What Does it Mean to Default on a Mortgage Loan?

Defaulting on a mortgage loan occurs when a homeowner fails to make payments in full and on time. There are usually serious repercussions that result from the homeowner’s default. The exact consequences may vary in time frame and extremity depending on the mortgage lender involved.

How Can a Homeowner Default on a Loan?

There are a number of reasons why a homeowner may default on a mortgage loan. The person could have lost a job, fallen ill, have other expenses that take precedence or simply neglect to make payments.

Usually, after more than 90 days of missed payments, the lender will consider missed payments as defaulting on a loan no matter the reason, which means it is time for them to start thinking about taking back the property they’re financing.

How to Avoid Turning Default into Foreclosure

Once the lender thinks you are too far behind in your payments to get back on track, they will begin the process of foreclosure. This means they will legally take back the house they’re financing and attempt to sell it to recoup losses from your missed payments on the mortgage loan.

There are ways to avoid foreclosure from occurring. Let’s look at a few pointers:

• Contact your lending company. If you contact your lending company when it looks like you’re in trouble of defaulting on a loan, the company may be willing to work with you to refinance your loan to a lower interest rate, or even allow you to make interest-only payments until you get back on your feet.
• Seek help from federal programs. Due to the recent recession and millions of people losing their homes to foreclosure, the government has set up programs to help individuals stay in their homes. If you think you may be in danger of falling behind in payments, conduct research to see if there is a program that can help you get back on track.
• Consider a short sell. If you know you don’t want to stay in the home, you can consider selling your home for less than you owe. This is also known as a short sell, and is done to get the property off of your hands.

If defaulting on a loan is something you fear will happen to you, it’s important to take the necessary steps early on to make sure you stay current on your mortgage loan. However, if there seems to be no way out of your home becoming repossessed and foreclosure is eminent, research to see if lenders will help in a foreclosure.