We’re only human—sometimes we miss our bill due dates, possibly get charged a late fee, and then are more careful to pay it on time the next month. But what happens if you’re delinquent in paying something big, like your mortgage?
While foreclosure is always a possibility if you’re really late on a mortgage payment, how long does that take? If you’re just a few days late, will that affect your credit score at all?
Let’s go over what happens when you’re late on your mortgage, and how to avoid it all costs.
When Is My Mortgage Payment Late?Just like a rent payment, your mortgage payment is due on the first of every month. But what exactly happens if you pay your mortgage after the due date? Should you expect a late fee, for example? Although penalties may vary between lenders, here is a rough outline of what you might expect in this scenario:
One Day Late
Most lenders offer a grace period–a specified number of days after the initial due date during which you will not be charged a late fee. And while a lender is unlikely to report you to the credit bureau for a single day’s tardiness, it’s not entirely out of the realm of possibility. That said, a single one-day late payment might not have a significant impact on your credit score.
15 Days Late
The abovementioned “grace period” is usually 15 days–but check with your specific lender to be sure this is the case for you! So what happens when your payment falls outside this window? At this point, your lender is likely going to charge you a late fee–usually a percentage of the overdue amount. They may also report the late payment to the credit bureaus, and a 15-day late payment can have a negative impact on your credit score for up to seven years, affecting your ability to obtain credit in the future.
One Month Late
If your payment is one month late, you can definitely expect to pay a late fee. That fee, as described above, is often a percentage of the overdue amount. Bear in mind that at this point, you will be paying the overdue amount, the late fee, and the amount that is due for that month, too. You must be sure not to fall even further behind. It’s also more likely that the lateness will be relayed to the credit bureaus, and your credit score will suffer. Your lender may start to send more formal notices your way, such as letters or phone calls to inform you of the overdue amount and the potential consequences if you do not bring the loan current. It’s a good idea to see whether the lender may be willing to work with you on a repayment plan, loan modification, or other solutions to help you catch up on the missed payment and prevent further consequences.
Two Months Late
After two months, you can expect not only the late fees and the punch to your credit, but your lender is likely to take more serious actions. Being two months late is a clear indicator of financial distress; you may receive formal pre-foreclosure notices. While being two months late does not automatically lead to foreclosure, it is a significant red flag. Continued delinquency can lead to foreclosure proceedings if you cannot catch up on your payments. As suggested above, you should communicate with your lender to see whether there are any options regarding a repayment plan or loan modification. You may also want to speak with a financial counselor via a legal aid organization.
Three Months Late
If you’re three months late on your mortgage payments, you will find that you incur each of the consequences from being two months late: late fees, credit damage, and stern, formal communiqués from your lender, who will almost certainly initiate the pre-foreclosure process. While being three months late does not automatically lead to foreclosure itself, the severe situation will put you on this path if you continue to miss payments.
Four Months Late
At this stage, the situation is extremely serious. It’s critical to address it as soon as possible, as ignoring the problem can lead to severe consequences, including the potential loss of your home through foreclosure! You will have mounting late fees and damage to your credit score; your lender has likely initiated pre-foreclosure proceedings. If you have not reached out to communicate your difficulties with them, now is the time. If you don’t, you will find yourself beyond the point of no return, and you may very well lose your home.
What Are the Consequences of a Late Mortgage Payment?
Late Fees & Penalties
Mortgage late fees are typically calculated based on a percentage of your overdue payment amount and are governed by the terms and conditions outlined in your mortgage contract. The specific calculation can vary from one lender to another, but common late fee percentages are around 4% to 5% of the overdue amount.
Be aware that some states have regulations that limit the amount of late fees a lender can charge or specify how they should be calculated. These regulations can vary widely, so check your state's laws if you're concerned about excessive fees.
Negative Impact on Credit Score
As previously mentioned, failure to make mortgage payments will have a negative impact on your credit score. Late mortgage payments can lower your credit score; the severity of the impact depends on how late the payments are, and your credit history prior to the missed payments. For example, a single missed payment can lower your score by as much as 100 points or more, if your credit history is already less-than-stellar.
Late mortgage payments can linger on your credit report for up to seven years, potentially years after you’ve already caught up. You could really struggle to secure credit cards, auto loans, or other types of financing during this time. Even when you do qualify for credit, you may receive less favorable terms and higher interest rates because lenders may view you as a higher-risk borrower. Even some landlords or potential employers will run your credit before offering you a lease or a job.
Risk of ForeclosureForeclosure is the legal process through which a lender sells ownership of your home due to nonpayment of the mortgage. As we describe above, you are extremely unlikely to risk foreclosure by making a single late payment. However, the risk of foreclosure generally becomes more substantial as the number of missed payments increases.
Each mortgage lender may have different policies and timelines for initiating foreclosure proceedings. Some lenders may start the process after several months of missed payments, while others may be more lenient or flexible. You should always be in communication with your lender if you start to miss more than one payment, regardless of perceived leniency. Plus, many lenders offer loss mitigation options to help homeowners avoid foreclosure, such as loan modification, forbearance, repayment plans, or other arrangements to help you catch up on missed payments. It's essential to contact your lender early, though, to explore these options.
Moreover, foreclosure laws and timelines vary by state. Some states have longer foreclosure processes with more opportunities for homeowners to rectify the situation, while others have expedited procedures. You should review your state’s regulations, as well as those of your individual lender, in order to fully grasp your specific situation, even if purely hypothetical.
How to Avoid Foreclosure After a Late PaymentObviously, foreclosure is just about the last thing that you want! So, if you do have to resort to missed or late payments, what can you do to avoid it?
Set up a Mortgage Repayment Plan
Setting up a mortgage repayment plan involves working with your mortgage lender to establish a structured arrangement for paying back missed payments over time. It’s important that you start communicating with your lender right away when you suspect you may begin to fall behind in your payments; early communication is crucial to preventing further financial consequences!
Calculate how much you can afford to pay each month to catch up on your missed payments while maintaining your regular, current and upcoming monthly payments. You may need to negotiate with your lender to agree on a plan that fits your budget, perhaps extending the repayment period or spreading the missed payments over several months. Ensure that all agreed-upon terms are documented in writing, including details such as the repayment amount, schedule, interest rates, and any fees.
Start Housing Counseling
One valuable resource you may want to utilize is housing counseling. In general, housing counseling can provide guidance, support, and expert advice on managing mortgage and financial challenges. What does this look like? Housing counselors can assess your current financial situation, including income, expenses, and debts, and help you create a realistic budget to better manage your finances now, and for the long-term.
Moreover, because housing counselors are knowledgeable about various foreclosure prevention options, such as loan modifications, forbearance, repayment plans, and refinancing, they can help you explore these options and determine which may best suit your circumstances. They are also a mine of resources and a fount of knowledge, who can help connect you to additional tools and services, as well as provide financial literacy education.
Housing counselors can also act as mediators and intermediaries between you and your mortgage lender, should you need it.
Note: It's important to seek assistance from a HUD-approved housing counseling agency or a nonprofit organization with experience in foreclosure prevention. These agencies typically offer their services for free or at a low cost. Be cautious of predatory foreclosure rescue scams and only work with reputable and trustworthy organizations!
Apply for Mortgage Forbearance
Designed to provide short-term relief for homeowners who are facing financial difficulties and are unable to make their regular mortgage payments, mortgage forbearance is a temporary agreement between a homeowner and their mortgage lender that allows the former to temporarily pause or reduce their mortgage payments due to financial hardship. Though payments may be paused or reduced, however, interest on the mortgage continues to accrue–this means that the unpaid interest is added to the mortgage balance. At the end of the forbearance period, the homeowner is responsible for repaying the missed or reduced payments, potentially as lump-sum payments, a repayment plan to catch up on the missed payments, or an extension of the loan term.
Negotiate a Mortgage Loan Modification
A homeowner who is facing financial hardship and having difficulty making their regular mortgage payments can attempt to negotiate a mortgage loan modification with their lender. The primary goal of a loan modification is to reduce the homeowner's monthly mortgage payments, which can be achieved through various means, such as reducing the interest rate, extending the loan term, or potentially even principal forbearance or forgiveness. Unlike mortgage forbearance, which is a temporary relief option, a loan modification represents a permanent change to the mortgage terms. Once the modification is approved and completed, the new terms become a part of the mortgage agreement.
Sell Your Home
Technically, selling your home is one option you can consider to prevent foreclosure. Selling your home can help you pay off your mortgage and any outstanding debts, allowing you to avoid the foreclosure process and its associated consequences. Of course, there are some obvious downsides to this–you will, for example, need to find different living arrangements. You should contact your mortgage lender if you are thinking about this option in order to discuss it in more detail.
Prevent Missed Payments in the Future
If you’re experiencing difficulties making your monthly mortgage payments on time, you should think about the root of the issue. Are you merely forgetful? Are you unable to meet the obligation for financial reasons? If the former is the case, try setting up either reminders or, if you are confident that you won’t need to move money around, automatic payments. However, if you’re not making the payments because you simply don’t have the funds, you should draw up a budget for yourself and consider other forms of financial planning. A financial counselor may be able to help you with these steps and set you on the right track moving forward.
It might also be beneficial for you to set up a financial safety net from which you can draw funds as needed. A Unison equity sharing agreement gives you up to 15% of your home’s current value in cash so that you can use it however you want or need–debt consolidation is one popular use among the over 10,000 homeowners who have partnered with Unison thus far. If monthly payments cause you grief, you don’t have to worry; Unison doesn’t require monthly payments! Instead, at the end of your agreement (usually when you sell your home, or 30 years pass), Unison receives an agreed upon percentage of your home’s change in value. Typically, if your home’s value goes down, Unison will even share in that loss.
Late Mortgage Payment FAQs
What happens if I miss more than one mortgage payment?
If you miss multiple mortgage payments, you run the risk of incurring several compounding late fees, as well as increasingly damaging your credit. In addition, your lender may initiate the pre-foreclosure process, which typically involves sending you formal notices, making phone calls, and notifying you of the overdue amount. These notices are often a warning that your home is at risk of foreclosure.
How many payments can I miss before risking foreclosure?
Technically, there is no fixed number of missed payments that universally triggers foreclosure because the specific timeline and procedures can differ. Several factors–like your mortgage contract, state laws, and your lender's policies–will contribute to the foreclosure timeline. You should contact your mortgage lender to get more information–and to look into options that might help you get back on track without losing your home.
Can I negotiate with my lender after missing a payment?
Yes, you can negotiate with your lender after missing a payment– and in many cases, you absolutely should! Lenders are often willing to work with borrowers who are experiencing temporary financial hardships and want to avoid foreclosure.
How will a late mortgage payment affect my credit score?
In a nutshell: negatively. The degree to which this negative impact will be felt, though, depends on several factors, including how late the payment is, and your previous credit history. Credit reporting typically uses a 30-day delinquency scale, so payments are categorized as 30 days late, 60 days late, 90 days late, and so on. The later the payment, the more damaging the impact on your credit score. It’s also important to remember that late mortgage payments remain on your credit report for up to seven years.
Can a missed payment affect my ability to refinance my mortgage?
Yes, a missed mortgage payment will affect your ability to refinance. When you apply to refinance your existing mortgage, lenders assess your creditworthiness and financial stability. Your payment history and credit score are large components of this evaluation, and missed payments will have a severely negative impact on both.
How does mortgage forbearance work and should I use it?
Mortgage forbearance is a temporary arrangement between a homeowner and their mortgage lender that allows the homeowner to temporarily pause or reduce their mortgage payments. During the forbearance period, you won't be required to make your full mortgage payments; instead, you'll make reduced payments or no payments, depending on the terms, though interest will continue to accrue.
Forbearance is meant to provide temporary relief to homeowners experiencing likewise temporary financial hardship, such as job loss, medical expenses, or a sudden financial crisis. That said, if your financial issues are expected to be long-term, it may not be the best solution, as you'll eventually need to repay the missed payments. In that case, you may want to explore other options, such as loan modification, refinancing, or financial assistance programs.
If you’re looking for a way to extract equity from your home, but hate the idea of adding another monthly payment, consider an equity sharing agreement from Unison. You can receive up to 15% of your home’s value in cash for a percentage of your home’s future change in value at the end of your agreement. There’s no interest, either! If that sounds good to you, get a free estimate with no obligation or effect on your credit today!