If you’re a few days behind on your mortgage payment, don’t stress. Lenders have grace periods for borrowers who forgot to send the payment—and for borrowers who can’t get the cash together on the due date and need a few more days.
But if you’re two weeks or more late on a monthly payment, you’ll start to experience some consequences, including hits to your credit.
Here is everything you need to know about late mortgage payments.
What is considered a late mortgage payment?
A mortgage payment is considered late if it is not received by the end of the grace period. This means if your payment due date is the 1st of the month, and your lender has a 15-day grace period, your payment must be posted by the 15th to avoid being considered late.
Understanding grace periods
“Grace periods” are a buffer zone provided by lenders, allowing borrowers extra time to make their mortgage payments without facing penalties.
Grace periods vary by lender. Most lenders and loan servicers are fine with monthly payments arriving within 15 days of the due date.
Some lenders’ grace periods always end on a specific date for each month—the 15th or 16th, for example. Other lenders’ grace periods may last a few days longer. Some grace period lengths might even vary from month to month. For example, if the usual grace period happens to end on a weekend during a given month, the grace period for that month could extend until the next business day.
To find your lender’s grace policy, login, check the app, or find a recent printed statement.
Is it bad to use the lender’s grace period?
Most of us have been there—we’ve forgotten to make a mortgage payment for a few days. Or we didn’t have enough money in the bank on the due date and had to wait until the next paycheck came through. Nobody should be punished for this. This is why lenders have grace periods.
You can use your lender’s grace period any time you need it and with no consequence from the lender—as long as you get the payment posted within the grace period each month.
But if you need the grace period month after month, your personal finances need some attention. When you start thinking of your due date as the last day of the grace period—instead of the actual due date—you no longer have a grace period. If things keep going like that, you’ll start struggling to make payments within the grace period, too.
The Late Payments Timeline
You’ve got a grace period, but what happens when you don’t pay for even longer? Here’s a breakdown of the full expected timeline if you don’t make your payment.
More than 15 days late on your mortgage payment
You’ll get charged a late fee when you fail to make the payment before the end of the grace period. Usually, this translates to not making the payment within 15 to 20 days. Again, the details will vary by lender.
The late fee will appear on your following statement. Most lenders measure late fees as a percentage of the monthly payment amount.
5 percent is a common late fee charge for a 15+ day late mortgage payment. If your lender charges a 5 percent late fee and your total mortgage payment is $2,000, your late fee would be $100.
Thankfully, your credit score won’t be hurt as long as you pay within 30 days of the due date.
30 days late on your mortgage payment
When a borrower still hasn’t submitted the mortgage payment 30 days after its due date, the lender will report the delinquency to at least one of the major credit bureaus—and possibly all three.
This is when late payments start to hurt the borrower’s credit. How much damage can one late payment cause? This depends, some, on the state of your credit report. Someone with excellent credit—say a FICO score of 750—could drop 100 points or more from a single 30-day late payment. This borrower may need up to seven years to fully recover from this single credit hit.
Those who already have average or poor credit have less to lose, numbers-wise, but late payments will still hurt, extending the time it takes to recover the credit score.
Q: Can you call the mortgage servicer to remove the late payment?
A: Borrowers can ask their lender or loan servicer to remove a late payment from their credit report. However, unless the lender reported the negative credit data inaccurately, the lender is not obligated to do so.
When a late payment has been reported in error, borrowers can file a dispute with the credit reporting bureaus to remove the negative data.
Q: How do I recover from a late payment on my credit report?
A: Assuming you really did make a late payment—meaning the late payment has been reported accurately—it’s best to look to the future. That is, stop worrying about what’s happened and start thinking about how to make the most of it.
The best way to overcome bad credit data is to build more good credit data to your history. To do this, make all upcoming payments on time, pay down balances on credit cards, keep a good mix of accounts open, and avoid applying for new credit lines.
60 days late on your mortgage payment
When a payment hasn’t come in after 60 days, the lender will send a second negative mark to the credit bureaus, further damaging the borrower’s credit file.
But at this point, bigger problems are brewing—the kind of problems that accumulate new problems. That derogatory credit mark from the 60-day late payment will be the third penalty to result from one payment. (The late fee and the 30-day late credit mark came first.)
Plus, borrowers who can’t make the first payment within 60 days have also missed the following payment. So that payment is now 30 days late, creating another bad mark and another late fee. This totals up to five bad consequences coming from two late payments.
And now, a third payment is coming due. It’s entering its grace period. This is bad. That’s one reason you’ll hear from the lender well before this 60-day mark, as required by the CFPB.
90 days late on the mortgage: The danger zone
When a mortgage payment still hasn’t been made after 90 days, the mortgage lender or servicer sends even more negative credit data to the three major bureaus.
Borrowers in this situation probably wonder: Who cares about another credit hit? My credit score is already in the tank. The damage is done.
That’s a reasonable question, especially considering the borrower has a bigger concern: Defaulting on the loan. After 90 days of no payment, the lender will send a notice of default, letting the borrower know foreclosure proceedings can begin in 30 days.
The borrower now has 30 days to get the mortgage current or risk foreclosure proceedings.
120 days late: Default and foreclosure
Lenders can begin foreclosure when a borrower falls 120 days behind on the mortgage payments. Foreclosure is the process of reclaiming and selling the home to pay off the mortgage loan.
Since state laws vary, foreclosure moves at different speeds in different places. But, ultimately, the result is the same: The borrower will be evicted.
Many mortgage borrowers in this situation have already moved out. Others have sought another way to short-circuit the foreclosure process.
How to keep late payments from turning into default and foreclosure
It’s human nature for some people to ignore the problem and avoid speaking with the lender or loan servicer. It makes sense because money problems don’t exist in a vacuum. They’re usually accompanied by other issues like failing health or lost jobs. These homeowners know they would pay the mortgage if they could. So why talk about what they can’t do?
But it does help to talk about it with the lender. The sooner you talk, the better your options.
Forbearance can help save the loan
Lenders can help borrowers avoid foreclosure through programs such as forbearance, which temporarily pauses the loan. Forbearance costs the borrower money since interest typically keeps accruing despite the paused payments. But this cost is worth paying if it saves the home and all the money already invested in the property.
Some loans, such as the FHA loan, have programs set into place to help homeowners salvage their loans.
A loan modification could make the loan easier to pay
Loan modifications can extend the debt across a longer term, lowering monthly mortgage payments. Modifications could also add the past-due account balance to the loan’s principal, effectively resetting the clock for late payments.
Like forbearance, a modification costs more in the long term. But it also keeps the home out of foreclosure.
Lenders don’t have to approve a modification, but lenders typically want to avoid foreclosure, so they have an incentive to keep the loan current. The sooner you ask, the better.
Selling the home can short-circuit the foreclosure process
Foreclosure means the lender takes ownership and sells the home to pay off the loan. Some borrowers who have given up on the loan would prefer to sell the home themselves.
This solution can become a race against the clock in some markets where houses don’t sell quickly. Homeowners may have to take less than market value to sell the home before foreclosure begins.
A short sale could work for an upside-down loan
Selling the home won’t work if the sale doesn’t generate enough money to pay off the loan. Borrowers who owe more than their home value could ask their lender for a short sale. With a short sale, the lender agrees to accept whatever the house sells for, even if it’s not enough to pay off the entire balance.
The mortgage lender or loan servicer must agree to this before you initiate the short-sale.
What about refinancing to avoid late payments?
Refinancing can sometimes alleviate mortgage stress. Refinancing transfers the mortgage debt to a new loan. If the new loan requires lower payments—payments the borrower can make—this could make the loan payable.
Stretching out a loan’s term can usually result in lower payments. For example, let’s say you borrowed $360,000 to buy a home five years ago. You got a 15-year term at 5 percent interest back then and have been paying about $3,200 a month. Now, five years later, you owe about $265,000 in principal.
By refinancing that $265,000 into a new 30-year mortgage at 7 percent, you could lower the monthly payments to about $2,000, saving $1,200 a month.
The extra costs of a refinance
But this solution costs a lot. First, upfront closing costs range from 3 to 6 percent of the loan amount. That’s about $8,000 to $16,000 in upfront costs to get out of the old loan. These could be paid from home equity to avoid coming up with this cash out of pocket.
Plus, a 30-year loan has a lot more time to accrue interest. Again, these costs could be worth paying if they help avoid losing the house and all the money and sweat equity already invested.
Of course, in the best-case scenario, you could cut into this interest later by paying off the loan ahead of schedule—that is, once you’re back on your feet.
Feeling late payment mortgage stress? Stay proactive
However you decide to alleviate mounting mortgage stress, being proactive will help. In other words, don’t wait until the hole gets deeper to start digging out.
As you start to fall behind, your lender will call. Answer the phone, be honest about your predicament, and try to work out a deal. Better yet, don’t wait for the call—call the lender yourself.
If you’re considering a refinance, do everything possible to keep your existing loan’s payments up to date. That way, you can avoid a credit score hit and qualify for a more competitive interest rate.
Get started here.
