Now that you’ve finally reached that pinnacle of adulthood -- your first mortgage -- don’t blow it with late mortgage payments. If you keep a savings account for unexpected emergencies or as a cushion in case of job loss, you’ll be in a better position to avert disaster. If that cushion deflates, however, or that financial mountain looming in your path becomes too big to climb, you need to know your options and understand the consequences.
TL;DR (Too Long; Didn't Read)
What happens if you are late with your mortgage payment depends on how late the payment is submitted.
Payment Grace Period
If you are experiencing a short-term cash-flow problem and just can’t make one mortgage payment on your due date, you will get to experience some grace in the form of your grace period. This is a period -- typically 15 days -- after your due date that your lender gives you to get the payment sent in without incurring a late fee. Getting your payment in within the grace period will not have a negative impact on your payment history or your credit score.
Post-Grace Period Payment
If the lender receives your payment on day 16, you will likely be penalized with a late fee and additional interest. It still won’t show up as a late payment on your credit report or negatively reflect on your credit score, but if you do it often enough, you’ll find it harder to make your future payments on time because you’re spending extra money on late-payment penalties. You will also likely be receiving numerous telephone calls from your lender at this point, wondering where your payment is. If you’re already worried about next month’s payment, answer the phone and talk to them -- they may have a solution for you.
The 30-day late payment is when you start to get credit score dings, so try to avoid them. Now, in addition to late fees and increased interest, any other borrowing just got more expensive due to a lower credit score. It’s not just your lender that takes notice; other credit accounts, such as credit cards, might decide you are now a greater credit risk and may change the terms of your credit accounts -- and not for the better. For example, a credit card company may raise your credit card interest rate.
If you’re approaching payments that are 90 days late, you’re in danger of losing your home. Foreclosure laws vary by state, but regardless of where you live, contact your lender as soon as possible -- ideally before you get to this point -- and see if it can modify the mortgage temporarily. If your circumstances have changed so that you can no longer afford your home, ask your lender about options less detrimental to your credit and future financial health than foreclosure. Your lender doesn't want to go through the hassle of foreclosure, either.
Based in Central Texas, Karen S. Johnson is a marketing professional with more than 30 years' experience and specializes in business and equestrian topics. Her articles have appeared in several trade and business publications such as the Houston Chronicle. Johnson also co-authored a series of communications publications for the U.S. Agency for International Development. She holds a Bachelor of Science in speech from UT-Austin.