How to Avoid Defaulting on your Mortgage Payments

The consequences of mortgage default can be severe and should be avoided at all costs. There are a myriad of reasons which can lead to someone defaulting on their home mortgage. Typically borrowing too much and being unprepared for a change in circumstances are the primary reasons which lead to default. A lack of understanding how mortgage rates can increase as interest rates rise is a primary reason for people falling behind on their payments.

 Those yet to embark on home ownership can protect themselves to some extent by forward planning. Those who already have a home mortgage and wish to guard against default should take certain measures to minimize the risk.

It is imperative to always treat the mortgage as ones priority payment over other bills, as the loan is secured against the home. If money is appearing tight then it is time to rein in spending and execute a strict budget. Allow for a portion of income to be saved and used against future mortgage payments if necessary. If you work in an area which is vulnerable to redundancies or layoffs consider taking out insurance which will pay your mortgage instalments if you were to find yourself unemployed.

If money struggles appear to be a long term issue and you have equity in your home it is worth considering selling the property to protect the equity, and either downsize or rent until your financial circumstances improve. This is a far better option than waiting and facing foreclosure or being forced to undergo a short sale of your home. If you have other assets which could release money then use them. There is no point in driving an expensive car if your home is at risk, or carrying unnecessary car loans which could be paid off to increase the monthly budget.

If things have already reached the point where you are having difficulty meeting the mortgage payments it is imperative to contact the lender immediately and be open about the situation. They are more likely to offer assistance if you do so than if you let payments go unpaid and bury your head in the sand. The lender may be prepared to consider some kind of loan modification. They may extend the term of the mortgage and thus reduce your payments without necessarily refinancing; or even consider switching your mortgage to a lower interest rate if your credit rating remains high.

Refinancing is not necessarily an option with tighter lending regulations in place, but you may be able to negotiate a payment holiday, or arrange temporary reduced payments. Refinancing, even if the option is available, is an expensive process which will cost you much more in the long term in increased interest payments.

If you are struggling with mortgage payments then the chances are you are struggling to keep pace with other debt, so a complete assessment of your finances is needed. If you have credit card debt consider consolidating it onto a lower rate credit card, or negotiate longer terms with other creditors. The important thing is to always prioritise your mortgage above any other debts and to avoid defaulting on your payments.