A Guide to Mortgage Delinquencies

Mortgage delinquencies can permanently damage your credit, and they can even result in foreclosure if not addressed immediately. In a bad economy, delinquency rates can be very high. Understanding the facts about how delinquency occurs, what it means and what the consequences can be will help guide you to better decisions on your mortgage payments.

Terms of Delinquency

Delinquency threats begin before you even sign your mortgage loan. Read your contract carefully; there are explicit terms of delinquency in the mortgage. You may find you have a thirty day grace period after your mortgage is due to submit it without penalty. You may, on the other hand, find your grace period is one week, and after one week financial penalties are charged. Delinquency is not missing just one payment, though. Delinquency is failure to pay for an extended period of time. Since delinquency is such a charged term, you should know exactly how long that period of time is on your home. Typically, failure to make payments for anywhere from 60 to 90 days will result in a notice of delinquency. If you are a low credit borrower, your terms may be less favorable, and this can be a red flag that your mortgage is risky.

How Delinquency Occurs

Delinquency is never designed by the borrower; rather, borrowers usually undergo some type of emergency preventing them from making the payments. Examples include job loss, unforeseen life expenses or even poor financial decisions. One thing leads to the next, and delinquency often sneaks up on borrowers without their active attempts to prevent it.

Preventing Delinquency

Preventing delinquency is possible through simple planning. Implement these tips to ensure you will have options to prevent delinquency if you face a fiscal emergency:

  1. Budget for your mortgage payments. They should never exceed one-third of your income. Your total debts, including mortgage and property insurance, property taxes and other loan payments, should never exceed one-half of your income.
  2. Set aside an emergency fund of three months worth of all debt obligations. This fund should not be your retirement account or a college savings account for your children. This money is simply extra cash that you could immediately liquidate to make payments if need presented itself.
  3. If you do experience an emergency, contact your lender immediately to explain. The sooner your lender knows you may be facing financial difficulties, the easier it will be to modify the terms of your mortgage so you can avoid delinquency or default.
  4. If you receive a notice of delinquency, respond immediately.

Recovering from Delinquency

Despite the best planning, delinquency can still occur. The good news is delinquency does not have to mean default. If you respond immediately, your lender may have options for you to either recover the mortgage or get out of the debt. For example, you can modify your mortgage for lower payments. You can also opt to stop payments and attempt to sell the property. The goal should be not only to stay in your home, but to avoid default at all costs. If you cannot recover your mortgage, sell the home before you are foreclosed on.