If you stop paying your mortgage, a series of events will inevitably follow. First, you will face late payment and other fees. You credit score may take a hit. Finally, if the nonpayment continues, you can lose your home. Whatever the reason you can't pay your mortgage (job loss, health issue, adjustable rate or balloon payment), the way you respond to your inability to pay your mortgage will determine the outcome.
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Late Payment vs. Default
Paying a mortgage payment late once or twice will not draw much concern from your lender. In fact, most mortgage loan agreements have a grace period that will range 10 to 15 days. If your mortgage is submitted during the grace period, you will be fine. However, if you exceed the grace period, your lender will add a late fee to your normal mortgage payment. If your lender has not received your mortgage payment after 30 days, your loan will be in default. In an effort to find out why your payment has not been received, your lender will contact you by phone or mail. In addition, when a mortgage payment is not paid after 30 days of being late, your lender likely will report it to the three major credit reporting agencies
If you miss two or more mortgage payments, your loan will be moved to either the collection or the loss-mitigation department of your lending institution. At any rate, the collection calls and letters from your lending institution will increase. When three consecutive mortgage payments are missed, you will receive a "notice of default" letter. The letter will explain what you owe, the time you have to remit payment and the consequences if you do not pay the outstanding balance. Typically, this is when your lender will begin foreclosure proceedings, which can result in the lender seizing your home.
Alternatives to Foreclosure
Ignoring a financial problem will never make it go away. If you foresee a financial hardship, inform your lender at the first sign of trouble. If the problem is temporary, a lot of lenders will work with you to get your mortgage payments back on track. If you expect nonpayment to persist, you might want to discuss foreclosure alternatives with the loss mitigation department of your lender. These include a short sale (Selling the home for less than it's worth); loan modification (restructuring the loan to lower the payments); forbearance (suspending payments for a period of time); or a deed in lieu of foreclosure (voluntarily surrendering the home to the lender).
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