Don’t worry—there's no need to panic quite yet. But there are consequences to missing a mortgage payment, so you'll want to know what's in store.
What if you're late on your mortgage payment?
Every home loan agreement offers borrowers a grace period for late payments. (Most mortgage payments are due the first day of the month but policies can vary, says Guy Cecala, chief executive and publisher of Inside Mortgage Finance.) Typically, there’s a 15-day grace period, in which case you would have 14 days after your payment is due to pay your bill without incurring a late fee. However, “I’ve seen some late fees kick in after seven days,” Cecala says, who recommends checking your policy carefully to see how long your grace period is.
Late fees are based on your mortgage agreement, loan type, and state regulations, but generally the average is 4% to 5% of the overdue payment. So, for a $1,000 monthly mortgage with a 5% late penalty, the fee would be $50. That might seem like a in the bucket, but “late fees are a good source of income for mortgage lenders,” Cecala points out.
How a missed mortgage payment affects your credit
Mortgage lenders typically report late payments to credit bureaus after they become 60 days past due—meaning you usually have two months to make up for a missed payment. After the 60-day mark though, your credit score (a reflection of how you've managed past debts) might take a big hit.
According to data from credit analysis firm FICO, someone with an excellent credit score—780 or above—could see it 90 to 110 points if the person has never missed a payment on any credit account. In comparison, someone with a 680 credit score and two pre-existing late payments on his credit report may see a 60- to 80-point for a mortgage payment delinquency.
Will my bank start foreclosure proceedings if I miss one payment?
The short answer is no.
“The foreclosure process takes a lot longer these days because of the foreclosure crisis [of 2008],” Cecala says. “Mortgage lenders don’t want to foreclose on your home because it results in a loss or a cost to them.'
Nonetheless, your mortgage is technically in default if you’re more than 90 days late on your mortgage payments—even just one. At that point, you’ll receive a letter from your mortgage servicer notifying you that you’ve defaulted on your loan; you then typically have 90 days to pay off your most recent bill before your mortgage lender can begin foreclosure proceedings.
I don't think I can make next month’s payment. What are my options?
Your first step is to contact your mortgage servicer and explain your financial situation. “People often feel like they don’t want to turn themselves in, but you don’t know what your options are until you talk to your lender,” Cecala says. Plus, mortgage lenders tend be more accommodating if you notify them in advance that you can’t make an upcoming payment.
You might qualify for a special forbearance, a process where your servicer gives you a temporary break from your mortgage payments.
“It’s essentially an extended grace period,” says Cecala. Alternatively, you may be able to work out a repayment plan with your lender where you agree to pay down past-due amounts on your mortgage over a set period of time.
If you can’t afford to make your mortgage payments (say, due to a layoff or emergency medical expenses), Cecala also recommends looking at the federal government’s Home Affordable Modification Program.
“Through HAMP, homeowners who are not unemployed but struggling to make their monthly mortgage payments may lower their monthly payments and make them more affordable and sustainable for the long-term,” says the Federal Housing Finance Agency’s website. You’ll have to meet certain requirements to qualify. For example, you must have obtained your mortgage before Jan. 2, 2009, and “in general you can’t qualify if you have a jumbo loan,” Cecala says. (Call 1-888-995-4673 for free to speak with a HUD-approved housing counselor to see if you can take advantage of the program.)
How can I avoid a missed payment in the future?
The best way to ensure you won’t miss a mortgage payment, says Cecala, is to set up automatic bill pay so that the money is automatically withdrawn from your bank account each month. (You can do this easily through your bank either online or by phone.) You may even want to set up a dedicated checking account for your mortgage payments, and make arrangements with your employer to have a percentage of your income automatically deposited into the account each month.
Cecala offers one more tip: “If you run into problems making your mortgage payments, you probably want to avoid debt consolidation services. There are costs attached to them,” he says. “You’re generally always better off working with your loan servicer or a nonprofit that offers counseling and mortgage relief services.”
By: Daniel Bortz