Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Feb 6, 2012

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Don’t worry, you’re not alone. As home equity across the nation was destroyed five years ago and unemployment numbers soared between 10 and 20 percent, many were forced to stop making payments on their home mortgage loans. Others decided they would stop payments intentionally and practiced what is called a “strategic default.” Regardless of the reason, millions have been foreclosed on since the housing market collapse of 2007.


When one stops making payments on their home loan, they can expect a few things to happen. First and foremost, a foreclosure notice will be on its way. Foreclosure is what happens when a lender repossesses a home in response to a borrower not fulfilling their end of the contract. Lenders are permitted to do this because a borrower puts the house up as collateral upon taking out home financing.


Sometimes the argument that defaulting on a home loan is immoral will be thrown about. However, defaulters need to know that’s not the case.


It would be immoral to default on a mortgage loan if the borrower gave their word they would repay it. In modern day contracts, however, borrowers don’t give their word that they’ll repay a mortgage, but instead offer their property as collateral in the event they don’t repay their loan. Because both parties agreed to the mortgage contract upon issuance, there’s nothing unethical about defaulting since lenders receive their promised and agreed-to collateral when payments cease.


So stopping payment on a mortgage loan will ultimately result in eviction. Additionally, a borrower’s credit score will get nuked when a lender notifies credit rating bureaus that the borrower is being foreclosed on. This credit score reduction is usually around the range of 90 to 150 points, and will make obtaining a loan of any sort more difficult in the future.


But the good news is that credit scores are always repairable. Don’t let anybody tell you otherwise. If a borrower stays in good standing on other debts and proves that he or she is financially credible, they can expect their credit score to rebound back to around its original level after just a few years.


Defaulting on a home mortgage loan will result in relocation and can shake up one’s financial world for a period of time—but it’s not the end of the world, and borrowers can rebound from their predicament in a relatively short amount of time.