As a homeowner of a fixed rate mortgage, you may be wondering what happens if you default on your payments. Of course this is an occurrence that you don't want to anticipate. However, because extenuating circumstances can and do occur, it's good to know just what you can expect if this happens.
Why People Default On Their Mortgages
In the recent events that have resulted in a recession, it is not a stretch to imagine how a homeowner could default on their fixed rate mortgage. Between losing jobs, falling ill, suffering a divorce, or even death, there are a number of reasons that monthly payments can fall behind. Since you know that no one is above falling behind in their payments, it's good to know ahead of time what happens if you default as a precautionary measure.
What Happens if You Fall Behind?
Well, the first thing to understand when falling behind on a fixed rate mortgage is that because interest rates do not fluctuate anytime during the loan term, you will have likely have to come up with equal payments until you're all caught up. A highly-recommended way to get started with trying to catch up is to first contact your lender to discuss repayment options. While they are likely to have you stick to the terms of your loan interest rate and all some lenders are willing to work with you by temporarily lowering your rate, or allowing you to make interest-only payments to help you stay afloat until you catch up.
If you fall too far behind and think you may be in danger of foreclosure, it's still probably not too late to work out a deal. In other words, you still have options available to you even if you've received a notice. You can still try to work with your lender to see if they will allow for some form of repayment. You may also be eligible for some type of housing assistance program, such as H4H, to get back on your feet. However, if you dont think you can make your payments you can sell your home to pay the lender, or complete a deed in lieu of foreclosure, which basically means you hand back the keys to the lender with foreclosure credit repercussions.
Now that you know what happens if you default on your fixed rate mortgage, your job is to try to avoid this from happening. However, if avoidance is impossible, then it's good to know there are a number of steps you can take as a homeowner to avoid the maximum impact possible resulting from defaulting.
