It might feel hard to keep up with all of your payments when circumstances are tight. If you do not make your monthly mortgage payments, you risk going into mortgage default and maybe losing your home.
Such catastrophes are disastrous, but they may be avoided if the proper precautions are taken. Let’s learn more about what it means to Mortgage-with defaults and how to prevent it to safeguard your house and your money.
What Causes A Loan Default?
Missing monthly payments is the most prevalent cause of home loan default, but it is not the only one. Homeowners may also have if:
- Do not pay their property taxes
- Failure to pay homeowners insurance
- Transfer the title of their house to a new owner without the authorization of their lender
- Were discovered to have obtained the property illegally or are now utilizing the property illegally, such as through drug trafficking or money laundering
What Happens If I Fail To Pay My Mortgage?
If you fall behind on your mortgage payments, you will be allowed to apply for loss mitigation alternatives before your lender takes possession of your home. However, if you do not contact your lender, you may expect to go through the stages outlined below.
Your Creditor Is Accelerating Your Debt
If you are behind on your mortgage payment by more than 30 days, your lender may execute the acceleration clause in your mortgage contract. This condition allows your lender to accelerate the debt and demand immediate payment of the outstanding balance on your loan. This procedure aids the eventual foreclosure of your property by your lender.
It is vital to understand that your lender is unlikely to quickly accelerate your debt if you are 30 days past due on your loan. Before using the acceleration clause, your lender will make every attempt to assist you, albeit they reserve the right to pursue this option.
Your House Might Be Foreclosed On
If you are unable to pay the outstanding sum on your mortgage and have tried all other alternatives, your lender will seek to foreclose on your home. Though it varies by state, you must normally be at least 120 days late on the loan before foreclosure procedures may commence.
You Could Lose Your Home
If you cannot rectify the default prior to the completion of the foreclosure process, you will be required to vacate the property. Once your lender regains control of your property, they will auction it off to a new owner in order to recover the funds you were unable to repay.
How Can You Avoid Mortgage Default?
If you haven’t already defaulted, see if you can refinance. When you refinance, you pay off your previous mortgage and replace it with a new one with new conditions.
The new loan may have a cheaper interest rate or allow you to extend the duration of your current loan. As a result, by refinancing, you may be able to cut your monthly payments, making them more accessible and manageable. If you can’t qualify for refinancing, the next step is to meet with your servicer to see what other choices you may have.