How Will a Repo Affect My Home Loan?

Car repossession may wreck your credit, but your home loan is probably safe. However, in some cases the bank can cause you to miss payments, leading you to default on the mortgage. This can happen only when you bank with a single institution. Thus, going to separate creditors mitigates the chance that a car repossession also affects a mortgage.

Immediate Effect

As long as you already have a home loan, a car repossession will not affect your mortgage, according to Bills.com. In the credit card industry, defaulting with one creditor allowed other credit card providers to change the terms of your agreement -- called universal default -- before the Credit Card Accountability Act of 2009 changed this practice. There is no universal default rule among home loans as of 2011.

Refinancing

Any repossession, even one where you voluntarily give up the car, damages your credit score, probably by dozens of points. Even if you have a mortgage, you may want to refinance your mortgage -- apply for a new mortgage to pay for another one -- in the future to take advantage of lower rates. If you have a car repossession on record when you try to refinance a home, the bank might reject your application or you will only find rates and terms worse than your original agreement.

Right of Offset

Creditors have the "right of offset" in most cases of default. If you took out an auto loan from the same bank that issued your mortgage, the bank that issued your mortgage can draw money out of your savings or checking accounts to pay for the repossession if you also do your personal banking with that lender. When a bank exercises its right of offset and you cannot pay your home loan, you could default on the mortgage, which might lead to foreclosure.

Tip

You should always call your creditor before an auto loan delinquency gets to the point that the creditor thinks taking the vehicle back is the only way to get you to pay. Consumers are responsible for any deficiency on the auto -- the difference between the balance on the loan and what the creditor sells it for -- so you will probably have to pay the full cost of the loan anyway. Try asking the creditor to defer payment for a few months or lower the interest rate.