No one signs a mortgage contract thinking they won’t be able to keep up with the payments. And yet life sometimes throws us curveballs. The recent coronavirus crisis, for example, has sent millions into unemployment and a state of financial uncertainty. If an emergency hits and you are short on cash, how bad is it to miss a mortgage payment?
What Does ‘Late’ Mean?
For most home loans, the payment is typically due on the first of the month. Most mortgage servicing companies will give borrowers a grace period, with the final pay date of the 16th before penalties are charged. That extra two weeks could be the lifeline you need during an emergency to come up with the money you need. You should definitely double check that your loan includes that grace period and when exactly it ends. It should be in your mortgage documentation but you can also call your servicer to be sure.
While paying during the grace period will not hurt your credit score, it may not be the best habit to develop. Especially if you are making the payment around the 16th every month, you may run into trouble if it's around a holiday or if there are bank or mail system delays.
If you are not able to make your payment before the end of the grace period, you will typically be charged a late fee. The fees will be calculated based on the terms of your mortgage. For most home loans, the late fee will be a percentage of the principal and interest that is due. For example, if your actual mortgage portion of your payment comes to $1,000 and your terms stipulate a 5% late fee, you will have to take on $50 to your payment.
Credit Score Dings
When you make a late mortgage payment, your credit score will be hit. How much it will drop depends on your current score. Someone with a high score may see a bigger decrease than some with less-than-perfect credit since it is already low. A late payment will stay on your credit report for seven years. If it is a one-time late problem, you should be able to recover your score fairly quickly. If it becomes a pattern, it will take much more time to repair. And the later you are on a payment, the worse it is for your score. A 90-day late payment is weighted heavier than a 30-day delay.
A lower credit score may not have any immediate effects on your life, but the next time you apply for credit, you may find it harder to come by. If you do qualify for new loans, it may be at higher rates. This could be true of everything from car loans to credit cards to refinance loans. Potential employers even run credit checks sometimes before hiring.
Each mortgage loan will have its own terms as to when it is considered in foreclosure. Some only allow for one missed payment before it reaches that status. Most lenders will not begin the proceedings until payments have been late for 90 days though. Foreclosure is a very costly process for the lender as well, and they would rather give you a little breathing room to get back to making timely payments than have to go through the expense and hassle of it all.
If you are unable to make a payment after a month, reach out to your mortgage servicer and explain the situation. You may be able to go into forbearance – a pause on your mortgage – if the circumstances are temporary. The odds of getting help are much higher if you start communicating with the company sooner than later.
Give us a call at 413-737-1100 if you have any questions. We would love to help you and your friends lower your monthly mortgage payments.