-interest-bearing balance.

Contact your loan servicer directly to request a deferral and see if other relief programs are available. Unfortunately, the process is not standardized, and different loan providers will have different procedures for obtaining a deferral or forbearance.

Keep in mind that a mortgage deferral or forbearance comes with some caveats, so it is essential to understand what you are agreeing to before making any significant decisions.

3. Refinance your mortgage

Refinancing your mortgage is a financial strategy that may not always be advantageous for homeowners. With current interest rates hovering around 6%, only a select group of homeowners may reap the benefits of this approach.

In 2023, there are three major types of homeowners who may potentially benefit from refinancing their mortgage. Do you identify with any of the following categories?

Firstly, homeowners who could potentially attain a lower interest rate may benefit from refinancing their mortgage. Although mortgage rates hit an all-time low during the pandemic in 2020, there may still be a chance for current borrowers to take advantage of this opportunity. Typically, refinancing becomes advantageous if a homeowner can decrease their current interest rate by a full percentage point. Therefore, if you have an interest rate of 7% or higher – with a solid credit history to support refinancing – it may be worth considering this financial strategy.

However, the rule of a single percentage point is not mandatory. If you have a higher interest rate than what’s currently offered and want to save every possible penny, then refinancing may still be a worthwhile option. It’s essential to keep in mind that refinancing entails closing on your home again, which involves paying for closing costs. Therefore, if you’re not planning on living in your home long enough to recoup the expenses incurred from closing on a refinance, it may not be worth it.

Refinancing costs include closing costs, appraisals, inspections, attorney fees, and other expenses, which can add up to 3-6% of the mortgage. This means borrowers require significant cash on hand to take advantage of refinancing.

As every homeowner’s circumstances are different, it’s crucial to perform an individualized financial analysis to determine if refinancing your mortgage is beneficial for you. Remember that every dollar saved counts and refinancing can provide substantial long-term financial benefits.

Foremost, refinancing often depends on the equity of the borrower’s home, requiring them to have 10 to 20% equity to qualify for refinancing. This eligibility criterion limits refinancing to those with home equity and the financial capacity to pay immediate refinancing costs.

When done correctly, refinancing can present an excellent opportunity for borrowers to decrease their monthly payments, free up funds, and make their mortgage payments more manageable.

4. Sell your home

Alternatively, downsizing or relocating to a more affordable area can relieve the financial pressures posed by the current mortgage payment. Even though it may not provide immediate relief, selling the property can be a reasonable strategy for stabilizing finances, especially for those underemployed after the pandemic.

5. Rent out your property

Subletting the property or renting through temporary rental services such as Airbnb can also generate extra income, making mortgage payments more feasible. Nonetheless, relying on renters may have challenges, but it is an option worth considering.

Connect with a housing counselor to navigate these options and find the best solution for your financial challenges. Their trained counselors provide support, including HUD-approved housing counseling and free, confidential credit counseling to help you balance your finances.