Mortgage defaults have risen slightly since this time last year, according to data from the Mortgage Bankers Association. Seasonally adjusted,…
Mortgage defaults have risen slightly since this time last year, according to data from the Mortgage Bankers Association. Seasonally adjusted, the delinquency rate for all mortgages was 3.98% in the fourth quarter of 2024. Federal Housing Administration loans were the most at risk, with a delinquency rate rising to over 11%. Delinquencies for loans in forbearance or with modifications were also up year over year.
A statement from Marina Walsh, vice president of industry analysis at the MBA, attributed the increase in default to higher escrow payments for taxes and insurance, inflation, natural disasters, and a softer job market. Across-the-board tariffs announced by President Donald Trump April 3 could also affect homeowners’ bottom line in the coming months.
Homeowners who are at risk of falling behind on their mortgage payments should understand what it means to default on a loan and how to avoid it.
[Read: Best Mortgage Lenders]
What Does it Mean to Default on a Loan?
Defaulting on your mortgage means you’re not holding to the terms of your loan agreement. There are several ways to default on a home loan:
— You miss a monthly mortgage payment. Foreclosure can start if you’re more than 120 days late.
— You don’t pay your property taxes.
— You let your homeowners insurance coverage lapse.
— You let the property deteriorate or cause damage that lowers its value.
— You transfer the property’s deed to someone else without the lender’s permission.
A mortgage loan default can have serious consequences.
— It’s expensive. As soon as your mortgage payment is late, you could be charged a late fee. Most lenders give 15 days of grace before assessing the fee, which is spelled out in your loan documents and could be hundreds of dollars.
— It damages your credit. Late or missing mortgage payments are generally reported to major credit bureaus, which will lower your credit score.
— The lender could request immediate repayment. In some default situations, the lender may accelerate your debt, demanding you pay back the loan in full right away.
— You could lose your home. If you break your loan agreement, the lender could reclaim your home and sell it to satisfy the debt.
Mortgage Default vs. Foreclosure
When a lender forecloses on your home, it begins the legal process of seizing your property and selling it to recoup what you owe. This happens in the court system in some states (that’s called “judicial foreclosure”) or through a trustee (“nonjudicial foreclosure”) in others.
Before that happens, you’ll receive a notice of default from your mortgage lender informing you that you’re in default. It will also let you know what you need to do to “cure” the default and get back into good standing with your lender.
Mortgage foreclosures are public records, and they remain on your credit report for seven years. This can make it much more difficult to buy a home or access credit in the future.
“As soon as you default, which is making the late payment, it’s like the tip of the iceberg,” says Emily Bort, senior loan adviser at Movement Mortgage in Washington state. “You’re starting the beginning of the process that can lead to foreclosure.”
[Read: Best Mortgage Refinance Lenders.]
How to Avoid Defaulting on Your Mortgage
If you’re struggling with bills, it could signal that your mortgage is at risk.
“One warning sign is when you have to start considering which other debts to let fall behind for the sake of keeping the mortgage on track,” says Bruce McClary, senior vice president of communications at the National Foundation for Credit Counseling and a former contributor to U.S. News.
“When you get to that point, when you have to play the pick-and-choose game of which debts go past due and which debts stay on track, that’s usually a pretty clear sign that you’re heading into more long-term difficulty financially,” McClary says.
At that point, McClary recommends, you should review your mortgage documents so you understand exactly what you’ve agreed to and what your options might be. “You need to have a pretty good idea of what type of mortgage you have and what the terms are, before you can start exploring which options are available,” McClary says.
Call your lender
Your first step should be to contact your lender right away. Communication with your lender is extremely important, and ideally you’ll reach out before you miss a payment. Your lender only knows what’s in your borrower file — it won’t know if you’ve had expensive medical bills or recently lost your job. Let the loss mitigation or workout department know what’s going on and find out what your options are.
Talk to a counselor
This is also a good time to talk to a federally approved housing counselor. They can help you review your finances, analyze your debts and explore your options for getting back on track. The sooner you call, the better; Housing and Urban Development counselors are often in high demand.
Use your equity
If you have other debts that are making it tough to pay your bills, consider leveraging your equity — especially if you have high-interest debt.
“Refinancing, second mortgages, home equity loans, home equity lines, all can be good tools,” says Kyle McCort, a senior loan originator and branch manager for NFM Lending in Ohio. “If you’re in a bad position, selling or refinancing to leverage that equity is always going to be preferable to foreclosure,” he says.
Compared with the average credit card interest rate of 21.37%, a 7.5% rate for a home equity loan could help you consolidate your other debts and free up cash for your mortgage payments. Just be cautious that you aren’t adding to your debt load instead of relieving it, and don’t wait until you’ve fallen behind.
“As soon as you go late on your mortgage, it eliminates a lot of options for you,” Bort said. “You can’t access your equity, and you can’t get a home equity loan if you have mortgage lates. So it really limits you.”
[SEE: Best Home Equity Loans]
Request a change to your loan
As mentioned, it’s important to communicate with your lender early and often. One of the things you can discuss is the possibility of forbearance or loan modification. With forbearance, the lender lets you temporarily pause or reduce payments until you regain your financial footing — usually for a few months. You’ll still owe those payments, but on a delayed schedule.
With a loan modification, the lender changes your loan terms to make your payments more affordable. It might achieve this by extending your loan, lowering the rate or even reducing the principal.
Sell and start over
Unlike during the Great Recession, many of today’s homeowners have an abundance of home equity. The average American homeowner has more than $310,000 in equity, according to CoreLogic. While you might tap some of it with a home equity loan or line of credit, you could access all of it by selling the home.
Selling and cashing out is an extreme step. But if you’ve been thinking about downsizing, it might be the right time.
The most important thing to do, regardless of which option is right for you, is to take action.
“Swallowing the pride and being proactive is always going to be the best approach,” McCort said. “That goes across pretty much any financial decision.”
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Mortgage Foreclosure in 2025: You May Be at Risk originally appeared on usnews.com