Why You Should Never Default on Your Mortgage

Your home is your most prized possession and is the refuge for your family. When you do take out mortgage, you enter into a binding agreement with the lender that you agree to repay the money according to the terms specified in your loan agreement.

Make sure you read the fine print and that the lender explains all of the paperwork to you. Your home is the collateral for this loan, which means that if you do not repay, the lender can repossess and you will have to leave the home and have nowhere to live.

Therefore before you do sign the final papers, you have to make sure that you have enough money coming in each month to make the payments and still have money left over for your other bills and living expenses.

While losing your home is the major consequence of defaulting on your mortgage, there are other consequences as well. You will have low credit rating, which means that you will have difficulty obtaining even a small personal loan without incurring high interest rates on the repayment.

The day that you are expected to make your monthly mortgage payment is specified in your loan agreement. While some lenders do have a grace period just in case you do forget, once you go beyond a week and do not make the required payment, you can expect a telephone call from the lender requesting the payment.

If you ignore this request, you will continue to receive calls and official notifications by mail. A late fee will be added to your mortgage and this increases with each month you are delinquent.

Simply seeing this fee for late payment on your credit rating after one month could mean you may be turned down for a loan.

Once you go past two monthly payments, then your home is in jeopardy. After three missed monthly payments, the lender may pass your account over to its attorneys to handle. The repossession proceedings are initiated and the total balance of the mortgage becomes due.

Once you have this rating of not making your payments, it is unlikely that any other lender will touch the case and take over the mortgage because they are also placing themselves in the same situation as your current lender.

Lenders do not want to repossess a home, not only because they do not want to put you out of your home, but they then have the added task of selling the property to redeem the money you borrowed. If the lender does sell the property at a lower cost than the balance owing on your mortgage, you are still liable for paying this amount over the sale to the lender.

When you find that you are unable to make a monthly payment, the first thing you should do is contact your lender. Many lenders do allow a payment holiday once a year, which will help get you over the hurdle. You do have to keep in mind, though, that interest is still accruing on the unpaid balance. You may not have to make a payment at all or you may just have to pay that month’s interest.

Take stock of your finances by preparing a balance sheet. Total the amount of monthly expenses and subtract this number from your total monthly income. You may be overextending yourself and not have enough money to pay your bills. If you have lost your job or have been ill, lenders are usually easy to get along with and will work with you.

Sit down and talk with the loans official and try to work out a plan to help you make the payments. This may be in the form of a debt consolidation loan to pay off all your other bills, leaving you with a more manageable payment that still lets you make your mortgage payment. You can also look at refinancing your mortgage, but you may have to pay other fees and a higher interest rate.

The nature of the plan you and your lender come up with depends on how delinquent you are in making your payments. The farther behind you are, the harder it will be to come up with a plan. If you contact the lender right away, as soon as you realize you don’t have the money for this month’s payment, you will find they are easier to deal with.

The stress of not having the money to make the payments and the stress of dealing with the lender calling and sending notifications is very great. Defaulting on your mortgage payments also affects your peace of mind because you simply do not have the money needed and at the same time you don’t want to have the embarrassment of having to lose your home.