How to get out of a mortgage loan

Life is change. That can mean that a mortgage that was a good fit for you years ago isn’t anymore. Whether that’s because of a change in your finances or a change in life circumstances or goals, you might be wondering how to get out of a mortgage loan.

Whether you have a conventional loan, a government-backed one, or even a joint mortgage with someone else, it is possible to get out of your mortgage without merely stopping payments.

It’s important to explore all your options, because simply not making payments can have serious long-term financial consequences. Let’s look at how to get out of a mortgage loan through legal and prudent ways.

Reasons to get out of a mortgage

There are any number of reasons you may want to or must get out of your mortgage, but some are more common than others. Let’s explore them.

Inability to make monthly payments

As noted, life changes. And sometimes those changes hit hard financially. Whether it’s an unexpected medical bill, losing a job, or other debts, it’s not uncommon for people to suddenly find they can’t afford their mortgage payments any longer.

The key here is to address the issue head-on before it gets out of control and damages your credit or leads to foreclosure on your home or property. A good first step is to cut what you can in your monthly budget to ensure your mortgage doesn’t exceed a healthy percentage of your income.

Sudden relocation

There are other legitimate reasons to want to get out of a mortgage. Landing a great new job in another city, a military relocation or deployment, or an urgent family matter can all turn a mortgage into more of a burden than a privilege.

If relocation is the reason, and you lack money for a down payment on a new home, selling your home might be the most viable path forward, but you should explore your options for a new loan with a low down payment.

Separation or divorce

If you and your partner are separating or getting divorced and you have a joint mortgage on a property, there are a lot of logistics and emotions involved. You might be wondering what the financial responsibilities are. In short, in a joint mortgage there are more than one co-borrowers, and each is responsible for the monthly payment.

This means that even if you move out of the home or don’t have your name on the title of the home, you are still legally obligated to ensure the monthly payment is made.

Changing property values

Over time, property values typically increase. But several things can create fluctuations in the housing market, leading to a decrease in the fair market value of your home. For instance, higher interest rates can lead to decreased values. Supply and demand issues can lower home prices. Falling consumer confidence is another situation that could lead to falling values.

When your property value falls, but your mortgage payments stay the same, it could be attractive to get out of your mortgage or property and into a more affordable one.

Co-signer removal

A co-signer is someone who agrees to take legal responsibility for a mortgage if the primary borrower can’t make payments anymore. It’s possible for any number of reasons, a co-signer might want to remove themselves from the mortgage and the financial responsibility for it.

For instance, this might happen because the primary borrower’s finances have improved to the point that a safety net is no longer needed. Being removed could give the co-signer more peace of mind. After all, being a co-signer does come with risk. If mortgage payments are missed, it could affect their credit.

How to get out of your mortgage legally

There are legal ways to get out of your mortgage. First and foremost, of course, is to sell your home, but that’s not the only way. Let’s look at your options.

Talk to your lender

If you are at risk of not being able to make your mortgage payment or want out of your mortgage, the first step is to call your lender. Open communication is key. When you speak to them, explain:

• Why you might not be able to make your payment.
• Whether the issue is temporary or permanent.
• Your financial picture, like your income, expenses, and other assets.
• If you are a servicemember and have received permanent change of station (PCS) orders.

Once they have a clear understanding of your situation, your lender might be able to offer or direct you to mortgage assistance programs and other options that can help. This could prevent catastrophic outcomes such as foreclosure and lasting damage to your credit.

Sell your home

If you have equity in your home, and you’re open to giving up your property, selling your house might be the simplest and most favorable option. Just make sure the property can be sold for more than your mortgage, plus any outstanding liens, and the fees that accompany a sale, such as real estate agent commissions.

Selling a house with a mortgage is possible, but selling any home is a process. You’ll need to list the property, show it to potential buyers, field and negotiate offers, and make sure all documents and paperwork are prepared correctly. This is no small task, and professional help from a real estate agent, mortgage expert, and/or attorney is usually wise and worth the cost.

Request a deed in lieu of foreclosure

A deed in lieu of foreclosure is when you deed your home over to your lender in exchange for getting out of your mortgage. In essence, you are paying off whatever balance you have left on your mortgage with your ownership rights in the home.

This might be a good option if you’re going through financial hardship and want to avoid foreclosure and minimize damage to your credit.

Have a short sale

With a short sale, you sell your house for less than the remaining balance on your mortgage. This must be done with the permission of your lender. And, depending on your state’s laws, you may be responsible for any difference between the sale price and the mortgage balance.

Depending on your unique case, the balance on your mortgage is either forgiven or repaid later through a deficiency judgment as a result of a short sale. Either way, this is an option for those who want to avoid foreclosure and minimize damage to their credit.

Let your house go into foreclosure

This should probably be your last resort. Foreclosure is when the lender takes legal action to take possession and sell your house for missed and overdue mortgage payments. Foreclosure, which is different from forbearance, can have severe and lasting effects on your credit and future ability to buy a home. It should be considered very seriously before proceeding.

Foreclosure laws vary by state, but in general, foreclosure proceedings don’t begin until you are at least 120 days behind on your mortgage. Once this time has passed and no solution has been reached, the lender generally has the right to proceed with foreclosure.

Strategically default

Strategically defaulting is when you decide to stop making mortgage payments and walk away from your property. People sometimes do this when they are “upside down” on their mortgage, meaning they owe more than the home is worth.

However, you should consider all other methods before this one. Defaulting on your mortgage will almost certainly have extremely damaging effects on your credit and ability to buy another home for several years.

How to get out of a joint mortgage

If you have a joint mortgage with someone, things can get complicated if one of you wants out of the mortgage. But you have options other than selling if one of you wants to keep the property.

Speak with the co-borrower

As with your lender, open and honest communication is always the best first step. Ask your co-borrower what their ideal future goals for the property and mortgage are. This might be a good time to bring up the option of refinancing the mortgage to better suit your and their lifestyle and financial needs.

Consider release of liability

If a sale of the house is off the table, you could consider a release of liability. This is a formal agreement with the lender that removes one of the co-borrowers from the loan. The person who is taken off the loan is not legally or financially responsible for making payments toward the loan or stepping in if the remaining borrower stops paying the mortgage.

Release of liability needs lender approval, and not all loans are eligible for this. If yours is, there might be requirements that must be met, such as credit worthiness, minimum equity amounts, and others.

It’s also important to understand that this is not the same as removing someone’s name from the property title. Owning the property and being financially responsible for a mortgage on a property are two different things.

Refinance the loan

Another tried and true approach to getting out of a joint mortgage is to simply replace it with another in the name of one of the co-borrowers through refinancing. Essentially, the co-borrower who wants to take responsibility for the loan takes out a new mortgage, which pays off the joint mortgage.

How to get out of a reverse mortgage

Reverse mortgages allow older homeowners, typically 62 and older, to tap into their home’s equity. The homeowner borrows money against their equity, getting a set amount each month. The loan is repaid when they sell the home or by their heirs when they pass.

Of course, there are other ways to get out of a reverse mortgage:

• Using the right of rescission: You have three business days after closing a reverse mortgage to cancel the deal.
• Refinancing to a traditional loan: Simply take out a conventional mortgage to pay off the reverse mortgage and start making payments on your new mortgage.
• Paying off the reverse mortgage: Use savings, proceeds from another home sale, or another source to pay the balance of the reverse mortgage.

Alternatives to getting out of a mortgage

If your goal is to ease your financial stress, you might not have to get rid of your mortgage altogether. You have alternatives:

• Refinance: Refinancing your current loan to get better terms and a lower monthly payment may be possible. You will need to qualify for a new loan, but it is a fairly easy process to find out if refinancing is a viable option.
• Forbearance: You could ask your lender for a forbearance. This is when the lender allows you a pause or reduction in payments, temporarily. You still owe the full amount, but a forbearance gives you time to work out any financial difficulties.
• Loan modification: With loan modification, the terms of your mortgage are changed to help ease your burden. The modification could include extending the number of years you have to repay the loan, lowering your interest rate, or reducing your principal balance.
• Rent out your home: Research rental rates in your neighborhood. There’s a good chance that you can rent out your home to cover the mortgage or even make passive income.

Pros and cons of getting out of a mortgage

As with everything in life, every action has its upsides and downsides. Here are some pros and cons of getting out of a mortgage.

Pros

• Your financial and emotional stress might be relieved.
• Removing your name from a loan, especially post-divorce or separation, can be good closure.
• You now can pursue a new home and mortgage that better fits your finances and life goals.
• You free up money for other investments.

Cons

• If not done properly, you risk potential credit score damage.
• There is a risk your home doesn’t sell, if selling is your plan.
• Qualifying for a new mortgage may not be as easy as you imagined.
• You may no longer own your home.

FAQ

Here are some common questions and answers about getting out of a mortgage.

Can I quit my mortgage?

No, you can’t just “quit.” You are legally obligated to repay your mortgage. But there are several options, outlined above, to get out of your mortgage.

What happens if I walk away from my mortgage?

Walking away from your mortgage, called defaulting on your loan, can have devastating effects on your credit score and your ability to buy a home or take out a loan in the future. It could also have legal consequences.

How can I get out of a mortgage without refinancing?

There are several ways. These include selling, short sales, deeds in lieu, and foreclosure, all explained above.

What is considered a hardship for a mortgage?

Hardships typically include losing your job, illness, or other major life disruptions. In these cases, lenders may offer help in the form of forbearance. Before proceeding, you should understand the pros and cons of  forbearance.

Does mortgage forgiveness exist?

Yes, but it’s not that simple. Lenders may offer forgiveness of part of a mortgage as part of a short sale, government program, or settlement. Laws vary, so you should consult a professional before proceeding.

The bottom line: You have options for getting out of your mortgage

If your mortgage doesn’t fit your financial or life goals any longer, or if it’s become a financial burden, you do have options. From selling your home to working with your lender to modify your terms to renting out your home, there are legal ways to get out of your mortgage.

Be sure to weigh the pros and cons of all your options, however. They could have long-term financial consequences for your credit and ability to buy another home.

Rocket Mortgage^® can help you explore your options for refinancing your mortgage so you enjoy terms and monthly payments that better fit your life. See if refinancing is right for you.

This article is for informational purposes only and is not a substitute for professional advice from a medical provider, licensed attorney, financial advisor, or tax professional. Consumers should independently verify any service mentioned will meet their needs.

Refinancing may increase finance charges over the life of the loan.