What happens if I can't make my home equity loan payments?

If you're unable to make your home equity loan payments, it's essential to take prompt action and communicate with your lender to address the situation. Here's what typically happens:

1. Late Payment Fees: Initially, if you miss a payment or make a late payment, your lender may charge you a late fee. These fees can add to the cost of your loan.

2. Contact from the Lender: Lenders usually attempt to contact borrowers who miss payments. They may send reminder notices or make phone calls to inquire about the missed payment.

3. Negative Impact on Credit Score: Missing payments will negatively impact your credit score. Late payments are reported to credit bureaus and can lower your credit score significantly.

4. Notice of Default: If you continue to miss payments, your lender may send you a formal notice of default. This notice will inform you of the arrears and may specify a grace period to catch up on payments.

5. Foreclosure or Repossession: If you're unable to resolve the default, your lender may initiate foreclosure proceedings (for home equity loans related to your primary residence) or repossession of the collateral (for home equity loans related to other property types). Foreclosure and repossession are legal processes that can result in the loss of your home or property.

To address financial difficulties and avoid the consequences mentioned above, consider the following steps:

1. Contact Your Lender: As soon as you realize you'll have trouble making payments, contact your lender. Explain your situation and discuss possible options. Lenders may offer temporary relief, such as a forbearance or loan modification.

2. Explore Loan Modification: Some lenders may be willing to modify the terms of your home equity loan, such as extending the loan term or temporarily reducing your interest rate, to make payments more manageable.

3. Seek Financial Counseling: Consider working with a credit counselor or financial advisor who can help you create a budget, manage your debts, and explore other financial solutions.

4. Sell the Property: If you're unable to make payments and face the risk of foreclosure or repossession, selling the property voluntarily might be an option to pay off the loan and avoid losing the property through foreclosure or repossession.

5. Bankruptcy: As a last resort, you may want to consult with a bankruptcy attorney to explore whether bankruptcy is a viable option for your situation. Bankruptcy has significant financial and legal implications, so it should be considered carefully.

It's crucial to address payment difficulties proactively and communicate openly with your lender to explore potential solutions. The specific options available to you may vary based on your lender's policies and your individual circumstances.