Delinquent Mortgage Definition

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Delinquent Mortgage Definition

A house loan for which the borrower has fallen behind on payments as specified in the loan contract is considered delinquent. When a planned payment is not paid by the due date, the mortgage is deemed overdue. The lender may start the process of foreclosing on the property if the borrower is unable to keep the mortgage payments current within a certain amount of time. When a mortgage is about to become late or has already been delinquent, a lender may also provide a borrower with additional choices to assist avoid foreclosure.

Key Takeaways

  • A delinquent mortgage is a home loan where the borrower is late with one or more required payments.
  • Borrowers who miss payments will often be subject to late fees and can see a negative impact on their credit score.
  • Mortgages that are delinquent for a period of time risk going into default. At that point, the lender may foreclose on the home.
  • Sometimes lenders will work with delinquent borrowers to help them avoid foreclosure.

How Does Mortgage Delinquency Work?

The mortgage is deemed to be temporarily overdue when the borrower is unable to make payments or misses deadlines. At that time, the lender would often add on late fees. The amount of these penalties might vary depending on the institution and the mortgage’s conditions. Although some lenders may elect to wait until a payment is more than 30 days past due before imposing penalties, this does not always indicate that the mortgage is not overdue.

Foreclosure may result from an overdue mortgage, but lenders often save that option for last since it can be a drawn-out and expensive judicial procedure. If the borrower’s financial issues are brief, a forbearance arrangement may be a better option than foreclosure. In a forbearance agreement, the lender gives the borrower the short-term option of ceasing payments altogether or paying less than the agreed-upon monthly amount.

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How Do Mortgages Become Delinquent?

Mortgages often go into default when the borrower has additional financial issues that make it difficult or impossible for them to make their payments on time. For instance, there may be a job loss, an expensive sickness, or a divorce.

One reason why it may be beneficial to have an emergency fund on hand is because of this.

What To Do if Your Mortgage Is Delinquent

It is crucial that a borrower contact their lender right away if they have any reason to believe they won’t be able to make their payments on time. In rare circumstances, the lender may have strategies to assist completely prevent delinquency.

Therefore, borrowers should make every effort to pay their mortgage on time. A overdue mortgage may negatively impact the borrower’s credit score and their capacity to get loans in the future.

A homeowner with an overdue mortgage who wants to prevent foreclosure and doesn’t believe their financial issues are short-term may ask the bank to approve a short sale. When a borrower owes more than the house is now valued on the market, this happens. The lender permits the borrower to sell the house for less than the outstanding mortgage sum and return the difference to the lender. Some states require the bank to forgive the difference, while others require the homeowner to pay it back. It’s also known as a deficit judgment in other cases.

A borrower who has been behind on their payments for a while but hasn’t been foreclosed on may agree to a repayment schedule with the lender in order to finally catch up on their mortgage payments and keep their house. The lender could also agree to a loan modification so that the borrower can afford the monthly payments, such as modifying the principle owing, the loan duration, or the interest rate. Refinancing to a more affordable fixed-rate mortgage may also be an option for borrowers with adjustable-rate mortgages.

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A counseling service for foreclosure avoidance may be able to aid you if you need guidance deciding what to do. These services are offered without charge by nonprofit organizations.

If they have been impacted by COVID-19, homeowners whose mortgages are owned by Fannie Mae and Freddie Mac—who together guarantee more than two-thirds of all mortgages—might be qualified for special, temporary forbearance options.

Can You Refinance a Delinquent Mortgage?

You may be able to refinance a past-due mortgage in specific circumstances. However, keep in mind that lenders may view you less favorably if you have a history of late payments. Because of this, it can be more difficult for you to get a new loan, and any loan that is provided to you is probably going to have a higher interest rate.

You should speak with your present lender as your initial course of action. It could be willing to refinance your mortgage or, more likely, modify your present mortgage to make it more affordable rather than proceeding with foreclosure.

Delinquency vs. Default

The severity of default is greater. A public notice noting that a mortgage borrower has been persistently late on a loan is known as a notice of default and is filed with the appropriate court. One of the initial actions toward foreclosure is this. A borrower who has many past-due payments runs the danger of defaulting on their mortgage and losing whatever equity they have built up in the property.

The number of past-due payments that are permitted before the lender will pursue default action should be specified in the mortgage contract. Most mortgages, in general, permit up to 180 days of late or missing payments before the lender issues a notice of default.

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When Is a Mortgage Delinquent?

When a borrower misses or is late with one or more payments, the mortgage goes into default. The problem might become worse the more payments you skip.

What Happens if My Mortgage Is Delinquent?

To begin with, your lender could assess late fees. If you keep skipping payments, the lender can eventually declare your mortgage in default and start the process of taking your house away from you and selling it.

How Can I Prevent Becoming Delinquent on My Mortgage?

Make your mortgage payments on time if at all feasible. Make plans for an automated payment schedule or set yourself reminders if you have a tendency to forget things. Inform your lender of the situation, explain that you won’t be able to make the payment, and see if a solution can be arranged. For example, you may be qualified for a loan adjustment. Most lenders would rather help you get back on track than have to initiate a long and costly foreclosure proceeding.

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