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The Hidden Cost Of Making A Late Payment On A Mortgage: Consequences Of Making Late Mortgage Payments

Kevin Graham5-minute read

September 18, 2020

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Something came up and money is a little tight this month. Maybe you’re in danger of missing your mortgage payment.

Life throws everyone curveballs every once in a while. When you buy a house, you do so with the assumption that it’s going to be smooth sailing. The key is not to panic when you run into a cash flow problem down the line. For instance, there’s no shame in needing temporary mortgage assistance due to COVID-19. If you know you’re going to be late or have trouble making a mortgage payment, give your loan servicer a call. They may be able to help you work out alternative arrangements.

You want to avoid making a late payment because it can have a far-reaching impact beyond your mortgage. Before we get into the real cost, let’s give you some good news.

When Is A Mortgage Payment Considered Late?

If you have a traditional mortgage, your payment is generally due on the first of the month. However, there’s a pretty standard practice within the industry that you have until the last-chance day on the 16th (or the first business day thereafter) to make your payment without incurring a penalty. This is referred to as the grace period.

Although the 16th is pretty common, you should check with your lender or servicer to see how long your grace period actually is. It may be stated in your loan documentation as well.

Is It Bad To Pay Your Mortgage Within The Grace Period? 

There’s nothing inherently wrong with paying during the grace period. However, you don’t want to make a habit of cutting it close. Whatever the date in your contract for the end of your grace period (10th, 16th, etc.), that’s the day your mortgage lender needs to have it in hand. If that happens to fall on a holiday or if there’s a delay in the mail or banking system, you don’t want to end up with a late charge.

What Happens If You Pay Your Mortgage Late?

If you pay beyond the date in your grace period, that’s when the consequences start to kick in. In general, when you pay your mortgage after the grace period, you’ll likely end up with a late charge specified in your mortgage contract, one of several potential mortgage servicing fees.

If you’re 30 or more days late, it has an impact on your credit score as well as potentially affecting your ability to qualify for new loans or lines of credit in the future. If you miss a certain number of payments, you can be subject to foreclosure as well.

How Are Mortgage Late Fees Calculated?

If you can’t make your payment by the end of your grace period, it’s officially considered late. In the short term, this means you’ll pay a late fee.

The amount of the fee depends on what type of loan you have. In some cases, the amount charged for late payments is also limited by state law.

On most types of loans, the late charge is only applied to principal and interest. Let’s say you have a $1,000 monthly mortgage payment based on principal and interest. If the late charge is 5%, you’re out 50 additional dollars.

How Much Does A Late Mortgage Payment Affect Your Credit?

The effect of a single late payment on your credit report varies. If you have a particularly high credit score and suddenly miss a payment, you can see a steeper drop than someone with a score of 640 and a few late payments, according to Experian®.

Here’s some good news: FICO® says one late payment is not a score killer. Your score takes into account late payments only as part of your overall payment history. If you have paid your bills in the past and continue to pay all your bills going forward, you should be able to make up the drop eventually. However, you should know that any late payment will stay on your credit history for 7 years.

The credit hit gets worse the more you push the payment back. A payment that’s 90 days late is worse than one that’s 60 days late, which is worse than one that’s 30 days late, and so on. The biggest detriments to your credit are collection items such as bankruptcies, foreclosures and liens.

Other Effects On Your Credit Score

Although we’ve talked about your mortgage payment up to this point, it’s important to note that the effects are similar if you have something like a home equity line of credit.

Your payment history is far from the only factor affecting your credit, it’s given the most weight – 35% of your overall score.

So, what happens when your credit score drops? The short answer is that it impairs your access to credit. However, it might be more meaningful to take a look at the practical impact.

When you have bad credit, it’s harder to purchase a new home or refinance your current one. Even if you get one, you may still have to pay a higher rate. The same is true for car loans.

You may also have trouble opening up new credit cards as well. This includes the cards you can get from retail stores.

There are also effects outside access to credit and money. Employers will sometimes run your credit when you apply for jobs. It can affect your insurance premiums as well.

If a life change causes you to temporarily have trouble making your mortgage payment, the most important thing to remember is to contact your lender or servicer. You might be able to work out a payment plan so that you won’t continue to fall behind and to find a solution that works with your budget. Even if you’re on a payment plan but don’t make the contractual payment within the month due, it will impact your credit.

How Many Payments Can I Miss Before Foreclosure?

Your mortgage documents will specify how many payments you can miss before the lender forecloses on you. It’s important to know this because it can be triggered after as little as one missed payment depending on the contract.

Although you can be foreclosed after one missed payment, the mortgage company is more likely to wait until you’re at least 90 days behind to initiate preforeclosure proceedings. No one wants to evict people from their home if they don’t have to. Also, from a business perspective, foreclosure can be expensive.

Depending on the state, the legal proceedings can involve going to court. Even if that’s not the case, there’s often a trustee involved. That’s before any inspections of the property to make sure the home is in order. It can be even more costly if the property doesn’t sell at auction right away and the lender has to provide for maintenance, lawn care and snow removal.

If you’re struggling with your mortgage payment, it’s much easier for your servicer to try to work with you to get your payment back on track. But you have to contact them. If you’re a Quicken Loans® client, you can get started online or give us a call at (800) 508-0944.

Be sure to contact your servicer with any questions you have regarding your specific situation.

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Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Companies, he freelanced for various newspapers in the Metro Detroit area.