Home Loans

What Happens When You Default On Home Equity Loans?

If the value of your home, or the amount you paid for it, is higher than your first mortgage or the principal, it means that you have equity in your home. You can tap into your equity by applying for a loan, secured by it. These can be a great option to acquire finance, but what happens if you default on home equity loans?

Here are the consequences if you default on home equity loans

1.The account will be sold to a collection company.

Unlike what other people think, foreclosure is usually not the course of action home lenders choose to recover the amount you owe. When you default on your debt, your lender may sell it to a collection company who will take it from there. They will call you, send collectors to your door steps or send demand letters to attempt to recover your outstanding balance.

standard-lawsuit2. Standard lawsuit

If the second mortgage holder decides not to foreclose, can it still recover the money it has lent you? Yes. In an attempt to recover payments, the lender may file a standard suit against you. It is less scary than a foreclosure where you will lose ownership of your home, but it can seriously hurt your credit score.

3. Foreclosure

In case of default, the holder of your second mortgage may initiate a foreclosure to recover the money it lent to you the moment your house is sold at a foreclosure sale. Since mortgage is a senior lien which takes priority over a home equity like a second mortgage (because the loan was registered earlier) the first lender gets paid first. But, what if you refinanced the loan—does it mean that the second mortgage lender becomes the first priority? It depends. Whichever lender has the certificate of title will be entitled for the payout first. If you were in the process of refinancing but it was never complete before the foreclosure on the property and you didn’t pay the previous lender out, they are not eligible for the funds. If your previous lender still holds the certificate of title, then they are the ones who need to be paid out.


Here are tips to avoid the above-mentioned consequences of not paying your home loan on time…

Don’t hide from your creditors.

They will not be so enthusiastic in working with someone who avoids their calls, ignores their letters and refuse to cooperate with their offer to help for a few months. Remember that most mortgage lenders will work with borrowers who are struggling to make payments to encourage payment. So, if you’re missing payments, contact your lender right away. Inform them about your current financial situation and express your willingness to work out a repayment plan suited to your condition. Your lender may modify the terms of your loan, lower or raise the interest rate, increase or decrease the monthly payments, depending on your situation and financial capacity. It can also be a combination of the abovementioned options to make the home loan more affordable.

Explore available options to avoid foreclosure

Are you struggling to make your second mortgage payments? If foreclosure is imminent because of default, check out some of the alternatives to foreclosure that Australian Lending Centre offers:

If you want to consolidate your debts into 1 easy-to-pay, low-rate loan with low monthly repayments, get your finances back into order with a debt consolidation loan. Learn more about home equity loans and the suitable financial solutions available for you by calling 1300 138 188 today!


What New Borrowers Need To Know About Home Equity Loans

As new borrowers, home equity loans are one of the smartest ways to use your valuable assets.

If you have a home, and you already paid off a portion of that house, then the difference between the value of your home and the total debt you owe is your equity. It is your interest in the said property.

How much can I borrow against my home equity?

You can only borrow the amount which is equivalent to your interest in your property.

For example, you bought a home worth $250,000. You made a 25% down payment and obtained a loan to cover the remaining 80% of the purchase price. The value of your home is $250,000 and your equity or the amount you contributed to the purchase price is only 25% or $62,500.

While the lender secures their interest by getting a lien on your house, you still own it. However, as much as your home equity is concerned, you only “own” 25% of it.

Supposing the market value of your home doubled in the next six months, but you still owe $187,500 (or 80% of the purchase price), your home equity will increase. But, the principal amount of your loan will stay the same. Meaning, while your debt is still $187,500 your original home equity which is $62,500 will double. This is just a simplified computation. Other factors such as accrued interests, fees and penalties will still apply.

How can I build my home equity?

  • Make double payments covering both the principal and the interests
  • Increase your initial down payment on the mortgage. Instead of the standard 20 per cent down payment you can add another 5 per cent to get exactly 25 per cent home equity, or 25% of the market value of your home.
  • Invest in home improvements such as renovations, adding energy-efficient appliances and fixing the plumbing issues.

Credit score and home equity

Before applying for home equity loans, new borrowers must be aware of their credit score. Multiple debts that spiral out of control can swiftly affect your daily life in big ways. Interests may roll over until they become difficult to repay.

Lenders are most likely to approve loan application from individuals with good credit history, or those who have repaid their credit obligations on time. People with good employment record, especially those who were able to stay in the same company for several years are considered more financially stable than self-employed ones. But, people with a low credit score do not have the same privileges as those with excellent credit history. But, if you own a home, you can use its unencumbered value to pay for your current expenses.

If you want to obtain home financing loans with favourable terms and at a lower cost, the Australian Lending Centre can help you. Aside from offering a more appealing rate, they also help you settle your multiple loans through their debt relief programs such as refinance, credit card consolidation, debt relief, debt management and debt agreement services.

Learn more about home equity loans and choose the most suitable loan products to meet your financial needs. Contact the Australian Lending Centre today!

Home Loans

Benefits of Second Mortgages

How do Second Mortgages Work?

Many people are familiar with the idea of a first mortgage on a property. The idea is fairly straight forward. You take out a loan which is secured by a particular property. It serves as collateral which reduces the risk for the creditor and makes it more likely that the property owner will get the loan. However, fewer people are familiar with the idea of a second mortgage. This is unfortunate because this type of financial agreement can offer some real benefits.