Our dream retirement home was swept away by a hurricane — but the bank won't forgive the mortgage we can no longer afford. What are our options now?

Your mortgage doesn't disappear after disaster

When you commit to paying a mortgage, the bank gives you money to buy a home. The house serves as collateral guaranteeing the loan, but you don't just get to walk away from your contractual obligations if something happens to the collateral. After all, you still borrowed the money in the first place.

Sadly, this means banks still expect you to pay as promised even if the home is destroyed. That's one reason why banks require you to buy homeowners insurance before they'll close on a loan. The insurance is supposed to pay out money and cover the losses — rather than the bank, which isn't in the business of taking the risk of a disaster off your shoulders.

Now, many mortgage lenders are willing to work with you to temporarily put your loan into forbearance — especially if your house is truly destroyed and you need some time to make that insurance claim or even get access to your assets. Lenders may waive late fees, but usually will still charge interest even if they agree to pause payments for a while.

If you have a government-backed mortgage, which is a loan offered by private lenders but insured by the Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA) or the Department of Veterans Affairs (VA), you can find out about additional help you may be eligible for, like a loan modification and disaster recovery counseling.

Ultimately, however, even if you take advantage of these and other programs, you'll be expected to resume payments at some time.

If you don't, you could find your credit damaged and even be subject to foreclosure. If the bank does foreclose and can't sell the damaged property for enough to repay the loan, they may also be able to come after you for the difference if your state allows deficiency judgments.

Stop overpaying for home insurance

Home insurance is an essential expense – one that can often be pricey. You can lower your monthly recurring expenses by finding a more economical alternative for home insurance.

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What to do after a disaster destroys your home

After a disaster destroys your home, you have two phone calls to make ASAP. You need to call your bank if you expect you'll be late with a mortgage payment so they can work with you, and you need to call your insurance company to get the process of making a claim started.

Ideally, your homeowners insurance will cover the damage and pay to rebuild. Unfortunately, this isn't going to happen in every circumstance. Homeowners insurance covers storm damage from things like wind or a tree falling on your home. It does not cover any damage from floods resulting from weather events, unless you have a separate flood insurance policy.

Sadly, in seven states hit by Hurricane Helene, only around 0.8% of homes in inland counties affected by the storm had flood insurance, according to a Washington Post analysis of data from the National Flood Insurance Program. According to the report, "The lion’s share of flood insurance in the United States comes through FEMA’s National Flood Insurance Program. For homes that are in the 100-year flood plain, or that have a 1% or greater chance of flooding every year, this insurance is legally required to obtain a mortgage and can pay out up to $250,000 for structures and $100,000 for contents."

If your house was flooded and you didn't have flood insurance, you won't get an insurance payout to help you rebuild.

You may still have more help available to you, including FEMA's Individual Assistance Program, which could provide up to $42,500 to cover costs not reimbursed by insurance. If your home is in a rural area, you have a low income and your age is 62 years or older, you may be eligible for a $15,000 grant from the USDA to repair your home.

Ultimately, if you can't get the aid needed and you can't or don't want to keep paying a mortgage on a house you no longer have, you have very few good options. Unless you can pay off the house outright, you may need to try to sell the land and get as much money as you can to pay back the bank.

You'll likely not get enough to cover the full amount due by selling the property alone, so your lender would need to agree to a short sale, which means accepting less than you owe — unless you could bring extra money to the table. If you negotiate a short sale, be sure to protect yourself by getting the bank to agree to waive any further claims.

This is a tragic and difficult situation to be in, but by being proactive and reaching out to your mortgage lender, insurer, or the appropriate government agency, hopefully, you can get back on your feet.