Delinquent Mortgage: What it Means, How it Works

A delinquent mortgage is a home loan for which the borrower has failed to make payments as required in the loan contract. A mortgage is considered delinquent when a scheduled payment is not made on or before the due date. If the borrower can't bring the payments on the mortgage current within a certain period of time, the lender may begin foreclosure proceedings. A lender may also offer a borrower other options to help prevent foreclosure when a mortgage becomes—or is about to become—delinquent.

How Does Mortgage Delinquency Work?

When a borrower fails to make payments or misses the deadlines, the mortgage is considered delinquent—if only temporarily. At that point, the lender will usually tack on late fees, the amount of which can depend on the lender, as well as the terms of the mortgage. If the lender doesn't charge a late fee initially, that doesn't mean the mortgage is not delinquent; some lenders may choose to wait until a payment is more than 30 days late before assessing fees. 

A delinquent mortgage can lead to foreclosure, but that is typically a last resort for lenders because it can be a long and costly legal process. A forbearance agreement is a potential alternative to foreclosure if the borrower's financial difficulties are temporary. Under a forbearance agreement, the lender temporarily allows the borrower to stop making payments or to pay less than the usual monthly payment.

Some countries allow homebuyers to purchase skip-payment mortgages. These special mortgages allow homebuyers to miss scheduled payments without adding penalty fees or late charges.

How Do Mortgages Become Delinquent?

Mortgages most often become delinquent when the borrower faces other financial difficulties that make it difficult or impossible to keep up with the payments. That might, for example, be a job loss, a costly illness, or a divorce.

This is one reason it can be helpful to maintain an emergency fund, just in case.

What To Do if Your Mortgage Is Delinquent

When a borrower suspects that they won't be able to pay on time, it is imperative that they reach out to their lender promptly. In some cases, the lender may have ways to help avoid delinquency altogether.

A delinquent mortgage can affect the borrower's credit score and their ability to secure loans in the future, which is why borrowers should make every effort to pay their mortgage on time.

A homeowner with a delinquent mortgage who doesn't think their financial difficulties are just temporary, and who wants to avoid foreclosure, might ask the bank to agree to a short sale. This occurs when a borrower owes more than the home is worth on the current market. The bank agrees to let the borrower sell the home for less than the mortgage balance and turn that money over to the bank. In some states, the bank must forgive the difference; in others, the homeowner has to repay it. That is sometimes referred to as a deficiency judgment.

A borrower who has been delinquent for several months, but who has not been foreclosed on, may agree to a repayment plan with the lender to eventually become current on the mortgage and not lose the home. The lender might also agree to a loan modification, such as changing the principal owed, the loan term, or the interest rate so that the borrower can afford the monthly payments. If a borrower has an adjustable-rate mortgage, refinancing to a more affordable fixed-rate one could also be an option.

If you need assistance figuring out what to do, a foreclosure prevention counseling service might be able to help. These services are free and provided by nonprofit agencies.

Can You Refinance a Delinquent Mortgage?

You can, in some instances, refinance a delinquent mortgage. But bear in mind that the fact that you have missed payments makes you a less desirable borrower in the eyes of lenders. That can make it harder to get a new loan and also mean that any loan you're offered is likely to come with a higher interest rate.

Your first option should be to consult with your current lender. Rather than move toward foreclosure, it may be willing to refinance your mortgage or, more likely, modify your current mortgage to make it more affordable.

Delinquency vs. Default

Default is a more serious matter. A notice of default is a public notice filed with a court stating that a mortgage borrower has been delinquent on a loan for an extended period of time. This is one of the first steps toward foreclosure. If a borrower has multiple delinquent payments, they are at risk of defaulting on their mortgage, which also poses the risk of losing any equity they have accumulated in the home.

A mortgage contract should detail the number of delinquent payments that are allowed before the lender will take a default action. Generally, most mortgages will allow up to 180 days of missed payments and delinquencies before the lender files a notice of default.