The hidden costs of late mortgage payments

When you buy a house, you might assume it’ll be smooth sailing. But life throws curveballs occasionally. If you’re experiencing financial hardship, the key is not to panic. Contact your loan servicer as soon as possible if you know you’re going to be late or have trouble making a mortgage payment. They may be able to help you work out alternative arrangements, such as a payment plan or refinance.

You want to avoid making a late payment because it can have a far-reaching impact beyond your mortgage. Before we get into these costs, let’s discuss how late mortgage payments work.

Key Takeaways

• Late mortgage payments can trigger fees, damage your credit score, and potentially lead to foreclosure if left unaddressed for 120+ days.
• Most mortgages have a grace period (typically 15 days) during which you can pay without penalties. Still, payments 30 or more days late will be reported to credit bureaus.
• If you’re struggling to make payments, contact your loan servicer immediately – they may offer payment plans or loan modifications to help you avoid foreclosure.

When is a mortgage payment considered late?

For borrowers of a traditional mortgage, your payment is due on the first of the month unless your mortgage note specifically states otherwise. However, the industry standard holds that you have an extended period to make your payment without incurring a penalty. This is known as the grace period.

There are really three different dates that you need to know: the payment due date, the day the grace period ends, and the day you’re considered to be delinquent. This delinquency date is when a payment is officially considered “late” for the purposes of your credit. That happens when the payment is at least 30 days past due.

If you pay between your due date and the end of the grace period, it’s all good. If you pay after your grace period, but before 30 days, you might be charged a late fee, but there’s no credit impact. Once your payment is at least 30 days late, it’s reported as late to the credit bureaus. This will lower your credit score and may affect your future mortgage qualification.

What is the standard mortgage grace period?

A grace period occurs between the date your mortgage payment is due and the date you will incur a late fee.

The amount of time varies depending on the lender (and other factors). For most Rocket Mortgage^® clients, the mortgage payment grace period is 15 days (the 2nd of the month through the 16th). If you have a different mortgage servicer, contact them to verify the length of your grace period. It may be stated in your loan documentation as well.

What happens if I pay my mortgage 2 weeks late?

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 there’s a delay in the mail or banking system, you might end up with a penalty charge.

If your payment is received after your grace period, the consequences start to kick in. You’ll likely have a late charge (specified in your mortgage contract), one of several potential mortgage servicing fees.

Late payments can also harm your credit score, potentially affecting your ability to qualify for new loans or lines of credit. If you miss a certain number of monthly payments, you can be subject to foreclosure as well.

The best and easiest way to avoid a late payment penalty is to use autopay on your mortgage. Depending on who your lender is, you might be able to do the following:

• Rocket Mortgage clients: If you’re a Rocket Mortgage client, you can quickly set up autopay through your Rocket Account. It’s free and guarantees your payment will be made on time, well before your grace period ends and you face any negative consequences.
• Other mortgage servicers: If you aren’t a Rocket Mortgage client, your mortgage servicer may offer a similar payment option. Reach out to your servicer to learn more about autopay enrollment options

How are mortgage late fees calculated?

The late fee amount depends on your loan type. 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 pay an additional $50.

Late fee charges can add up, so if you’re having trouble affording your payments or anticipating financial hardships in the future, contact your servicer immediately. The sooner you get in touch, the better. Waiting is only going to make things worse for you.

The impact of late mortgage payments on credit

If you don’t make a payment in the same month that it’s due, you’re officially considered past due. The effect of a single delinquent house 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 lower score and a few late payments.

In this table, you can see the impact of missed mortgage payments and the progression toward foreclosure caused by late mortgage payments over 120 days, which is the standard period lenders must wait under federal law to initiate legal foreclosure.

Here’s some good news: FICO^® says one late payment is not a score killer. Your score considers late payments as part of your overall payment history. If you’ve paid your bills in the past and continue to pay all your bills going forward, you should be able to make up the drop more quickly.

When does a late payment get reported?

Creditors can’t report a late payment as delinquent to the credit bureaus until it’s 30 days past the due date. However, any late payment will stay on your credit history for 7 years.

The credit hit gets worse as the extent of the delinquency increases. A payment that’s 90 days late is worse than one that’s 60 days late, which is worse than a payment that’s 30 days late, and so on. Collection items such as bankruptcies, foreclosures, and liens have the most detrimental impact on your credit score.

How will a drop in your credit score affect you?

While your payment history isn’t the only factor affecting your credit, it holds the most weight: 35% of your overall score. So, what happens when your credit score drops?

A drop in your credit score impacts several areas in your life, including the following:

• Purchasing a new home
• Refinancing your current home
• Obtaining a car loan
• Opening new credit cards
• Applying for jobs

All these financial tasks become more difficult when you have poor credit or a credit report that’s marked by late mortgage payments. A poor credit score can even raise the cost of your insurance premiums. This is why it’s crucial to make payments on time for your mortgage and other bills whenever possible.

How many payments can you miss before facing foreclosure?

According to federal law, your lender must wait until you’re at least 120 days behind in payments before starting the legal process of foreclosure. No one wants to evict people from their homes. Also, from a business perspective, foreclosure can be expensive. It’s a lengthy and costly process, with no winners. Avoiding foreclosure is always the best choice for everyone involved.

What should you do if you can’t make a mortgage payment?

If a life change causes you to temporarily have trouble making your mortgage payment, contact your servicer immediately. You may be able to create a payment plan that helps you get back on track.

Your servicer may have a program that can help temporarily suspend payments or modify your loan to adjust payments. Most of these programs impact your credit, but they can help avoid foreclosure.

These options allow you to find a solution that works with your budget. But keep in mind, even if you’re on a payment plan, your credit will continue to be impacted until your loan is current.

The bottom line: Late mortgage payments come with costs

While one late mortgage payment isn’t likely to be detrimental to your credit score or send you into the foreclosure process, avoid getting into the habit of making late payments if you want to stay away from long-term credit problems.

It’s important to get ahead of the problem by budgeting and ensuring you can afford your house. If you’re struggling with your mortgage payment, refinancing may be a suitable option to help you get your payment back on track. Reach out to Rocket Mortgage to start the process for a refinance today.

FAQ

Here are answers to common questions about the cost of late mortgage payments.

How long does a late mortgage payment stay on my credit report?

A late mortgage payment can stay on your credit report for up to 7 years from the date it was reported late. The impact on your credit score is most significant in the first 2 years or so, and then it gradually diminishes over time. However, even as time passes, lenders may still see it in your credit history when you apply for new loans. This is why it’s important to establish a consistent pattern of on-time payments after a late payment.

Will a one-time late payment affect my ability to refinance?

A single late payment, especially if recent, can make refinancing more difficult and potentially more expensive. Most lenders typically want to see at least 12 months of on-time payments before offering favorable refinance terms. The impact depends on how late the payment was (30, 60, or 90-plus days), how recently it occurred, and your overall credit profile. If you need to refinance, be prepared to explain the circumstances behind your late payment and demonstrate that it was an isolated incident, not a pattern.

Can I remove a late payment from my credit report?

If the late payment was reported in error, then yes. You can request removal by contacting both your mortgage servicer and the credit bureaus with documentation proving the mistake. For legitimate late payments, you might try writing a goodwill letter to your lender explaining the circumstances and requesting removal as a courtesy. Success with goodwill letters depends on your payment history, your relationship with the lender, and whether you had extenuating circumstances. Some lenders have strict policies against removing accurate negative information.