It can seem difficult to keep up with your bills when times get tough. You risk defaulting on your mortgage payments and possibly losing your house if this happens.
If you know what to do, these situations can be avoided. So you can protect your house and finances, learn more about mortgage with defaults.
What it means to default in a mortgage loan?
Mortgage default occurs when a borrower doesn’t make the required monthly payments to their principal or interest on a loan. But student loans, credit card debts and credit cards may also be affected by default. Borrowers who default on their payments frequently or stop making them all can suffer serious consequences both in the immediate and long-term.
A defaulting mortgage can cause a borrower to lose their home and harm their credit score. A default can cause borrowers to pay higher interest rates on their other debts. This could make it difficult to get future loans.
What happens when a mortgage is defaulted?
The most common way for a loan default to happen is through missing monthly payments. However, it’s just one of many. You can also go into default as a homeowner if you:
- Inability to pay property tax.
- Do not pay your homeowners insurance.
- Transfer their home’s ownership to someone else without the consent of their lender.
- It can cause irreparable damage to their property, and even decrease its value.
- To engage in illegal activities, such as the sale of drugs, you can use their property.
What happens if I default my mortgage payment?
If your mortgage is in default, you’ll be offered the opportunity to repay the loan before your lender takes possession of your property. However, if you fail contact your lender, you’ll be faced with the following steps.
Your loan lender helps you get out of debt
Your lender may invoke the acceleration clause if your mortgage is over 30 days behind. Your lender can request that you immediately repay the entire balance of the loan and accelerate your debt. This allows your lender an easier way to eventually foreclose upon your property.
Your home may go into foreclosure
If you do not have the funds to cover the outstanding mortgage amount, your lender can move to to foreclose on your property. Depending on your state laws it could take you around 120 days before foreclosure proceedings start.
You may lose your home
If your lender proceeds with foreclosure, you’ll have to leave your house. After the property is in your lender’s hands, they will sell it off to recoup what you owe.
How to avoid mortgage default?
It’s scary to think of your home being foreclosed on because you could be in default on your loan. However, the foreclosure process is not something that can be done overnight. Even if you’re in financial difficulty, there are ways you can avoid defaulting.
Discuss your lender
Contact your lender immediately if it becomes clear that you will be unable make your monthly mortgage payments. The sooner you speak with your lender, the better your chances are of avoiding a default mortgage.
Talking to your lender will help you explain why you can’t make the payments now, when you expect to be able and how much money you have available. Many lenders are happy to work with borrowers to figure out a solution.