When you buy a house, you might assume it’ll be smooth sailing. But life throws curveballs every once in a while. If you’re experiencing financial hardship, the key is not to panic. Contact your loan servicer as soon as possible if you know you’re going to be late or have trouble making a mortgage payment. They may be able to help you work out alternative arrangements, such as a payment plan or refinance.
You want to avoid making a late payment because it can have a far-reaching impact beyond your mortgage. Before we get into these costs, let’s discuss how late mortgage payments work.
For borrowers of a traditional mortgage, your payment is due on the first of the month unless your mortgage note specifically states otherwise. However, industry standard holds that you have an extended period of time to make your payment without incurring a penalty; this is known as the grace period.
There are really three different dates you have to think about. There’s the payment due date, the day the grace period ends and the day you’re considered to be delinquent. This delinquency date is when a payment is officially considered “late” for the purposes of your credit. That happens when the payment is at least 30 days past due.
If you pay between your due date and the end of the grace period, it’s all good. If you pay after your grace period, but before 30 days, you might be charged a late fee, but there’s no credit impact. Once your payment is at least 30 days late, it’s reported as late to the credit bureaus. This will lower your credit score and potentially have an impact on future mortgage qualification.
A grace period occurs between the date your mortgage payment is due and the date you will incur a late fee.
The amount of time varies depending on the lender (and other factors). For most Rocket Mortgage ® clients, the mortgage payment grace period is 15 days (the 2nd of the month through the 16th). If you have a different mortgage servicer, you should check with them to verify the length of your grace period. It may be stated in your loan documentation as well.
There’s nothing inherently wrong with paying during the grace period. However, you don’t want to make a habit of cutting it close. Whatever the date in your contract for the end of your grace period (10th, 16th, etc.), that’s the day your mortgage lender needs to have it in hand. If there’s a delay in the mail or banking system, you might end up with a penalty charge.
If your payment is received after your grace period, the consequences start to kick in. You’ll likely have a late charge (specified in your mortgage contract), one of several potential mortgage servicing fees.
Late payments can also harm your credit score, potentially affecting your ability to qualify for new loans or lines of credit. If you miss a certain number of monthly payments, you can be subject to foreclosure as well.
The best and easiest way to avoid a late payment penalty is to use auto pay on your mortgage. Depending on who your lender is, you might be able to do the following: