What is Mortgage Default?

Mortgage default is when a homeowner fails to meet the legal obligations of their home loan, typically by not making its required monthly mortgage payments to the lender.

A Longer Definition: Mortgage Default

In mortgage terms, default is when a homeowner cannot meet their loan’s agreed-upon terms, usually the obligation to make timely payments to their lender.

Defaults often stem from unforeseen financial challenges, such as sudden employment changes. unexpected medical debt, and loss of household income. When a homeowner defaults for non-payment on a mortgage, it typically means that payments are more than 90 days delayed.

Mortgage defaults are serious events. They can lead to foreclosure, where the lender can take legal steps to reclaim and sell the property to settle its unpaid loan balance.

It’s worth noting that many lenders view foreclosure as a last resort, so if you are facing a scenario where your mortgage is likely to default, contact your mortgage lender and notify them. Lenders often provide options to help borrowers navigate financial difficulties, including loan modifications, repayment plans, and forbearance, which allow homeowners to keep their home.

Mortgage Default: A Real World Example

Imagine homeowners who, as spouses, make on-time mortgage payments for the first six years they live in their home. Then, one spouse falls ill, leading to an inability to work, which subsequently cuts their household income by half.

To compensate for the loss of income, the homeowners begin using their savings to meet their monthly bills. Each month, making the regular monthly mortgage payment becomes increasingly difficult.

Recognizing the potential for default, which could lead to foreclosure and the loss of their home, the homeowners reach out to their lender and explain their situation. The lender understands the temporary nature of their financial hardship and devises a fair repayment plan to help the homeowners manage their current plight, and get their mortgage current in the future.

One year later, both spouses are earning full-time income, the mortgage is current, and foreclosure was avoided.

Common Questions About Mortgage Default

What happens after a mortgage default?

After a mortgage default, lenders typically initiate a process to recover the owed amount. This can involve sending notices, charging late fees, and eventually starting foreclosure proceedings if the borrower fails to rectify the default.

Will I recover from a default on a mortgage?

Yes, financial and credit recovery is possible after a default. However, it can take a few years before mortgage lenders lend to you again. If you suspect you’ll default on your mortgage, the best course of action is to contact your lender is advance and work on a plan that works for all parties.

How long does a mortgage default stay on my credit report?

Credit bureaus may report a mortgage default for up to seven years after the event, affecting your ability to borrow money in the future.

What’s the difference between default and delinquency?

Delinquency refers to being late on payments, typically less than 90 days. Default generally occurs when a borrower is more than 90 days late on payments.

What’s the difference between default and foreclosure?

Foreclosure refers to a legal process by which a mortgage lender can seize and sell your property to pay off the mortgage. Foreclosures generally happen after a default, which is when a homeowner is more than 90 days late on payments.

What do I do if I think I’ll default on my mortgage?

When a homeowner is facing financial hardships, the most important thing is to contact the lender as soon as possible. Options like loan modification, refinancing, or a repayment plan can help a homeowner avoid default.