Options for Dealing With Mortgage Loan Trouble

If you’re having trouble making your mortgage loan payments, being proactive is the best way to avoid foreclosure. Though you may be afraid to, talking with your lender can help you come up with options that may save your home.

Mortgage loan reinstatement

You may be able to reinstate your loan if you had temporary trouble making your mortgage payments. Through loan reinstatement, you agree to pay your past due mortgage payments by a certain date and your mortgage is back on track. You might also be required to pay late fees and certain penalties. This option might be difficult if your past due account is high.


Through forbearance, your mortgage payments are reduced or put on hold for a certain amount of time, depending on what your lender will allow you to do. Once your forbearance has ended, you’ll resume making your normal monthly payments, but you may also have to pay an extra amount to make up the payments you missed while you were on forbearance.

Forbearance is another good option for a temporary decrease in income. If your mortgage payments are simply too high, forbearance won’t help unless you expect your income to increase.

Loan modification

Mortgage loan modification changes the terms of your mortgage to make your payments more affordable. This is an option if your payments are simply too high. Loan modification may lower your interest rate, extend the length of your loan, add missed payments to the balance of your loan, or some combination of those things. Loan modification may only be available to you if you’re already behind on your payments.


When it comes to your credit, filing bankruptcy may not be better than foreclosure, but you may be able to keep your home by using bankruptcy. Filing Chapter 13 bankruptcy at the right time would halt foreclosure actions. In the meantime, you can work out a court-approved repayment plan that would let you catch up on your past due mortgage payments over three to five years.

Give Up Your Home Without Foreclosure

You may be able to “gracefully bow out” of your mortgage obligation so to speak. For example, you could sell your home. If the selling price would cover the cost of the loan and selling expenses, you may be able to save yourself from foreclosure.

A short sale is another option. Though it won’t save your credit score, it will prevent the long process of foreclosure. During a short sale, you work with the lender to accept a sales price lower than the amount outstanding on your mortgage loan. The remaining mortgage is forgiven. However, your credit report is updated to show foreclosure activity.

With a deed in lieu of foreclosure, you simply hand the keys to your house over to the mortgage lender. You lender agrees to cancel the remainder of your mortgage and you avoid the foreclosure process. Foreclosure goes on your credit report. Note: you might not be able to do a deed in lieu of foreclosure if you have a second mortgage or outstanding home equity loan.

Taxes on Cancelled Debts

Normally, the IRS requires you to pay taxes on cancelled debts over $600, but the Mortgage Forgiveness Debt Relief Act of 2007 allows you to avoid taxes on debts forgiven on a primary residence.