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Wallet Canvas > Housing Finance > What happens if I default to a Heloc or Home Equity loan?
Housing Finance

What happens if I default to a Heloc or Home Equity loan?

June 3, 2025 11 Min Read
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What happens if I default to a Heloc or Home Equity loan?

Defaulting on any type of loan is never a good thing. However, HELOC, the cousin of CREDIT, which is the default on Home Equity Loans or HELOCs, has far more difficult results. You could lose your home.

why? Because when you received the loan, you pledged the place as collateral for your debt. If you are late in repayment, aka “delinquent”, the lender has the right to acquire your property and retrieve that money.

Now it doesn’t happen overnight – a lot must happen before the actual foreclosure. Still, in a small section of borrowers, you can see those storm clouds gather. The latest data from the Federal Reserve Bank of New York shows that 0.88% of HELOC (Home Equity Credit Line) accounts are overdue for more than 90 days. It’s not a huge number, but a noticeable increase from 0.52% in HELOC, which took on the same shape a year ago.

If you’re at risk of joining those ranks, read on what actually happens by default with Home Equity Loans or HELOC, how fallout will affect your finances and mortgage, and what to do to avoid this unstable situation.

What does the default for Home Equity Loan mean?

Being the default on a loan simply means you have failed to make your scheduled payment on time. Before you continue to wake up at night by highlighting the possibility of defaulting your home equity loan, it is important to understand that no defaults are set after missing one payment.

“In general, missed four months or 120 days of consecutive payments is about to default and start a collection for creditors,” said Pahmela Foxley, vice president of mortgage lending at Utah-based Wasatch Peaks Credit Union. “This may vary from lender to lender.” Some people may have less time, but they may give them a little more time.

It’s important to stay far ahead of that four-month mark. Foxley says lenders may be willing to adjust (at the fee) to avoid sending the loan into the collection. “Most lenders are willing to work with borrowers to help them,” she points out.

In addition to worrying about payments, you should also consider the fees that are likely to be added to the process. Most lenders charge home equity loans and HELOC late payment fees. It is common to see these charges reach up to 5% of the amount of missed payments. Some lenders will set the maximum, Regional Bankfor example, limit late fees to $100. Don’t forget you will be charged for each month you missed.

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What happens when you default to Home Equity Loan or HELOC?

Although the details of Home Equity Loans and HELOCs are different, the two products work the same way if they don’t fulfill their obligation to make payments on time. “There is usually no difference between defaults on HELOC or home equity loans,” says Mark Worthington, branch manager at Churchill Mortgage. “Both are mortgages protected against real estate, so if a default occurs, they essentially have the same effect on the assets.”

The worst effect is Foreclosure – A long process that ultimately leads to your lender owning your home and selling it to kick you out. Like major mortgage defaults, it doesn’t happen immediately. Here is a summary of the general process:

  1. One that missed payment: If you do not make payments during the grace period (often 15 days after the due date), you will receive a written notice from the lender.
  2. Next payment: The following statement includes legitimate past amounts and deferred fees.
  3. Missed payments for additonal: If you have yet to make a payment and have not contacted the lender to discuss your options, you can receive a portion of the terms in the lending agreement from the lender’s collection department, which will grant you the right to request a full repayment.
  4. Default notifications: After missing multiple payments – usually somewhere between 90 and 120 days – your lender Default Notifications. The offices of local real estate recorders in your town or county will probably also receive copies.
  5. Pre-execution: The windows are closed during this period. After taking necessary legal action in your state, your lender is preparing to move forward by asserting your property. However, even at this point, you have the ability (still belongs to you) to chase payments, demand for tolerance, and sell your home.
  6. Eviction and Foreclosure: If you manage to come to the resolution, your lender has the right to move forward with kicking you out of the property and selling it or auctioning it off.
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What happens if the sale of seized property does not cover the debt?

But your obligations may not stop there. Say you’re borrowing $70,000 from a lender, and the house is on sale at auction for just $55,000. Lenders can technically decide to wipe out $15,000 from their books and move on. But in many cases, if it’s a serious shortage, the lender will do whatever it takes to fully repay you – including taking you to court.

“The lender will (request) a judgment against you regarding the remaining balance,” Foxley says. If it is successful, “This can lead to wage decorations to affect your weekly salary.”

What is the financial impact of defaults on home equity loans?

Losing your home and perhaps in addition to your future wage portion, the default on your home equity loan will have other serious long-term effects on your finances and financial profile. Foreclosures remain on your credit report for seven years, so whenever the company checks your credit – for example, to consider applying for a credit card – they will see a big red flag in your credit history.

Note that it’s not just the default. Paying on time is heavy on you Credit scoreand your credit score will probably be in a poor form as you missed multiple months. According to a data analysis of over 84,000 mortgages conducted by risk management firm Miliman, one of which missed payments on a mortgage led to a decline in credit scores of an average of 52 points, while four missed payments were usually converted to a mass decline of over 98 points.

Lower credit scores create major challenges in your ability to secure other loans.

How does home equity loan default affect your mortgage?

Your home equity finance defaults will also affect other loans. Especially the main mortgage in your home (unless you pay it back). Remember, it’s another lender waiting for repayment.

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If your first mortgage is in good condition, you may still think it’s okay. However, think about it like this. You borrow money from two parties. Neither is more Paying is important. Both have to receive regular payments, and if they do not, they both have a right to your property. However, home equity lenders are in a more demanding location. If it enforces foreclosure, the primary lender is entitled to first collect the outstanding balance.

“The process is more complicated and challenging for (home equity) lenders, as (home equity) loans are usually in the second lien behind a major mortgage,” said Phil Crescenzo Jr., vice president of the Southeast Nation One mortgage.

Home equity lenders have two options. You can also start a foreclosure and try to see what is left after a major mortgage lender has been paid from the sale of the property, or try to buy a primary mortgage for a more direct channel of sale. Worthington says lenders are usually looking at available equity in their property before moving forward.

Regardless of what route a home equity lender takes, the outcome as a borrower is the same. You will lose your home. Also, if a major mortgage is filed as a default — as Worthington usually says — that means two rather than one of the worst blackmarks on your credit report will chase you for the next seven years.

Home Equity Loan Default Conclusion

Many homeowners are sitting in a huge mountain Home Equity We can now offer an attractive source of cash. However, accessing funds through Home Equity Loans and HELOCS involves great responsibility and risk. Their defaults have serious consequences that can destroy your credit and reduce the likelihood of approval for other fundraising in the future.

And while they are considered a second mortgage, the status of the next line should not fool you. Paying them back is just as important as making your payments on your primary mortgage. You spend time on a mortgage because if you are seriously behind on your home’s stock debt, you can’t save you from foreclosure.

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