What Happens If You Default on a HELOC or Home Equity Loan?

A missed payment on your HELOC is the kind of thing that keeps you up at night. You’re running through worst-case scenarios: losing the house, ruined credit, a phone call you don’t know how to make.

The fear makes sense. Your home is on the line. But you can take a breath—you’re not in immediate danger of foreclosure. There’s a process, and that process takes time. You likely have more runway than you think.

Here’s what that process actually looks like, and what you can do at each step.

What does it mean to default on a home equity loan or HELOC?

A HELOC is a home equity line of credit: a revolving line of credit secured by your home. A home equity loan is also secured by your home but is a one-time lump sum. If you default on either one, the lender could foreclose on your home.

One missed payment doesn’t automatically mean you’re going to get kicked out of your home. Most people assume that missing a payment means they’ve defaulted. In plain English, that’s not how it works.

A missed payment is just that: a missed payment. Most lenders offer a grace period, usually around 15 days after the due date, before even charging a late fee. That’s an annoying cost, but it’s not a default.

Default is a different threshold entirely. Most lenders typically consider a loan in default after 90 to 120 days of missed payments. The exact threshold depends on your loan terms. That’s three to four months before a lender may begin formal collection action.

Why does this distinction matter? Because it means you have time. Not unlimited time, but enough to act.

What could happen after you default?

Once you’re in default, a lender has options. Here’s what those options look like, roughly in the order you’d encounter them.

Your credit takes a hit

A missed payment that’s 30 or more days late gets reported to the credit bureaus. That entry could significantly damage your credit score. Missed payments typically stay on your credit reports for up to seven years from the date of the first missed payment. 

Your credit line may be frozen

If you have a HELOC, your lender may freeze or close the line of credit. This can happen after missed payments when the lender thinks you might be having trouble.

You should receive a notice of default

This is a formal written notice telling you the loan is in default and that collection action may follow. It’s not the end of the road, but it’s a signal that the clock is ticking.

Foreclosure becomes possible

If you still can’t repay, the lender could foreclose on your home. The legal foreclosure process generally can’t begin until payments are at least 120 days late. The actual timeline varies by state.

The second-lien reality

A HELOC or home equity loan is typically a second lien on your property. In most cases, the first mortgage lender is paid from foreclosure sale proceeds before the HELOC lender. 

If there isn’t enough equity to cover both loans, the HELOC lender may choose to sue for the balance rather than pursue foreclosure. In some cases, a lender may also pursue a deficiency judgment. That’s a court order requiring you to pay any balance that remains after a foreclosure sale. The rules vary by state.

What to do if you can’t make your home equity loan or HELOC payments

The worst thing you can do is go quiet. Lenders deal with hardship situations regularly. Most would rather work something out than pursue foreclosure, which is expensive and slow for them too.

Here’s where to start:

• Call your lender first. Do this before you miss a payment if you can. Some lenders may offer hardship assistance—but you typically need to ask. Have a rough picture of your income and expenses ready before you call.
• Ask about forbearance. Some lenders may offer a temporary pause or reduction in payments for homeowners facing financial hardship. Interest may continue to accrue during forbearance, so understand what you may owe when it ends.
• Consider refinancing. If your credit and equity allow it, refinancing could replace the HELOC with a new loan at different terms. A cash-out refinance is one option worth exploring.
• Sell the home. If the home has enough equity to cover both loans, selling could let you pay off the debt and avoid foreclosure entirely.
• Get free help from a HUD-approved housing counselor. If your lender isn’t responsive, a housing counselor could help you review your options and navigate lender negotiations—often at little or no cost.
• Explore bankruptcy if foreclosure feels imminent. Bankruptcy may provide a temporary pause through an automatic stay. That’s a conversation for an attorney.

The earlier you start, the more options you’ll have.

Bills Action Plan

1. Check your loan agreement. Find the grace period, late fee terms, and what triggers formal default.
2. Call your lender before the next payment is due. Ask about forbearance or hardship assistance. Have your income and expenses ready so you can explain your situation clearly.
3. Contact a HUD-approved housing counselor if your lender isn’t responsive.

Key Terms

Default: Typically when a borrower has failed to make loan payments as agreed for 90 to 120 days. Default gives the lender the right to begin formal collection action.

Foreclosure: The legal process by which a lender takes possession of a home after the borrower stops making payments. The home is then sold to recover the debt.

Lien: A legal claim against a property. Both your primary mortgage lender and your HELOC lender hold a lien on your home. In foreclosure, lienholders are paid in order of priority.

Forbearance: A temporary agreement with your lender to pause or reduce your loan payments. Interest typically continues to accrue. You’ll likely need to repay the deferred amount later.

Deficiency judgment: A court order requiring a borrower to pay the remaining balance after a foreclosure sale doesn’t fully cover all the loans against the home. Not available in all states.