You were happy when your mortgage loan got approved. For the first months, you make payments on time.
But something unexpected happens. Perhaps, you lose your job. Debts start to pile up, and the risks of ending up in a mortgage default are higher than ever.
What is a mortgage loan default? How to reduce a mortgage default? This guide is for you.
Mortgage Loan Default – What is It Really?
What would happen when you are unable to settle loan repayments for some time? Defaulting on your mortgage will be the problem.
Over time, it can relatively affect your credit score and hinder your future loan applications.
What’s worse is that your house might be taken away from you.
The Consequences of Failing to Pay Your Mortgage
Will your mortgage be put in default after failing to pay your loan once? Of course, not!
It takes a maximum of 30 days from the time when you’re unable to settle your mortgage.
But it varies according to the lender’s preference and contract.
If your payment is 30 days late, the mortgage provider will then send you a notice of default, requesting you to settle your debt.
If you have a hectic schedule and don’t respond, the lender won’t stop reminding you. They might give you a call if the need arises.
Yes, receiving constant emails and calls from your mortgage provider is unpleasant. But never ignore them as it might compromise your financial stability.
Before your loan is due, make sure to reach out to your lender as they might help. Don’t feel ashamed. They have other options that might suit your financial needs. You will not only keep your standing with the company but also improve your credit score.
If you’re planning to borrow a high sum of money in the future, you will always be eligible as you have a good credit history.
What Happens When a Mortgage Default Turns into a Foreclosure?
It’s normal to feel afraid and stressed whenever you’ve constantly been receiving calls and emails from your lender.
But it is a big mistake when you remain quiet. Mortgage companies are more likely to put your debt in default.
Once your payment is 120 days late, it will lead to a foreclosure. What is it? How does it work? Well, a foreclosure is when a lender takes over the responsibility of your home. Sometimes, they might try to sell the asset to cover all their losses.
When foreclosure proceedings begin, your only choice is to pack your belongings and leave the place.
That’s not all! A foreclosure will appear on your credit score for around 7 years, making the purchase of a new home complicated.
After liquidation, your mortgage lender could report you to the IRS, which you don’t want to happen.
Tips to Reduce Mortgage Default & Foreclosure
At some point in our life, we might be in financial trouble. But it is not an excuse to evade your responsibility in settling your debt.
Mortgage default and foreclosure of assets are the common results when you don’t pay your loans within 120 days.
To reduce the risks of putting your mortgage in default and foreclosing your property, here are a few practical tips to weigh in mind:
Look for a Solution
Let’s say your mortgage payments are delayed for almost three weeks. Instead of locking yourself in a room, it is ideal to look for a way to make your payment on time again.
While it might not be a good idea, it is an option you should consider.
While the process might be overwhelming, the trick is to explore options that allow you to increase income and decrease unnecessary expenses.
Aside from selling your possessions, you can look for an additional job. It is also ideal for cutting back on things, including cable and internet.
If you can’t find another income source but have a spare room at home, you can rent it out. Although it is not as big as you imagine, it can help.
Talk to Your Lender
We cannot blame lenders for putting your mortgage in default. After all, they just want to cover all possible losses they might encounter along the way.
If you run into a financial problem, don’t be scared of your mortgage provider. They are more than willing to work with you at the end of the day.
What lenders usually do is that they extend your mortgage term, reducing monthly payments. You can do the same thing.
Although you might end up paying more over time, you can continue paying your mortgage on a regular basis, at least.
Apart from that, you can consider setting up a repayment plan, especially when you fail to settle your mortgage for a few months.
Unlike a mortgage term extension, a repayment plan is when a lender adds extra money to your loan payment.
Another good option is an Interest Only Mortgage. Similar to other solutions, an Interest Only Mortgage exists in order to reduce your mortgage payments per month.
But it also has a few drawbacks. The need to consider an alternative investment plan, for example, might take place in the long term run.
Refinance the Loan
Are you still searching for the most effective and easiest method to settle your loan? Don’t look further than refinancing your mortgage. If you have a good credit score, the chances of finding a better deal are greater than you’ve thought. Just submit all necessary requirements to avoid rejections or delays.
Speak With a Financial Advisor and other Certified Professionals
If your situation becomes hard to control and manage, consider talking to an account, financial consultant, and other professionals.
While the services might require additional costs, your convenience and peace of mind make your effort worth it.
Mortgage default affects your credit score. It reduces your chance of a fast loan approval process in the future. It might also lead to a foreclosure.
So, before your lender puts your mortgage in default, speak with the provider right away. They might assist you throughout the process.