According to a study by the Becker Friedman Institute for Economics at the University of Chicago, around 97% of all mortgage defaults happen as a result of economic distress. This means that most people fail to pay back their mortgages due to economic factors, usually outside of their control. Here are five of the most common reasons that people default on their mortgages:
- Loss of job or reduction in pay
- One of the biggest reasons that some people default on their mortgage is that they lose their job, or have their wages cut. This is because people take on a mortgage with the expectation that they will maintain the same pay, but a loss of income can make an affordable mortgage into something untenable. When that happens, mortgagees may choose to stop paying because they simply cannot afford it.
- Overwhelming debt
- Mortgages are only one kind of debt, and unfortunately, many people will take on more debt than they can handle. This can include credit card debt, student loans, or any other type of debt that may exist. When the amount of debt that people deal with becomes too overwhelming, they may have no choice but to default on their mortgages.
- Medical emergencies
- Medical problems can happen to anyone at any time, and even with health insurance, they can easily cost tens or hundreds of thousands of dollars. These sudden and massive expenses can become a major drain on a person’s finances, to the point where they can no longer pay back their mortgage. This, in turn, causes them to default on their mortgages, leading to a potential foreclosure.
- Major unexpected expenses
- Medical emergencies are not the only major expenses that can hit you at any time. A car accident can leave you with major repair bills, or even the need to replace your car, while a natural disaster can leave you with major property damage that your homeowners’ insurance may not always cover. When that happens, people will often default on their mortgage rather than sink money into a home they can no longer afford to live in.
- Divorce or death of spouse
- Many homeowners live in two-income households, where the price of a mortgage is shouldered by both spouses in a marriage. This can make a marriage, or the death of a spouse, into a financially devastating event, which makes a mortgage impossible to manage. Without the extra income to support the mortgage, a default may become the only viable option.
At David J. Lorber & Associates, PLLC, we assist clients throughout New York who are at risk of losing their homes to foreclosure. We will explain your options and guide you in making the best decision for your circumstances. Call us at (631) 750-0900 or contact us online to schedule your Free consultation at our Setauket office.
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