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Can You Refinance a Delinquent Mortgage?

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Yes, you can refinance a delinquent mortgage as a way to bring a past-due home loan current and avoid foreclosure. The process of refinancing pays off the existing mortgage and replaces it with a new loan, giving borrowers somewhat of a fresh start.

The steps to refinancing a home loan are pretty straightforward; however, refinancing to satisfy mortgage delinquency can be a little more complicated. You’ll need to communicate with your lender. They may be willing to work with you to refinance the mortgage to avoid foreclosure or provide alternatives to bring your loan current.

How to refinance a delinquent mortgage

If you’re attempting to refinance a mortgage to avoid foreclosure, it’s crucial to take action before the loan becomes further past due. If you haven’t already, communicate with your lender to discuss your failure to pay the mortgage.

Your lender will provide you with all your options. The more quickly you act, the better the chances your lender will work with you — or that you’ll find another bank or mortgage company willing to refinance delinquent mortgages.

Here’s how to refinance a delinquent mortgage.

1. Know where you stand 

To refinance a delinquent mortgage, you’ll need to meet your lender’s loan and borrower requirements.

The amount of equity in your home (the value of the property minus what you owe on your mortgage) plays a factor in your ability to refinance and determines what loan type you qualify for.

Additionally, your credit score will affect your interest rate on the refinance loan. If you’ve already missed payments, then your credit score will have taken a hit, so it’s best to refinance the delinquent mortgage as soon as possible.

2. Gather your documents 

Prepare for the application process by gathering your financial documents. You’ll need to provide proof of your income, employment, assets and other information. Gathering everything and having it ready will help to speed up the process.

3. Compare lenders and refinance loans 

To get a refinance loan with the best rate and mortgage terms, you’ll need to shop around. Because you’re looking to refinance a delinquent mortgage, start with your current lender. However, you can also apply for a refinance loan with additional lenders. Other lenders may have different loan options to help you refinance the delinquent mortgage.

As you compare loan options, review the terms of each loan carefully. To determine the best loan for you, be sure to look at the monthly payment, interest rate, annual percentage rate (APR), the total number of payments and total amount paid.

4. Apply to the loan with the best terms 

Once you determine the best loan, you’ll submit a full application for the loan and begin the underwriting process. Your lender will verify the value of the home through an appraisal or other method. You may need to provide additional documents and information to your lender during the underwriting process.

5. Close on the new loan 

Once the underwriting process is over, you’ll close on the refinance loan. The new loan will replace the delinquent mortgage, and you’ll have a new mortgage with a different payment and loan terms.

Understanding mortgage delinquency vs. default

If you’re attempting to refinance a delinquent mortgage, it’s essential to understand the difference between mortgage delinquency and mortgage default.

The mortgage delinquency definition describes delinquency as being late on your payments. This includes missing a payment or failure to pay the mortgage payment in full by the due date. Mortgage delinquency can occur after missing one payment.

On the other hand, mortgage default occurs after the loan has been delinquent for some time, generally after 90 days — or three missed payments. When a loan is in default, your lender or servicer may initiate the foreclosure process.

What if you can’t refinance a delinquent mortgage?

If you’re unable to refinance your delinquent mortgage, you have alternatives. Your exact course of action will depend on your mortgage type, how past due you are and your lender’s options. While some of these alternatives allow you to remain in your home, others do not.

Consult your lender right away to discuss your options and next steps. Additionally, a HUD-approved counselor can provide further guidance.

Mortgage forbearance

If the failure to pay your mortgage is related to financial hardship such as a job loss, illness, natural disaster or other events, you may qualify for mortgage forbearance. With a mortgage forbearance, your lender will either reduce or pause your mortgage payments temporarily.

The exact terms and forbearance options will depend on your loan type and lender. Typically, you’ll need to follow your lender’s process for requesting forbearance, including providing details about the hardship you’re facing.


Keep in mind that forbearance doesn’t eliminate the paused or reduced payments. Interest on the loan will continue to accrue, and your lender will provide options for recouping the reduced or paused amounts. These options can include making a lump sum after the forbearance period or at the end of the mortgage. Or you may pay a portion of the past-due amount with your regular monthly payments.

Mortgage modification

Another alternative to address mortgage delinquency is to go through a loan modification. A mortgage modification reduces your monthly payment by changing the terms of your loan. For example, your lender may modify your mortgage by extending the loan term, reducing the interest rate or reducing the principal balance.

Some borrowers confuse loan modification with mortgage refinance; however, the two are not the same. With a loan modification, you’ll still have the same mortgage and lender but with revised terms. You won’t pay fees or closing costs to modify your loan. On the other hand, if you refinance the delinquent mortgage, you’ll have a new loan that pays off the existing mortgage balance. Also, you’ll pay closing costs with a mortgage refinance.

To qualify for a mortgage modification, some lenders may require a financial hardship to be present. But in other cases, like the Flex Modification available with some conventional (non-government) loans, borrowers do not have to experience financial difficulty to qualify.

Short sale

If your mortgage is underwater and you cannot modify, request a forbearance or refinance the delinquent mortgage, you may consider a short sale. A short sale is when you sell your home for less than it’s worth, and your lender accepts the proceeds of the sale as repayment of the loan. This option allows you to sell the home without having to come up with the entire loan amount.


You’ll need to meet your lender’s eligibility requirements for a short sale, and they will have to approve you to enter the short sale process. Once your lender agrees to a short sale, you’ll list your home with a real estate agent. During the process, you and your agent will work together to review and submit purchase offers to your lender, who will, in turn, accept one of the offers.

While a short sale will negatively impact your credit, it can be less severe than a foreclosure.

Deed-in-lieu of foreclosure

Another option, if you can’t refinance the delinquent mortgage, is a deed-in-lieu of foreclosure. With this process, you willingly give up the home to avoid foreclosure. Your lender will then sell the property and use the proceeds of the sale to satisfy the mortgage balance.

If the home sells for less than the loan, you will not have to pay the difference in most cases. Some state laws do hold borrowers responsible for the deficiency. If you live in such a state, you can request that your lender waive the deficiency.

A deed-in-lieu of foreclosure will impact your credit negatively, but less so than a short sale or foreclosure.

Repayment plan

With a repayment plan, your lender will provide you with a structured agreement to satisfy your late or unpaid mortgage payments. This can include paying a portion of the past-due amount with your monthly payments until the loan is current. Or your lender may allow you to defer the unpaid mortgage amount until the end of the loan term.

Entering a repayment plan enables you to stay in the home and bring the loan current if you cannot refinance the delinquent mortgage.


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