7 Ways To Get Out Of Your Mortgage (2024)

Coronavirus mortgage forbearance has helped millions of American homeowners facing hardship due to pandemic-related income loss remain in their houses. The federal government just extended forbearance relief, allowing homeowners to temporarily halt mortgage payments for as long as 15 months, up from 12 months initially. But for some homeowners, this help may not be enough. They simply need to get out from underneath their mortgage.

If you’re feeling the need to escape your mortgage because you can’t pay, you aren’t alone. In November 2020, 3.9% of mortgages were seriously delinquent—meaning they were at least 90 days past due, according to real estate data firm CoreLogic. That delinquency rate was three times higher than the same month in 2019, but it was down sharply from the pandemic high of 4.2% in April 2020.

While job loss is the main reason homeowners look for an escape hatch from their mortgage, it’s not the only reason. Divorce, medical bills, retirement, job-related relocation or too much credit card or other debt may also be factors in why homeowners may want to get out.

Whatever the reason, it’s worth keeping in mind that this is a legitimate financial move, even if some of the approaches to ridding yourself of your mortgage can cause damage to your credit. Here’s a look at seven different ways to get out of a mortgage.

1. Sell Your House

One of the best and fastest ways to get out of a mortgage is to sell the property and use the proceeds to pay off the loan. The process of preparing, listing, selling and closing on a home sale can take as little as several weeks.

Many homeowners will find this to be a viable approach, given the red-hot residential market. Relatively few mortgage holders are likely to find they can’t sell their house for more than they owe. However, if you recently purchased your home, you may not have had time to build up enough home equity to produce the cash needed to pay off the loan after accounting for transaction costs.

2. Turn Over Ownership to Your Lender

Another option is to voluntarily turn over ownership to the lender in order to avoid foreclosure. This arrangement, called a deed in lieu of foreclosure, requires homeowners to convince their lender to take back the deed to the property in exchange for releasing them from the mortgage. You’ll likely need to prove to your lender that you can’t afford to make your payments.

A deed in lieu can be fast and doesn’t require the borrower to prepare and list the property. While it will damage your credit, it’s not as bad as an actual foreclosure.

The catch here is that the lender is under no obligation to accept the deed in lieu offer. A lender may decide it can recoup more of its money through a traditional foreclosure. Another potential catch is that, if the lender sells the home for less than the balance on the loan, you may have to make up the difference.

3. Let the Lender Seek Foreclosure

Pandemic forbearance has blocked foreclosures on government-backed loans. This occurs when a borrower gets so far behind on payments that the mortgage lender seeks to force the homeowner to vacate.

This solution requires no initiative on the part of the homeowner—just stop paying and eventually you’ll get foreclosed on. However, foreclosure will severely damage your credit and keep you from buying another home for years. Also, of course, you’ll need to find another place to live.

Still, the legal process can take months, and it may be years before someone who has been foreclosed on actually has to move out. During that time, you may be able to come to an agreement with your lender, stop foreclosure and stay in the home.

4. Seek a Short Sale

A short sale can be useful if the home is worth less than the loan balance. With this technique, the homeowner gets the lender to agree to let the home be sold for less than the loan balance. Then the lender accepts the proceeds in payment of the loan.

As with the deed in lieu technique, the lender doesn’t have to agree to a short sale. And in some states the lender can sue you for the shortfall. Another drawback is that you’ll have to go through the process of preparing, listing and selling the home, as well as moving out when the deal is done.

5. Rent Out Your Home

Sometimes a homeowner can rent the home for enough to cover the mortgage payment. This isn’t technically getting rid of your mortgage, but it is getting rid of your mortgage payment.

This can be viable in a strong rental market or when you took the loan out so long ago that rental rates have had time to rise beyond the mortgage payment. A rental also can be accomplished fairly quickly, may not require expensive repairs to your home, needs no lender approval and, importantly, lets you remain a homeowner.

On the downside, renting requires finding another place to live. It can be a good choice if you have enough income to pay rent on a cheaper place or can move in with relatives. If you’re looking to get out of your mortgage because you’re unemployed, you may be able to find a new job and, when the current lease runs out, re-occupy the home and resume making mortgage payments without the need for a tenant.

6. Ask for a Loan Modification

The process of foreclosing is costly and long, and many times lenders would prefer to cut borrowers a break if it will keep them in the home and making payments. They can do this by modifying the loan, reducing the interest rate, extending the term or even forgiving principal. If a loan modification reduces the monthly payment enough that you can cover it, both parties can get what they want.

As is the case with other escape hatches, you can ask the lender for a modification, but the lender doesn’t have to provide it. In any event, it can’t hurt to ask.

7. Just Walk Away

Finally, you can simply walk away. If you don’t like this term, try “strategic default.” That’s what it was referred to during the last recession when it was employed by many homeowners stuck with homes they couldn’t sell for what they owed, couldn’t rent for enough to cover the payments and couldn’t convince their lenders to give them a break.

Rather than simply disappearing, however, tell the lender what you are planning. The lender may suggest one of the alternatives above as a better option.

As with getting a better deal on your cable TV bill, sometimes you have to threaten to cancel to let the other side know you’re serious. Depending on the solution your lender offers, the outcome can be seriously negative—not being able to buy another home for years after foreclosure—to not bad at all—a loan modification that lets you stay where you are with a smaller payment.