The Consequences of Defaulting on Your Mortgage
No one enters into a mortgage agreement intending to default on payments. Unfortunately, sometimes life circumstances change, making it impossible to make the payments you’re under contract to pay. When you find yourself in this position, how do you know when it’s in your best interest to try to stay in your home? What are the consequences if you default? And how badly does defaulting on your mortgage damage your credit rating?
Repeated missed mortgage payments will cause your credit rating to take an almost immediate hit. If the default progresses to a foreclosure, your credit rating can be slashed by up to 250 points. This damage to your rating can last as long as seven years. You’ll have a great deal of difficulty acquiring additional credit, loans, refinancing, or another mortgage. You might even have trouble getting a job, if you’re looking for one.
This kind of damage to your credit rating won’t go away overnight. As with other major hits to your credit rating, it’ll take time and hard work to get your credit back into better shape. And, with the note of your default or foreclosure lingering for seven to ten years, it will likely be that long before you can consider trying again to purchase a home.
Video: Loan Modification - Save Your Home
What to Do If You Are In Default
If your mortgage is in default—i.e., if you have missed several payments or had several late payments in a row—but the situation hasn’t yet progressed to foreclosure, you still might be able to save your home.
One reason many homeowners have defaulted on their mortgages over the last few years is because their homes were purchased under an Adjustable Rate Mortgage, or ARM. With an ARM, your starting mortgage rate is often quite low, but after a period of time it is recalculated. Many people who purchased homes with an ARM found their mortgage payments soaring far beyond what they could afford to pay.
Ideally, if you purchase a home under an ARM, or any kind of balloon mortgage, you’ll refinance before the rates soar to their highest levels. However, this might prove difficult or impossible if you haven’t budgeted properly for it. Refinancing requires fees and often points, and so can be costly, even though it will save you a great deal of money in interest payments in the long run.
If you find yourself unable to pay your mortgage due to a change in interest rates from an ARM, you might be able to modify or restructure your mortgage. A loan modification is an agreement with your mortgage company that changes the terms of your mortgage. If you can arrange with your mortgage company to modify the interest rates on your mortgage, you might be able to bring your payments back down into a manageable range. In the long run, a loan modification can keep you from defaulting on your mortgage, prevent eventual foreclosure, and keep you in your home.
Video: Loan Modification and Foreclosure Prevention
You can talk directly to your mortgage company about a loan modification, but if you don’t feel confident in your ability to negotiate with them, a loan modification company can help you. Look for a company with extensive experience, good customer reviews, and that you feel comfortable working with.
With the real estate market in its current level of turmoil, there are times when it might be best just to walk away. Many homeowners have found themselves in a situation where they owe far more on their home than its current market value, and are unable to reach an agreement with their creditors that will counteract this disparity. In cases like these, your best choice might be to start fresh. Be sure to consider all the consequences, though, before making this serious decision.
15 Loan Modification Companies
Colorado Loan Modification
Denver, CO
303-808-5663
Loan Modification Made Easy
Oakland Park, FL
866-581-0830
Clear View Consolidators
Ft. Lauderdale, FL
888-896-6568
Mitigation Online Consultants
Encino, CA
818-501-1520
US Home Assistance
Matawan, NJ
888-872-0034
Green Credit Advisors
Irvine, CA
800-700-3040
First Federal Loan Modification
Los Angeles, CA
866-281-3588
Nationwide Foreclosure Prevention Center
Williamstown, NJ
877-217-6542
American Foreclosure Prevention
West Chester, OH
513-942-5524
Modified Mortgage Solutions Company
Pasadena, CA
888-653-8585
United Capital Mortgage Assistance, LLC
Largo, MD
800-398-9956
Real Estate Loss Mitigation Solutions
Chandler, AZ
480-286-8681
Loan Rescue Center
Winchester, CA
877-656-5868
Law Offices of Marc R. Tow
Loan Modification Department
Newport Beach, CA
949-600-8660
AmeriMod
Uniondale, NY
888-663-6695