Question: How many mortgage payments can be missed on a mortgage before trouble arises?
– Monte in Minnesota
Tendayi Kapfidze, LendingTree Mortgage Expert and Chief Economist, responds…
Sometimes the shortest questions come with the most brutal answers. In Monte’s case, there’s no good answer. “Trouble arises” right away when you miss a mortgage payment.
Most mortgage companies offer a grace period, sort of like a credit card. Unlike your plastic, the grace period isn’t a month but usually between 10 and 20 days. If you still don’t make a payment when the grace period ends, you’ll be hit with a late penalty. That often totals between 2 and 5 percent of your monthly payment. Given that your home is likely the most expensive item you’ll ever buy, such a late fee can easily top $100, depending on your mortgage terms.
Not only that, but interest will still accrue on a daily basis for the outstanding balance. So paying your mortgage after the due date might inflate your balance and delay your payoff date.
Your missed mortgage payment is reported
What happens after that? I asked Amy Myers, a senior director at Lending Tree, an online lending exchange.
“Once your mortgage payment is 30 days late, this is when the trouble begins,” she warns. “At this point, your mortgage company will most likely report your delinquency to Equifax, TransUnion and/or Experian credit bureaus as delinquent.”
According to Equifax and FICO, a 30-day delinquency could cause your credit score to plummet as much as 90 to 110 points – even if you’ve never missed a payment on any other credit account in the past.
That’s horrible, but Myers says it gets worse from there.
“It’s important to know that once you make your payment and are no longer considered delinquent, you score will not immediately rebound,” she says. “A late payment can remain on your credit reports for up to seven years from the original date of delinquency.”
Here’s a graphic example: If your mortgage went delinquent in December 2018, it can stay on your credit report until December 2025 – even if you make every one of your mortgage payments on time between those two dates.
The most serious “trouble arising” is foreclosure. Typically, your mortgage company starts the foreclosure process once your payments are 120 days delinquent.
“Your specific mortgage company may have their own terms outlined in your mortgage agreement, so it is always best to speak with them directly,” Myers says. That’s because mortgage companies can have very different ways of dealing with late payers. Each one has a “hardship policy,” and some offer what’s known as forbearance.
What is a mortgage forbearance?
Think of a mortgage forbearance like an extended grace period. Your mortgage company agrees to temporarily reduce or even suspend your monthly payments for a set number of months. In exchange, you might have to pay a higher interest rate once the forbearance ends.
While the forbearance agreement is in place, your lender agrees not to foreclose. Not all lenders offer forbearance and the ones who do, don’t offer it easily. Then again, why would they offer it at all? What’s in it for them?
“Mortgage companies do not want a homeowner to default on their loan,” Myers says. “Up until a home is scheduled for auction, most lenders would rather work out a compromise that would allow you to get back on track with your mortgage than take your home in a foreclosure.”
So the real answer to Monte’s question is: When you see trouble arising, get on the phone to your mortgage company now.