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Skipping a mortgage bill is always bad—but is it the end of the world?
Everest answers the question with some savvy tips for timely payment.
Ever wonder what happens if you miss a mortgage payment?
Even the most responsible people make a mistake from time to time. Whether you budget incorrectly or need funds for an emergency, you may find yourself in the unfortunate position of skipping a bill. And so, the question is—what’s next?
While you never want to default on a loan, missing one month is a completely different story than missing two, three, four, and so on. Still, because there are serious consequences for borrowers who fail to pay, it’s important to understand the process.
Even more importantly—if you ever fear you might miss a mortgage payment, call your Everest loan officer or loan processor immediately! Getting out of this pickle is so much easier if you reach out before the due date passes.
Let’s take this in stages, starting with the most common situation…
What happens if my mortgage payment is late?
While every individual policy is different, many lenders offer a grace period of 15 days for late payments. During this period, you can pay your bill without penalty. But if the 2-week window expires, you incur an additional fee.
“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,” writes Daniel Bortz of Realtor.com. “So, for a $1,000 monthly mortgage with a 5% late penalty, the fee would be $50.”
Be sure to check with your lender or loan officer if you don’t know your policy’s exact rules.
Will my credit score be affected by a missed payment?
Like any other unpaid bill, your credit score will most certainly take a hit if you miss a mortgage payment. However, this won’t happen immediately.
The majority of mortgage lenders won’t contact credit bureaus until 60 days have passed without payment. Delinquency also affects borrowers differently depending on their credit history.
“According to data from credit analysis firm FICO, someone with an excellent score—780 or above—could see it drop 90 to 110 points if the person has never missed a payment on any credit account,” writes Bortz. “In comparison, someone with a 680 credit score and two pre-existing late payments on their credit report may see a 60- to 80- point drop.”
These are hypothetical estimates; however, any negative impact should be avoided at all costs. This is why it’s crucial to reach out to your Everest contact if you anticipate a late or missed payment. There are options available to help you avoid delinquent payments altogether!
Will my home be foreclosed upon if I miss a payment?
According to Guy Cecala of Inside Mortgage Finance, “The foreclosure process takes a lot longer these days because of the foreclosure crisis of 2008. Mortgage lenders don’t want to foreclose on your home because it results in a loss or a cost to them.”
So, there’s no reason to panic just yet. But make no mistake—foreclosure is a very real possibility if you fail to pay your bill. Technically, your mortgage is considered ‘in default’ after 90 days of delinquency. Your servicer will notify you in a formal letter with details on how to proceed.
“You then typically have 90 days to pay off your most recent bill before your mortgage lender can begin foreclosure proceedings,” says Bortz.
Most banks understand that borrowers who miss payments may be facing temporary financial hardship. They may not pursue foreclosure for some time, but that’s not a good reason to delay payment. If you’re behind on your mortgage, reach out for assistance right away.
What are my options if I can’t pay?
Everyone knows that missing a mortgage payment is bad.
For this reason, most people avoid, avoid, avoid. But waiting for the bad news to come to you only makes the situation worse. Calling the bank and letting them know about your predicament can actually work in your favor. At the very least, you can explore available options.
Forbearance. This is a process where the lender grants a temporary break from or reduction of mortgage payments due to financial difficulty. You may be relieved for up to a year, but must make up all missed payments under a repayment plan or in a lump sum. And don’t forget—certain types of forbearance can still affect your credit score.
Mortgage refinance. If you have good credit and at least 20% equity in your home, you may be able to refinance into a lower interest rate (and payment). While this isn’t the most viable option in today’s rate market, more and more people are consolidating other high-interest debt by refinancing their home. This solution could be a way to make your monthly bills more manageable in the future. Talk to an Everest loan officer to learn about the various products available!
Mortgage modification. In this process, the bank permanently adjusts your monthly payment to an amount you can afford. By doing so, the life of your loan also extends, and the bank is happy to rake in those additional interest payments. FYI: borrowers with good credit scores make stronger candidates for mortgage modification.
Government relief. The Fed’s Home Affordable Modification Program (HAMP) assists borrowers who are temporarily laid off or facing hardship due to medical emergency. You may qualify if you can show ability to resume payments after a modification. If you have intentions of keeping your home and catching up on your mortgage payments, be sure to ask about HAMP.
How can I avoid missing payments in the future?
In order to pay, you have to have the money in the first place.
But to avoid missed payments due to human error, consider setting up automatic payments. Your mortgage bill will be settled each month without you worrying about cutting a check or remembering to make payments online.
Also, some homeowners choose to open a separate checking account for their mortgage. This way, money is always set aside for this important payment. If you receive a paycheck, you can even ask your employer to allocate a portion of funds to this account.
And one last point. If you’re seriously worried about your ability to make mortgage payments moving forward, avoid debt consolidation services, which are extremely costly. It’s better to work with a loan officer or loan servicer to come up with a solution.
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