How to Get Out of a Mortgage in 8 Ways
Are you seeking ways how to get out of a mortgage because the monthly payments have become too much of a financial burden? It’s a challenging and potentially daunting circumstance, but you do have choices that can help you get through it.
Here, we’ll examine all the ways you can get out from under your mortgage and restore your financial footing again, including refinancing, loan modification, and short sale. If you have a mortgage, you shouldn’t let it stop you from moving forward.
Discover the steps to escaping your mortgage today and you’ll be well on your way to achieving your financial independence goals.
1. Pay Off the Mortgage
One option to get out from under a mortgage obligation is to pay down the existing mortgage balance. What this means is that you will be paying off the debt in its entirety, both the principal and interest.
One way to accomplish this is to pay more than the minimum payment each month toward the principal. Or you can pay off the full total in one big sum. When you pay off your mortgage, you no longer have to worry about making payments or paying interest on the loan. This can lead to a significant increase in your monthly cash flow and a sense of relief.
However, due to the substantial amount of money or other financial resources that are required, this choice might not be available to everyone. It’s also wise to consider alternate uses for the money you’d be using to pay off the mortgage.
2. Sell the Property
Selling your home and using the cash to pay off your mortgage is a quick and easy way out of your financial obligations. It is possible for the entire process of preparing, listing, selling, and closing on the sale of a home to take as little as several weeks.
Given the current state of the housing market, this strategy will appeal to many individuals who own their own homes. The number of homeowners who can’t recoup their mortgage when selling is much smaller than the number who can’t.
Nonetheless, if you just bought a house, you might not have time to accumulate enough equity to generate the income needed to pay off the loan once you factor in transaction charges.
3. Rent Out the Property
In some cases, a homeowner may be able to generate sufficient rental income to cover their monthly mortgage outlay. Your mortgage will still exist, but at least your monthly payment will disappear.
It’s possible to do this if the rental market is robust. Also, if you took out the loan long enough ago that rental rates have increased to cover the mortgage. The process of turning your house into a rental is quick and easy. Furthermore, it may not even necessitate costly modifications or the approval of your mortgage lender.
The negative of renting is the need to relocate. Those who can afford a less expensive rental or who have family nearby to move in with may benefit from this option. If you’re trying to get out of your mortgage because you lost your work, it’s possible that you’ll be able to do so by finding new employment and then moving back into your home once the present lease expires.
4. Refinance the Mortgage
When you refinance your mortgage, you take out a new loan to pay off your old one. This can be done to obtain cash from the property’s equity, shorten the loan’s duration, or reduce the interest rate.
The borrower can make their loan payments more manageable through refinancing to a lower interest rate or extending the loan’s term. It is essential to calculate the costs of refinancing and ensure that the savings from a lower interest rate will balance these expenditures over the life of the loan.
If you’re having trouble paying your mortgage payments, refinancing could be the solution to your financial woes.
5. Short sale
When the value of the home is lower than the remaining loan balance, a short sale may be an option. By using this method, the homeowner convinces the lender to allow the sale of the home at a price lower than what is owed on the mortgage. The loan is repaid when the lender agrees to accept the proceeds as payment in full.
It is not necessary to have the lender approve a short sale. Just as it was not necessary to have the lender approve the deed in lieu method. The lender can sue you for the difference in several states. The process of getting your house ready, listing it, selling it, and then moving out afterward is still another disadvantage.
Repossessions on government-insured loans have been halted due to a global forbearance policy. This is the case where a borrower falls so far behind on their mortgage payments that their lender attempts to foreclose on their home.
Taking this course of action involves little initiative on the side of the homeowner; they need only stop making their mortgage payments. But a foreclosure will ruin your credit so badly that you won’t be able to buy another property for years. You’ll need to relocate, of course.
Even so, the court process might take months, and it could be years before a foreclosed-upon homeowner is actually required to vacate the property. You may be able to negotiate with your lender during this period, halt the foreclosure process, and keep your home.
7. Loan Modification
In order to avoid the time and expense of foreclosure, lenders will often make concessions to borrowers in the hopes that the borrower would remain in the property and continue making payments.
They can do this in a number of ways, including adjusting the terms of the loan (such as by lowering the interest rate or extending the repayment period) or even writing off the principal. A win-win situation can arise if a loan modification lowers your payment to an amount you are comfortable paying each month.
As with other options, you can try to negotiate a modification with your lender. But they are under no obligation to agree to your terms. In any case, there is no harm in inquiring about it.
8. Strategic Default
When all else fails, just leave. Alternatively, you might use the phrase “strategic default” if you prefer a different term. During the recent economic downturn, many homeowners who were unable to sell their homes for enough to make their mortgage payments, rent them out at a profit, or get a loan modification turned to this strategy.
It’s better to be up-forward with the lender about your intentions than to just vanish. The lending institution may advise choosing another solution.
Sometimes, like when negotiating a lower cable TV payment, a threat of cancellation is the only way to get the other party to take your concerns seriously.
The effect can range from extremely negative (such as being unable to buy another home for years following foreclosure) to relatively neutral (such as receiving a loan modification that allows you to stay in your current home with a reduced payment).
When to Consider Getting Out of the Mortgage
There are a number of causes why someone would think about leaving their mortgage:
- In the event that monetary hardships make regular mortgage payments impossible to make.
- If there has been a dramatic shift in the person’s financial circumstances. This includes a loss of income or a large sudden expense.
- This could be an option if the homeowner has to downsize or move but can’t afford to maintain their current mortgage payment schedule.
- If the borrower decides to take their money elsewhere since they’ve found a more lucrative investment opportunity.
- Specifically, if the borrower has an adjustable-rate mortgage and the interest rate has increased, rendering the monthly payment unmanageable.
Before deciding to get out of a mortgage, it is necessary to weigh all of your options. Also, consider the extra costs. Before taking any action, it is ideal that you speak with a housing counselor or financial advisor.
Your mortgage is a secured loan on your home, so if you default on payments or stop making them altogether, your lender can take many legal actions to reclaim their investment in the property.
Because of this, mortgage rates are extremely low. In other words, loan payback is practically guaranteed to the lender. Although you already know how to get out of a mortgage, you should still consider the long-term consequences.