The lender can foreclose the house if the borrower is unable to pay the mortgage. One of the most popular debt instruments is the mortgage. It is secured by the collateral specified real property and the borrower is required to repay it with a set of predetermined payments. Individuals and businesses can use mortgages to purchase large amounts of real estate without having to pay the full amount upfront. The borrower repays the loan plus interest over many years until they are free and clear of the property.
The loan is converted to default if the borrower can't make their mortgage payments. The bank has several options once that happens. The most well-known and most feared option for a lender is foreclosure. This means that the lender takes over the property, expropriates the homeowner, then sells the house. However, foreclosure is an expensive and lengthy legal process that lenders might not want to go through. It may not receive any payments for as long as a year after the foreclosure process began and it could also lose all fees.
Lenders may offer a short refinance to borrowers who are at high risk of default. A borrower might also request a short loan. The borrower may also be eligible for a short refinance. This allows them to keep their home and lowers the amount they owe. However, there's a downside. The borrower's credit rating will likely drop as they don't pay the full amount of their original mortgage.
