What could be a consequence of default in mortgage payments?

Defaulting on mortgage payments primarily leads to serious legal consequences, including the possibility of foreclosure. When a borrower fails to make timely mortgage payments, the lender has the right to take legal action to recover the owed amounts. Foreclosure is the legal process through which a lender can reclaim the property that was used as collateral for the loan, allowing them to sell it to recoup their losses.

In a foreclosure situation, the property is typically auctioned off, and the previous owner (the borrower) may lose their home. This process not only impacts the borrower’s financial standing but also significantly affects their credit score and ability to qualify for future mortgages. Thus, the consequences of default extend beyond the immediate loss of the property, leading to long-term financial and legal repercussions.

The other options do not accurately reflect the consequences of default. Increased interest rates typically occur as a result of higher risk assessments rather than being a direct consequence of failing to make mortgage payments. Cash rebates are not a consequence of default; they usually relate to incentives offered for timely payments. Modification of loan terms may happen as an attempt to help borrowers avoid default, but it is not a direct consequence of default itself.