What Happens if you Default on your Mortgage?

What It Means To Default On A Mortgage Loan

When a borrower fails to make monthly mortgage payments on their home loan’s principal balance or interest, it is referred to as a mortgage default. However, credit card and student loans can also result in default. When a borrower repeatedly fails to pay or terminate payments, there may be significant consequences both in the near and long terms.

A mortgage default may result in the loss of a home and damage to one’s credit score. Defaulting may also raise the borrower’s interest rate on other obligations, making it more difficult to qualify for a future loan.

How Does A Mortgage Default Happen?

The most frequent technique for a home loan default to occur is through missed payments, but it isn’t the only one. If homeowners:

• Fail to pay their property taxes.
• Fail to pay their homeowners insurance.
• Transfer their home’s title to a new owner without their lender’s permission.
• Severely damage their property and decrease its value.
• Use their property to conduct illegal activities, like dealing drugs.

What Happens If I Go Into Mortgage Default?

If you default on your mortgage, you’ll be given the option to pay back your loan before your lender takes possession of your property. You may anticipate the actions described below if you fail to contact your lender.

Your Lender Accelerates Your Debt

If you are more than 30 days late on your mortgage, your lender might apply the acceleration clause in your loan agreement. Because of this provision, your lender can speed up the debt and demand that you pay the whole remaining amount of your loan right away. This step makes it easier for your lender to ultimately foreclose on your property.

Your Home May Go Into Foreclosure

Your lender will proceed with foreclosure if you don’t have the money to pay off your mortgage. Your lender will attempt to foreclose on your property after it moves to repossess it. Depending on your state’s rules, you’ll have roughly 120 days before foreclosure begins.

You May Lose Your Home

If your lender goes through with the foreclosure, you will be compelled to vacate your home. After control of your property has been handed over to your lender, it will be sold at auction in an attempt to recover the money you were unable to pay back.

How To Avoid A Mortgage Default

Defaulting on your mortgage and losing your house is a scary prospect, to say the least. The foreclosure procedure, however, does not move in a straight line. Even if you’re having difficulties financially, there are options for avoiding defaulting on your loan.

Speak With Your Lender

If you know you’ll be unable to make your monthly mortgage payment, contact your lender right away. The sooner you contact them, the greater your chances of avoiding a mortgage default.

Explain why you can’t afford the payment right now, when you believe you’ll be able to, and how much you can pay in the meantime while speaking with your lender. Many lenders are prepared to work with borrowers to find a solution if they contact them ahead of time.

Your lender might be willing to provide you mortgage forbearance, in which your lender agrees to let you reduce or pause your monthly payments and assist you develop a plan.

Find Out If You Can Refinance

If you remain qualified, refinancing your mortgage might be a beneficial option for avoiding a loan default. Your existing mortgage is repaid and replaced with a new loan that has new conditions when you refinance.

When you refinance, you can enhance your monthly payments and make them more affordable by receiving a new loan with a lower interest rate or extending the length of your existing loan. As a result, you may potentially decrease your monthly payments and make them more manageable through a refinance.

Consider A Mortgage Loan Modification

You can also get a mortgage loan modification rather than refinance if you don’t want to. A mortgage loan modification is different from a refinance in that it allows you to keep your existing loan but modify the conditions.

A loan modification, depending on what your lender accepts, may allow you to alter the rate of your debt, extend the term of your loan, or convert it from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. Regardless of how your lender adjusts your loan, the end result is always the same: a lower-cost mortgage that will assist you avoid default and foreclosure.

Bottom Line 

Defaulting on your house loan may be frightening, but don’t let it stop you from taking action. Whether your monthly payment is already late, you can still take steps to avoid foreclosure. Contact your lender as soon as you realise you may miss a payment, and they will assist you in finding an option.