March 28, 2025
How To Manage Your Mortgage When You Are Unemployed?
By : Ellie Brown
Unemployed can throw a curveball at any time. You might become the victim of workplace politics, or you could be eased out because your services are no longer required. Whatever the scenario, it is you who has to endure the consequences. As soon as you lose your job, you are required to apply for unemployment benefits. However, you must be eligible for them. Unless you land a new job, you would be required to employ benefits and savings to make ends meet.
However, problems arise when you have taken on large debts such as mortgages and auto loans. If you fail to repay your mortgage payments, you will lose your property. A mortgage includes a long-term repayment plan. The minimum repayment plan is no less than 10 years. Despite your current financial condition being good, you cannot be completely certain about your repaying capacity.
How to manage payments when you are out of work?
The financial situation could be turned upside down at any moment. If you lose your job, you will certainly struggle to make payments towards mortgages. You may take some time to land a new job, but until you land a new job, how will you pay off your mortgage? If you are struggling to repay your mortgage during unemployment, you should consider the following options:
1. Communicate with your lender
Job loss could make it complicated for you to repay your mortgage. Bear in mind that you will lose your house if you miss any payments. However, just one missed payment would not lead to repossession of your home, but if three payments are defaulted in a row, you might be sent a letter from a lender. Missed payments should be avoided because they attract late payment fees and interest penalties.
This will accrue your mortgage debt. The larger the size of the debt, the more complicated it will be to settle your dues. Therefore, it is enjoined that you be proactive. When you lose your job, you should immediately talk to your mortgage lender. They could help you come up with a payment plan that works best according to your current financial condition.
It is vital to be completely honest about your finances. Your lender will check your income sources to see if there is any possibility of keeping up with the mortgage payments. You might be earning some money from a part-time job or a side gig. Remember that any passive income source will be taken into account to determine the size of monthly instalments.
Most of the lenders consider the following alternatives as a solution during unemployment to help you adhere to payments:
2. Mortgage holiday
Mortgage holidays became popular during the pandemic, but this is a viable option when you are struggling financially. A mortgage holiday is a temporary repayment break, so you do not struggle with making ends meet. Mortgage instalments are quite high, and if you are required to pay them during financial challenges, you would not be able to meet other essential expenses. This will force you to take on loans on benefits from a direct lender.
Unfortunately, they will make it even more challenging to ride out. In order to preclude yourself from falling into an ongoing cycle of debt, you should consider a mortgage holiday. When you do not have to make mortgage payments for the time being, you can easily meet your regular expenses without borrowing any more.
Remember that the mortgage holiday period is very short. Most lenders would allow for a pause of payments for only a month or two. It is expected that you will manage to land a new job within this time period.
Bear in mind that the payment pause does not mean debt forgiveness for that period of months. Paused payments result in accrued interest, which means it will continue to increase the total mortgage balance. It exceeds the loan term, and you will have to pay a lot more money in total. You should carefully assess the implications of a mortgage holiday before applying for this option.
3. Reduced monthly payments
Some mortgage lenders may consider this option, too, if your financial condition is not too bad. Lenders usually prefer reduced monthly payments rather than mortgage holidays. The latter is a last resort. Your lender will carefully examine your financial condition in order to decide how much money you will be able to repay every month.
Reduced monthly payments would accrue interest on the unpaid balance. You must consider this factor. It is still recommended that you find a new job sooner rather than later.
4. Review your expenses and revamp your budget
As soon as you lose your job, you should change your budget. You should thoroughly check a bank statement from the previous three months to track your expenses. As you are out of work now, it is recommended that you spend money only on essential expenses. A golden rule of thumb says that you should completely ban your discretionary expenses.
Try not to confuse wants with needs. Otherwise, you will end up borrowing more money to meet your regular expenses. While budgeting is aimed at cutting back on your costs to be able to pay down your mortgage, you also need to stash away money for small emergencies.
Having an emergency cushion is a must when you come across some financial emergencies. This will prevent you from applying for loans for tenants on benefits. These loans are small in size, but they are required to be settled up in fell one swoop. They could cost you a lot of money in the long run. You should be careful about your spending. Here are some ways to cut back on your daily expenses:
- Buy groceries from local markets.
- Make sure you purchase seasonal produce. They are less expensive than non-seasonal produce.
- Avoid stockpiling because this blocks money. You should rather buy according to your needs.
- While buying any product on schemes and offers, calculate the price per unit and then decide whether this is affordable or not.
Budgeting is extremely crucial to ensure that you have wiggle room to meet mortgage payments. Fine-tune your expenses to fit them into your current financial condition.
5. Increase your income sources
Increase your income sources to make mortgage payments faster. While it is important to update your resume and your profile on job portals, you should also figure out what you can do presently to keep up with payments.
There are various side gigs you could consider, such as pet sitting, babysitting, online teaching, freelance writing, and walking a dog. All these fields would help you make some money. When there is some extra cash, you will find it easier to cushion the blow of unexpected unemployment.
The bottom line
At the time of unemployment, it could be challenging to stick to mortgage payments. You should talk to your lender and ask them about any repayment alternatives. They could grant payment holidays or reduce the size of monthly instalments depending on your current finances. Be transparent and honest. You should also increase your income sources. Side gigs help you adhere to payments.