How To Recession-Proof Your Mortgage

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The Balance / Alice Morgan

Recessions can bring economic uncertainty, and that can impact your ability to make big monthly payments such as mortgages. You can “recession-proof” your mortgage by building cash reserves to cover housing payments for a few months. You could also consider paying off other high-interest debt such as credit cards to allow you to focus on mortgage payments if and when a cash crunch hits.

Key Takeaways

  • Unemployment tends to rise during a recession. If you lose your job, paying off your mortgage can become difficult.
  • Recession-proof your mortgage by building an emergency fund totaling 30% of your annual income, or two years’ worth of mortgage payment
  • Consider paying down high-interest debt so you have more cash flow to cover mortgage payments during a recession.
  • Reach out to your lender if you fall behind on mortgage payments. There are several programs available that provide relief to struggling homeowners.  

How a Recession Impacts Your Mortgage

Recessions are a slowdown in economic activity and are usually accompanied by a decline in financial markets, including the housing market. They are marked by reduced consumer spending. People are often reluctant to buy goods and borrow money. So in order to stimulate the economy, the Federal Reserve will lower interest rates. This helps increase consumer confidence and encourage borrowing and investing.  

As a result, mortgage rates tend to fall during a recession. This doesn’t directly impact existing homeowners with fixed-rate mortgages. However, it’s good news for those with adjustable-rate mortgages or prospective homeowners looking to buy. 


Though counterintuitive, recessions can be a great time to buy property—not only because of lower rates, but lower home prices and less competition as well. 

On the other hand, it can also be a risky time to have a mortgage. The Great Recession of 2008 is a prime example. During that recession, many homeowners owed more on their mortgages than their homes were worth (this is known as negative equity or being “underwater”). With many businesses cutting workers and driving up unemployment, homeowners who could no longer keep up with mortgage payments were forced to foreclose because options such as refinancing or short sale weren’t possible.

Though the Great Recession was the direct result of risky mortgage lending, any recession can present similar challenges for mortgage holders. Which is why it’s important to mitigate these risks if a recession seems likely.

How To Recession-Proof Your Mortgage

If you’re worried about how an impending recession could impact your mortgage, you can prepare for it  by taking some steps to protect yourself. If you face difficulty paying your mortgage due to the effects of a recession, there is help available. 

What To Do Before a Recession

If you have extra cash in hand, you may choose to spend it or invest it. But if a recession is looming, it’s a good idea to set  aside some extra cash for the “just in case” scenarios, such as losing your job, according to Keith Spencer, CFP and owner of Spencer Financial Planning

“One of the best ways to recession-proof your mortgage and house is to hold enough cash to be able to pay your mortgage for a period of time while you search for a new job,” Spencer said.


Though not for everyone, a good rule of thumb is to set aside the greater of 30% your annual gross income, or two years’ worth of housing payments.

Another helpful step to take in preparation of a recession is paying off any high-interest debt such as credit cards or personal loans, said George Jameson, CFP and financial advisor at Blackbridge Financial. This will help increase your cash flow, as well as limit the number of obligations you need to worry about if money gets tight.

If possible, cutting back on non-essential expenses and increasing income through a side business or freelancing can be other alternatives that work for some people.

What To Do During a Recession

In the midst of a recession, if you experience financial hardship and struggle to pay your mortgage, it’s important to reach out to your mortgage holder and ask about your options as soon as possible.

“Most mortgage [providers] are required to offer a loss mitigation option that homeowners can apply for to receive assistance during times of hardship,” said Kiersten Peshek, lead wealth advisor with Citrine Capital. 

Federal Mortgage Assistance

For example, during the economic downturn in 2021 the federal government announced a loan modification program that changes the terms of the loan to help reduce mortgage payments on qualified USDA, VA and FHA loans.

If you’re unable to pay your mortgage and it’s owned by Fannie Mae or Freddie Mac, you may be eligible to temporarily stop making payments. During this time, late fees won’t accrue and foreclosure proceedings will be suspended. Look up your loan with Fannie Mae or Freddie Mac to learn more.

The Homeowner Assistance Fund (HAF) is another federal program designed to assist struggling homeowners in most states. Eligible homeowners can use the assistance to make up past-due mortgage payments, as well as housing related bills such as home insurance, property taxes and utilities. Keep in mind that there are income caps in place for the program.


Some states such as Alabama have suspended applications after exhausting the funds available under HAF. Some others such as New York are asking homeowners to get on a waitlist. See the status of your state’s HAF here.

Refinancing Programs

Government programs can also help you refinance your home to reduce the mortgage burden. For example, in 2021 the FHA announced a refinance program for low income families with loans from Freddie Mac or Fannie Mae. This plan could help borrowers who met certain criteria save between $100 and $250 a month on average.

What To Tell Yourself If Things Get Bad

Even if you take all the right steps to prepare for a recession, things can still go wrong. After all, you can’t control all the effects of a recession, such as your employer deciding to lay off a portion of its workforce. 

If you find yourself struggling to keep up with your mortgage during a recession, remember this: There is help available. 

Don’t hesitate to seek out programs that can help homeowners who need relief, whether through the federal government, state and local programs, or directly through your mortgage lender.

Frequently Asked Questions (FAQs)

Should you pay off your mortgage before a recession?

In general, it’s not necessary to pay off your mortgage before a recession. If you have extra funds to put toward paying down debt, it’s more beneficial to focus on balances with higher interest rates, such as credit cards and personal loans.

Is it better to have cash or property in a recession?

Owning property in a recession is not necessarily a bad thing. However, those who have more access to cash are better positioned to invest in ways that will pay off in the long run. Stocks and funds are popular investment choices. Compared to those real estate is less liquid and ties up a portion of your money. 

Is a recession good for home buyers?

During a recession, prospective homebuyers may find lower mortgage rates and lower home prices. This means a recession presents a good opportunity to buy for certain people, as long as their own finances are in order and jobs are stable.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Chase. “The effects of recessions on mortgages.”

  2. The White House. “Fact Sheet: Biden Administration Announces Additional Actions to Prevent Foreclosures.”

  3. Federal Housing Finance Agency. “COVID-19 Information And Resources.”

  4. Consumer Financial Protection Bureau. "Get Homeowner Assistance Fund help."

  5. Mortgage Assistance Alabama. “A Helping Hand for Homeowners in Need.”

  6. New York State Homeowner Assistance Fund. “NYS HAF is no longer accepting applications.”

  7. Federal Housing Finance Agency. “FHFA Announces New Refinance Option for Low-Income Families with Enterprise-Backed Mortgages.”

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