What Are Mortgage Arrears?

Mortgage arrears are missed mortgage payments. Homeowners who fall behind on their mortgages are said to be “in arrears” and can start facing serious consequences for the missed payments within as little as 30 days, depending on the terms of the loan. Borrowers with concerns about their ability to repay should discuss the situation with a lender as quickly as possible to see if it is possible to negotiate. Many lenders are willing to do so as long as borrowers declare a clear intent to repay the loan and are willing to work on developing a repayment plan.

With some loans, a single missed payment can place a mortgage in arrears, and the lender can start to pursue collection actions. Others may have a longer grace period, allowing borrowers to miss several payments. Mortgage arrears include not just the missed payments, but also fees charged for failing to pay on time. They can rack up quickly, and the mortgage servicing company will usually send out a bill for each missed payment to bring the borrower up to date on how much she owes.

If borrowers do not get current within a set period of time, the lender can initiate collection actions. It will start by issuing a demand for repayment, with a warning notice that the borrower faces repossession if he does not respond. If the borrower will not or cannot make up the mortgage arrears and bring the payments up to date, the lender can start foreclosure proceedings. In a foreclosure, the lender evicts the borrower or the borrower's tenants to take possession of the home and sell it on the open market with the goal of recouping the cost of the loan.

Borrowers may be eligible for loan modifications if they have mortgage arrears. In these programs, borrowers with demonstrated financial difficulties can contact their lenders and request changes to the terms. These may include a temporary reduction in monthly payments for hardship, interest rate decreases, and other measures to help the homeowner retain title to the property. This benefits the lender by eliminating the need for costly foreclosure proceedings and increasing the chances of eventually recovering the amount of the debt.

Debt can become a problem for unemployed borrowers or borrowers with unexpected expenses. Mortgage arrears are a cause for concern if they are not addressed, as homeowners can end up homeless, with black marks on their credit records that may make it hard to get new housing. A debt counselor may be able to help with prioritizing debt, negotiating debt forgiveness, and setting up a payment plan to get the debt under control.