A late mortgage payment can be a very big problem. While it may seem that one fee is not a big deal, these debts can get out of control quickly because of the way that banks handle them. Therefore, you need to consider:
- When you are overdue
- Consequences of falling behind
- Can you get late reports removed
Even one unresolved issue can lead to a rolling situation. This problem can snowball out of control until your lender forecloses on your property. If you fall behind you need to handle it as soon as possible.
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When is a Mortgage Payment Late?
When you closed your house, you signed a promissory note that tells you the due date for your monthly payments. Most lenders use Fannie Mae’s Form 3200 which spells out what happens when you’re overdue. After that due date, banks extend a grace period.
- 1 day – You are in the grace period. Pay your bill, and you won’t have fees.
- 15 days – You may have a fee. It’s usually a percentage of your monthly bill.
- 30 days – Your Lender reports it to the credit bureaus, and your scores drop 50-100 points.
- 45 days – Your lender assigns a manager to your case who informs you about your options.
- 60 days – There is a second fee, and your lender starts calling you often about your balance.
- 90 days – Your lender informs you that they will start foreclosure proceedings soon.
- 120 days – Your lender initiates foreclosure.
The timing may vary because of your contract and different state laws, but this is a reasonable guide for the process.1
Banks typically only accept full payment, and they put the partial payment into a suspense account. They won’t apply the money you paid until there is enough to pay the entire monthly bill. If you can’t pay the full amount on time you should contact your lender immediately, because they may have options for you.
- They may allow you to skip a payment and add it to the end of the loan.
- You may get a forbearance that suspends your payments if you suffered a financial hardship.
- You may be able to refinance the loan, so your monthly bill is lower.
Banks are more willing to work with you when you aren’t behind and/or can document financial hardship.2
Rolling Late Mortgage Payment
Rolling late payments happen when you fall one month behind but keep paying every cycle. So, you don’t fall further behind, but you don’t catch up either. This is a common problem because banks are rigid in their rules, and borrowers don’t understand them.
When you make a late payment, it goes into a suspense account. If it’s enough to cover the bill, the bank credits it. It may not be sufficient, though, and the bank keeps it in the suspense account. If you pay your bill next month, it gets credited to your previous month’s balance. You are still behind, though. This continues, and you keep paying your bill, but the bank counts it as one month behind each time.
This is a serious problem because after the first month your lender reports that you are delinquent to the credit bureaus. After four months they may begin foreclosure proceedings. You may think you are only one month behind because you pay regularly after you missed once. But the bank doesn’t see things that way. If you don’t make the entire payment on time, then your payments snowball. You can’t fix this unless you pay the total amount due, including any fees.3
Late Mortgage Payment Consequences
Being late on your payments does have consequences. You accumulate fees that add up over time, and it damages your credit score. In addition, you run the risk of rolling late payments and foreclosure if you can’t get current quickly.
How Bad is a Late Mortgage Payment?
A late mortgage payment can be very bad for your credit. Credit bureaus use credit history as the largest factor (35%) when determining your credit score.
- After 30 days your score drops 50-100 points.
- It takes up to three years to recover from one overdue mortgage payment.
- After 90 days your score drops by at least another 20 points.
- Multiple past due payments on a home loan can take up to seven years to recover your score.
Beyond that, you have the possibility of falling into the rolling problem that we discussed earlier. You can go into foreclosure and lose your home, even if you are just a little short of being current on your loan.
Your lender calculates fees as a percentage of your mortgage payment. The details are in your promissory note, but it is usually between 3%-6% of your monthly statement.
- Interest for these fees is a fixed percentage of your monthly bill.
- Most banks give a 15-day grace period, and if you pay within that time you won’t get a fee.
- Interest on your mortgage doesn’t compound if you’re behind. That means that next month’s bill will be the same amount plus the fee.
- If you know you will pay late, then include the fee with your current payment.
While late fees don’t accrue interest or affect the size of your payment, they do add up. You want to pay them as soon as possible to avoid problems later.4
Late Mortgage Payments Removal
You can get a fee removed, but your bank probably won’t if you really did pay late. You stand a good chance of getting it removed if your lender or other third party made a mistake.
- Review your credit reports and contact your lender to resolve the issue.
- If they are at fault get a letter detailing the error and get them to fix your report.
- If it’s your fault you can still dispute it, but your chance of success is low.
This may sound easy, but often it isn’t. Navigating your bank’s bureaucracy can be time-consuming and frustrating.5
Final Thoughts on Late Mortgage Payments
Late mortgage payments carry fees and damage credit scores. They can also begin a progression that leads to a foreclosure if you don’t get current quickly. Rolling late payments are common when people get behind. The way banks accept payments makes it very hard to get back on your feet after you miss even one point.
If you can make up your late payment quickly, within a month, then you can limit the damage. However, if you know you are going to be late and it will be a systemic problem you need to contact your lender quickly. If you contact them early, even before you have a late payment if possible, the more options you have available.