What happens to my mortgage if the market crashes
Heritage Home Loans
Heritage Home Loans Spokane, WA
Published on September 29, 2022
what happens to my mortgage if the market crashes; 2022 real estate crash

What happens to my mortgage if the market crashes


If you have been reading the headlines about the real estate market, you may be wondering: What happens to my mortgage if the market crashes?

If you have a mortgage, there’s good news: The housing market doesn’t just crash—it crashes and then goes back up again. But that doesn’t mean you won’t face some unpleasant consequences if the market does crash or enters a recession. Here’s what can happen to your mortgage if home prices fall, interest rates increase, and people stop buying homes in general. 

What is the difference between a housing bubble and a recession?  

Housing bubbles are characterized by a rapid rise in house prices that’s not supported by economic fundamentals. 

Recessions, on the other hand, are periods of general economic decline in activity levels. They’re typically characterized by slow or negative economic growth and high unemployment as well as falling prices for goods and services. 

What happens to home prices during recessions 

While recessions cause a lot of financial strain for families, they can be good news for people who own homes. 

The housing market is cyclical, meaning that it tends to rise and fall following the economy. When the economy is doing well, home prices tend to increase; when it’s doing poorly (that is, during recessionary periods), home prices decrease. But not all recessions are created equal: some are mild while others are severe; some have their origins in international trade or interest rate fluctuations while others stem from domestic issues like bank failures or fraud scandals. When these different economic factors come into play during a recessionary period, you’ll see how each affects your mortgage payment differently—and what kinds of changes might happen if your lender cuts back on interest rates during this time too! 

What happens to interest rates during recessions  

When the economy is doing well, interest rates tend to go up. The opposite is true during recessions when they go down. Interest rates are tied to inflation and economic growth in general; when either one slows down, so do interest rates—and vice versa. 

How to prepare for a market crash or recession 

It’s a good idea to use this as an opportunity to beef up your emergency fund. Create a plan and commit to making regular contributions until you have enough money saved up to cover three months’ worth of expenses in case of a job loss or other financial crisis. 

If you’re not sure whether your mortgage payments will be able to cover the cost of living in your area during a market crash, it might be wise for you to reduce your mortgage debt by refinancing into a loan with lower monthly payments. 

In addition to having an emergency fund put away, it’s also crucial that you don’t take on any more debt than necessary in order to not only retain access but also build equity in your home (and avoid foreclosure). 

What happens to your mortgage if the market crashes? 

If you are in the middle of a market crash, the worst thing that can happen is that your lender will foreclose on your home. However, this is unlikely to happen as long as you make your mortgage payments on time. With most mortgages, lenders don’t care if they sell their loans to investors or keep them in their own portfolio—they only want their money back every month. 

In addition to making sure you make all of your mortgage payments each month, there are two things you can do if interest rates fall dramatically: refinance and pay off the loan early. 

Refinancing (paying off an existing loan with another one) allows borrowers who have locked in at fixed rates to take advantage of lower ones when market volatility causes those rates to drop substantially. It also gives borrowers who have variable-rate loans access to fixed ones during times of increased stability, so they don’t have any risk associated with rising rates. If refinancing isn’t an option for you because your home equity has decreased since taking out the original loan or because it has risen but not enough for any savings from refinancing after closing costs and fees, then paying off early may be preferable anyway since paying down principal reduces interest expense over time and thus saves money year after year from having less debt left outstanding.” 

If you have a fixed-rate mortgage, your monthly payments will not change. 

If you have a fixed-rate mortgage, your monthly payments will not change. Your interest rate is locked in for the life of your loan, and even if the market crashes and interest rates go up overall, it won’t affect your mortgage payment. 

For an adjustable-rate mortgage, payments could rise. 

If you have an adjustable-rate mortgage, it’s possible that your monthly payment could rise if interest rates go up. But don’t worry—you may be able to refinance into a fixed-rate mortgage or take other steps to keep your payments affordable. 

For example: If you’ve been paying on time and haven’t had any previous late payments, your credit score should be fine. You can then use that good credit score to get approved for another loan that has lower rates than the one you have now. This will allow you to lock in the new rate before any rate hikes kick in—and it could even reduce the amount of money owed on your current home! 

There are things you can do to minimize the damage of a market crash in the housing industry 

If you’ve been keeping up with the news, you know that housing prices are on the rise. This is great for buyers and sellers alike, but it could mean trouble for anyone who’s currently paying off their mortgage. 

If you’re worried about what might happen if home prices fall again, there are steps you can take to minimize the damage. You’ll have to plan carefully, but if a crash comes—and it’s always possible—you’ll be ready. 

The first thing to do is adjust your monthly budget so that it includes enough money to cover a loss of income or any other expenses associated with unemployment (like gas money). Next, consider refinancing your mortgage: while this won’t help if prices drop below what they were when you originally bought the house (many lenders won’t refinance loans purchased before 2008), it could prevent further losses should values stay stable or increase over time. Finally, consider selling out now rather than waiting until later; even though there may not be much demand for homes right now due to high inventory levels across most markets nationwide (accordingly low demand means less competition amongst buyers), selling early will allow homeowners plenty more flexibility during uncertain times ahead by putting cash in their pockets as soon as possible rather than waiting until after prices begin falling again once more people start looking into buying new homes themselves.” 


Hopefully, we can now all rest easy knowing that our homes are safe from the market crash. 


Heritage Home Loans
Heritage Home Loans Spokane, WA
Click to Call or Text:
(509) 991-3493