Mortgage loans are a type of home equity loan. This loan is backed by your home; in other words, your home acts as collateral. If you decide to default on your mortgage and do not have mortgage loan insurance then your lender has the right to foreclose on your home. Your credit report will suffer and you will be kicked out of your home. Always try to make your mortgage payments in full and on time. If you miss a whole payment all together, that is viewed as worse than making a payment that is not the full amount. If you are having financial difficulties, talk it over with you lender, perhaps you could work out a new plan (refinance) that would have lower monthly payments, but your loan term would be extended.

If you default on a mortgage loan and your loan was insured, then the lender will be paid, but the insurance company now has the right to take your home away. If you are insured by the FHA, you may be able to work out a deal, the government is a little more understanding than the private sector. If you can work something out to repay the FHA, that would be best for you. If you KNOW you’re on the brink of defaulting you should always talk to your lender to see if there’s anything that can be worked out. Just defaulting will take away your home. Even if you have two payments left and you default, the property is taken away from you and all the money you paid in the past is gone. There’s no chance of getting that money back.

If you are really unable to make payments, refinancing might be an answer. Whether the interest rate is high or not is not relevant when you can’t make your monthly payments. If you refinance, you can choose a plan that extends over a longer period of time, which will decrease your monthly payment, however the amount you pay in interest at the end of the loan will be significantly higher. You also need to take into account the additional fees associated with mortgage refinancing. Another way to avoid defaulting is to just sell the property and use that money to buy/rent housing that you can afford. If you do not want to sell your home, a home equity loan might be best for you.