What is Mortgage Default? | accelerate credit
What to do if you have a mortgage arrears
If you think you might miss your mortgage payment, you should contact your mortgage officer immediately to explain your situation and determine what options you might have to keep you in your home. Your mortgage servicer is the company you make your payment to and may or may not be your original lender.
Lenders want you to be able to stay in your home if possible. If you’re a Rocket Mortgage customer who needs help, know that we’re here to help. Fill out our application for success request help.
Agree to leniency
Mortgage forbearance involves a temporary suspension of your mortgage payment. The general idea here is that you don’t have to worry about your mortgage payment while you work through your financial distress. This is often the first option available to many borrowers, especially when the hardship is temporary.
There are a few things customers should know in advance about forbearance. First, the payments that would have originally been due during the break must be repaid. You can qualify in one of several ways, which we’ll detail in the following sections. Your options generally depend on your financial situation and the circumstances that led to the forbearance.
Second, forbearance usually has a negative impact on your credit score. However, this is better than missing out on multiple payments and possibly losing your home. There are a few exceptions that won’t damage your credit. Broadly speaking, these are natural disaster forbearances or relief under the provisions of the CARES Act.
If you’re entitled to leniency, it’s still best to make the most of your payment. This will help you resolve the mortgage arrears when forbearance ends by increasing the options you can qualify for.
See if you qualify for a deferral or partial claim
In certain circumstances, at your forbearance, you may be entitled to defer a certain number of payments until you refinance, sell your home, or otherwise pay off your mortgage. Depending on the type of your mortgage, this is referred to as a deferral or a partial claim. In practical terms, they mean the same thing from a borrower’s perspective.
Establish a repayment schedule with your lender
The next thing to look at for qualification is a payback plan. With this option, you pay a little more on your mortgage each month until your overdue balance is paid off. This usually happens over a certain number of months.
Note that these repayment plans typically take 1 to 3 months and the payments can be significantly larger than a regular mortgage payment. This large payment can make it difficult to qualify for a repayment plan as it can take a toll on your finances.
Modify the original loan
Another possible route to qualifying can be through a loan modification. A mortgage modification involves making changes to the original loan terms to improve payment affordability. As part of a change, both the duration of the loan repayment and the interest rate can be changed.
Most changes will affect your credit score, although not as much as a foreclosure. The exceptions apply to things like COVID-19 forbearances under the CARES Act or those resulting from a natural disaster.