What Happens When You Pay Your Mortgage Late?
Anyone can wind up struggling financially. Bills can get pushed back while homeowners try to prioritize one expense over another. But what happens when the bill is a vitally important one, like the home's mortgage? Delinquent payments can jeopardize the loan itself. If there is a chance a borrower is not going to be able to make their mortgage payment on time, they need to do what they can in advance to get ahead of the situation.
How Late Is "Late"?
First off, homeowners should determine how late the payment is going to be. In most cases, lenders extend a grace period after the listed due date, granting borrowers up to 15 days before a payment is considered late and a fee is charged. Borrowers should look at their mortgage documents or contact their lender to find out how long a grace period is available to them.
If the payment is going to arrive after the grace period, there is a chance that other consequences will occur. Most lenders charge a late fee for payments that arrive outside the grace period. They will often also report a late payment to credit reporting bureaus, which can cause a drop in the borrower's credit score. How large the drop will depend on a number of factors. People who have excellent scores and have never missed a payment, for instance, may see a bigger drop.
After 90 days of nonpayment, the lender may begin pre-foreclosure. In most cases, state law determines how long a borrower has before a loan is considered in default. Once a loan has been in default for 90 days, the lender can file court proceedings.
After a loan has gone into default, homeowners may have a chance to stop the foreclosure process by paying what is past due. This is known as the right to redemption and can be exercised up until the home is sold at auction.
Reach Out to the Lender
A missed mortgage payment is a situation where communication early and often is the best course. Avoiding the issue can only make it worse. Talking to the lender and making arrangements can keep the loan from falling into default and protect the investment.
Lenders may be able to offer a loan modification known as forbearance. This is an agreement where the lender either lowers or suspends payments for a set period of time. There may also be government assistance programs that can help pay the mortgage while the borrower gets back on their feet.
Explore Creative Ways to Pay
Because the outcome of a foreclosure can be difficult to deal with, borrowers should look at every option available to keep making mortgage payments on time, including other sources of funds. Contributions to Roth IRAs, for instance, can be withdrawn without penalty. In some cases, Traditional IRA contributions can also be withdrawn while avoiding penalties as well. If a penalty will be assessed, it will be 10 percent of the total that is taken out.
If the borrower or their spouse has funds in a 401(k), these can be borrowed to help cover expenses. However, borrowers should be cautious when using this as a source of funding. There is only a short amount of time to return funds from a 401(k) without having serious penalties assessed.
Hard times are unavoidable. Working through them creatively and communicating openly with your lender can help you stay afloat until things are stable again. By confronting the situation directly, borrowers can salvage their relationship with their lender and get their loan back on track.