What Happens If I Miss a Mortgage Payment?
Financial stability can be difficult to ensure, as many surprises can come up over time in unexpected ways. What if your financial situation changes dramatically, preventing you from making one or more mortgage payments? There are many steps you can take in the event that you miss a mortgage payment, and there are many programs, of which you may not be aware, that exist to help you through difficult financial situations.
Don’t Fret: There’s Usually a Mortgage Payment Grace Period
Of course it isn’t recommended, as there is considerable risk that goes along with mishandling your mortgage payments, but if you do end up missing a payment, your credit and financial credibility will not be immediately affected. Failing to pay at the right time isn’t the end of the world, as lenders incorporate a grace period into borrower’s contracts. Even if you miss the initial deadline, there is typically a period of 10 to 15 days before the lender will classify your payment as late. If you are able to do so, use this time to quickly manage your finances, get back on your feet, and make the mortgage payment that you missed. Doing your best to make up your late payment within the grace period is imperative. If you do not make the payment within the grace period, then your lender will mark it as late.
Communication is Key
Even before your payment is marked late, you should contact your lender and inform them of the changes in your financial situation. Your lender will inform you of the duration of the grace period, but will also be willing to work with you should you be unable to pay within that period. It would be demonstrably worse for both you and your lender if you attempt to keep your lender in the dark. Without clear and open lines of communication, your lender won’t know how to help you pay off your mortgage and will eventually be forced to report your financial conduct to a credit bureau and even assume that you’ve defaulted on your loan.
What Could Happen
Once your lender reports your late payments to the credit bureau, your credit score will be affected. Debt and payment history play important roles in the calculation of your credit score. Failing to make your mortgage payments and failing to communicate with your lender about your financial status can knock at least 100 points from your credit score, a hit that is difficult to come back from. If your credit score is affected by your difficulties in paying off your mortgage, you should do your best to avoid any other actions that could subtract from your credit score.
If you miss the grace period, or miss multiple mortgage payments, you have several options to help work through this difficult financial situation:
Hopefully you’ve had conversations with your lender before, during, and after the grace period, and your lender is deeply informed about your financial situation. If you have a positive relationship with your lender, one option for you might be to renegotiate your mortgage. Working with your lender could help you develop a better payment plan and even discuss a more favorable interest rate or loan amount.
Forbearance is a temporary solution, whereby your lender agrees to reduce your interest rate and monthly payments for a certain period of time in order to grant you the chance to get back on your feet and return to your original mortgage terms. Sometimes, forbearance might even mean that your payment requirements are suspended temporarily.
Another option is to declare bankruptcy. This would prompt the federal government assess and restructure your debt. A temporary solution, this would safeguard you against any further accumulation of debt. The lender is likely to seize anything of value from your assets that it can while the government manages your debts.
The US Department of Housing and Urban Development (HUD) offers various programs to help struggling homeowners get back on their feet after having missed mortgage payments. The most well known is the Making Home Affordable program, an initiative started in 2009. Learn more about the Making Home Affordable program.