At least 16 percent of adults in the U.S. have a disability that prevents them from performing an essential life function, according to the Centers for Disease Control and Prevention. Beyond just earning a living, some of these people have to worry about paying a mortgage with a reduced or fixed income. If you become disabled, you will still owe on your mortgage, but you might receive help.
When you accept a mortgage, you agree to pay it back no matter what. You cannot discharge it in bankruptcy, because the creditor secures the debt with your property. While a disability is unfortunate, nothing beyond death absolves you of the legal obligation to repay a secured debt. The mortgage provider could cancel your debt, but this is an unlikely scenario.
Your lender wants you to repay your mortgage because foreclosure may result in a loss to the company, so try talking to the lender about modifying your mortgage to meet your new income if you become disabled. Some common loan modifications include freezing or lowering your interest rate for a few years or permanently and lower monthly payments. CitiMortgage started a program in May 2011 to lower mortgage payments for military veterans disabled in the line of duty.
The federal government started the Making Home Affordable program in 2009 to help borrowers who can no longer afford their mortgage payment. The MHA offers several programs, such as one for unemployed individuals and borrowers with a home worth less than their mortgage. However, the federal government does not require lenders to approve all borrowers with a loan modification, although lenders receive incentives when borrowers take part in a MHA program.
If you are concerned about paying a mortgage in case of a disability, shop for mortgage insurance. Mortgage disability insurance pays the rest of your loan off should you ever become permanently disabled or incapacitated. However, Walter Updegrave of CNN suggests that mortgage insurance is unwise if you only buy it to hedge against a single event, such as a disability.
- Centers for Disease Control and Prevention: Disability and Functioning (Adults)
- Lawyers.com: Secured Creditor Rights in Bankruptcy
- Mortgages Debt: Sample Disability Mortgage Hardship Letter
- Fedral Trade Commission; Mortgage Payments Sending You Reeling? Here’s What to Do; September 2009
- Making Home Affordable: Homeowner Frequently Asked Questions
- CNN; Does Mortgage Insurance Make Sense?; Walter Updegrave; December 2003