Understanding the consequences of missed mortgage payments is crucial. If you miss a payment, your lender may report this to the credit bureaus and charge late fees.
However, if you have experienced a temporary financial setback, you can seek mortgage forbearance or other options such as loan modification or refinancing.
Costs
The best way to avoid mortgage payment late fees is to have a solid emergency fund and stick with your budget. But, the reality is that life can throw you a curveball and missing one or more payments can happen. That’s why it’s important to know how it affects your credit score and what options are available if you need to make up missed payments, like refinancing.
Mortgage lenders typically offer a grace period of 15 days, which means you can miss one or more payments without incurring a penalty fee. Once the grace period is over, however, your lender can impose a late fee of either a percentage of the amount that’s overdue or a flat fee.
A lender can also report a late payment to the credit reporting agencies, which will cause your credit score to take a hit—how much depends on how long you go past due. If you’re more than 30 days overdue, your lender could start foreclosure proceedings.
Impact on credit score
The impact on your credit score depends on the number of payments you miss and how far behind you are on your mortgage. Your lender will likely report your late payment to the credit agencies, and it can lower your credit score by 100 points or more. The impact of a missed payment diminishes as you catch up, but your credit will be damaged for the duration of the delinquency.
A mortgage loan servicer typically assigns a staff member to work with you on a repayment plan. These staffers can often connect you with available mortgage relief programs that can help you pay back your missed payments or even reduce your monthly payments.
It’s important to make your mortgage payments on time, especially since payment history makes up 35% of your credit score. If you’re worried about the impact of a missed mortgage payment, speak with a specialist mortgage broker who can explain your options and find the best deal for you.
Foreclosure
Once you miss a payment, your lender is legally required to contact you by phone and in writing to describe the loss mitigation options available. Depending on your state law and mortgage and deed of trust terms, the servicer may send you a notice called a “demand letter” or “Notice to Accelerate.” This is typically a warning that if you do not bring your loan current within 30 days, foreclosure proceedings will commence.
Foreclosure is a complicated and time-consuming process for both you and your lender. It’s a last resort for both parties and lenders are willing to help you avoid it whenever possible. However, it’s important to understand the impact of missing mortgage payments on your credit score and the risk of losing your home. Knowing the consequences can help you plan accordingly, even in the face of unexpected events.
