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When money is tight -- maybe due to a job loss or an unexpected medical expense -- making your mortgage payment can be hard. But skipping one mortgage payment actually has less immediate consequences than not paying other bills.
Not paying this important bill, however, does have consequences. Here's what happens when you miss a mortgage payment and what to do next.
Buying a house is a dream for many people, but it comes with great financial responsibility. Taking on a mortgage is a big commitment, and it is essential to stay on top of your payments to keep your home. However, sometimes unexpected situations arise, and you may fall behind on your mortgage payments. What happens next?
Many banks offer a grace period of 10 to 15 days. If you make your payment a few days late, the lender will typically count it as being made on time. If you miss both the due date and grace period, then you are considered late or delinquent.
The first thing that happens if you miss a mortgage payment is that you will incur late fees. Your lender will charge a percentage, of your monthly payment typically 3% to 6%, as a penalty for being late.
Late fees can add up over time, and after 30 days, your mortgage will be considered delinquent.
When you miss a mortgage payment, it will have a negative impact on your credit score. A single missed payment can lower your score by as much as 180 points and be on your credit report for seven years.
If the lender forecloses on your home, your credit score can drop as much as 280 points. It will take roughly three years of on-time payments to restore your credit.
A lower credit score means you will have difficulty getting credit in the future, which can affect other areas of your life, such as obtaining a car loan or new credit card.
If you miss multiple payments, you risk losing your home to foreclosure. Foreclosure is a legal process in which your lender repossesses your home and sells it to recover the outstanding mortgage balance.
Foreclosure can have long-lasting negative effects on your credit score, and it can be challenging to get approved for a mortgage in the future.
On the positive side, not making one mortgage payment usually doesn't trigger foreclosure. But if you fail to make payments on your mortgage for more than 120 days, the lender typically considers you in default. As a result, you will receive a "Notice of Default" (NOD), which is the initial formal step in the foreclosure process taken by the lender.
Since a NOD is a publicly available document, it will be recorded on your credit history and may result in additional charges like late fees and increased interest rates. However, a NOD is not as detrimental as undergoing foreclosure.
While being unable to make your mortgage payments can seem overwhelming, there are a range of solutions available for those who are struggling.
Communicate with your mortgage lender if you need to miss even one payment. In some cases banks are willing to work with consumers. Some lenders are willing to offer informal forgiveness. Others will hold off on late fees or reporting to credit agencies.
One option is loan modification. This involves changing the terms of the original mortgage agreement by lowering the interest rate, extending the loan term, or reducing the principal balance owed. For homeowners who have fallen behind on payments but want to stay in their homes, loan modification can be a lifeline.
Another possibility is refinancing, which involves taking out a new mortgage with more favorable terms to pay off the existing loan.
Homeowners can also pursue a short sale, in which they sell the property for less than the mortgage balance, with the lender agreeing to forgive the remaining debt.
In some cases, homeowners can qualify for forbearance programs. These are formal programs where people facing financial problems can miss a payment or make a lower payment for a period of time while they sort out financial problems.
Not all banks or lenders will be forgiving, but many will be. If you have a good track record of paying on time, your lender will probably understand your extenuating circumstances. Helping you is in your lender's best interest, too -- it keeps things from escalating to foreclosure (which is a losing situation for the lender and the homeowner).
There are several programs under the Department of Housing and Urban Development that help individuals who are struggling to make mortgage payments. These programs are generally for individuals who expect to miss more than one payment.
"The biggest of these programs, the Home Affordable Modification Program (HAMP), may help you lower your monthly mortgage payments," the Federal Trade Commission (FTC) posted on its website. "Other programs can offer options if home ownership is no longer affordable or desirable for you, you're unemployed, or you owe more on your mortgage than your home is worth."
In some markets, there are local programs that help people with specific financial difficulties make their mortgage payments.
Consumers looking to take advantage of one of those programs can call for free to speak with HUD-approved housing counselors at 888-995-4673.
Regardless of whether you plan to take advantage of a relief program, it's crucial to communicate with your lender. In many cases, talking with your lender can minimize or eliminate any impact. That might involve creating a plan to catch up after you exit your financial crisis, it could mean forbearance, or it might simply be the bank being willing to hold off on reporting you or charging late fees.
Here are some other questions we've answered:
Typically, a homeowner can miss two to three payments before the lender starts the foreclosure process. However, this can vary depending on the type of loan you have and the laws in your state.
Missing a mortgage payment can have a significant impact on your credit score. Your payment history is the most critical factor in determining your creditworthiness, accounting for 35% of your credit score. Even one missed payment can cause your credit score to drop by 100 points or more.
Yes, absolutely. Missed payments can lead to late fees and penalties, which can compound over time. Additionally, missed payments can also negatively impact your credit score, making it harder to access credit in the future. Finally, if multiple payments are missed, foreclosure proceedings can begin, and you'll be at risk of losing your property altogether.
Refinancing your mortgage could save you hundreds of dollars for your monthly mortgage payment and secure you tens of thousands of dollars in long-term savings. Our experts have reviewed the most popular mortgage refinance companies to find the best options. Some of our experts have even used these lenders themselves to cut their costs.
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