- When you miss a mortgage payment, you incur late fees and damage your credit score.
- After three missed payments, your lender can initiate the foreclosure process. You could lose your home.
- Before you miss your payments, call your lender to discuss the alternatives that may be available.
If you lose your job or face other financial difficulties, it may be difficult to pay your bills or even cover your mortgage.
But skipping mortgage payments has serious consequences that could include losing your home.
Are you having difficulty paying the monthly mortgage payment? Here’s what to know about missed payments and some alternatives that may be available.
What happens when you lose your mortgage payments?
When you lose a mortgage payment, a few things happen. First, the mortgage manager will assess a late fee, up to 5% of your missed payment, and add it to your mortgage balance.
After your payment is at least 30 days late, they will also report it to the three major credit bureaus. According to FICO, this could reduce your credit score by up to 83 points.
“Missing mortgage payments will directly affect your credit score,” says Austin Horton, director of sales and commercial operations at Homie Loans.
If you continue to miss payments, your score will continue to decline every time the lender reports it. Once 90 days have passed, your score could be between 47 and 180 points lower. The exact amount depends on the starting score, account balances and other factors.
What happens if the mortgage payments are not recovered?
If you can’t get current on your mortgage, your lender may move to foreclose on your home. Typically, this happens after you are three to six months late on payments.
Here’s what that process usually looks like:
- Your lender will contact you to ask for a refund. They can call, send letters, or both.
- You will receive in the mail a letter of request or a notice to expedite. This will give you 30 days to recover your payments.
- If you are unable to carry your current loan, your lender will schedule the sale of a sheriff or the sale of a public trustee, which is when they will sell your home to recoup their losses. You should be notified of the sale date by email and with a notice attached to your front door.
If your state has a redemption period, there may still be a way to reclaim your home after it is sold off. To do this, you may need to pay overdue amounts, the lender’s legal fees, added interest, and other costs.
6 options if you can’t afford monthly payments
If you think you are unable to make a monthly payment, call your mortgage manager as soon as possible. They may be able to work with you.
“In general, servicers and lenders view foreclosure as a last resort,” says Craig Martin, chief executive officer and global head of equity and lending intelligence at JD Power. “It is very expensive and can be a lengthy process that they prefer to avoid.”
Here are some options you might want to consider instead of missing payments.
One option is to call your service provider and ask for the grant. This allows you to suspend your mortgage payments for a certain period of time or, in some cases, make reduced payments instead.
There are usually no fees or penalties for this and you will not be charged additional interest during the grace period.
However, you will eventually have to refund the missed payments. Your lender may allow you to set up a repayment schedule and spread those costs out over time, or you may have to pay it back all at once. You may also be able to postpone missed payments to the end of the loan term. Your lender will contact you towards the end of the grace period to discuss your options.
Refinancing can help reduce monthly mortgage costs by making payments more affordable.
For this strategy to work, you should qualify for a lower interest rate than you have on your current mortgage loan, or you should refinance into a long-term loan. This would allow you to spread the balance over multiple months, thus reducing your payments.
Keep in mind that refinancing involves closing costs. Freddie Mac estimates that these are running around $ 5,000 on loan. Some lenders may allow you to carry these closing costs into your loan balance. But he remembers: this will increase the long-term interest costs.
3. Loan modification
Loan modification can also be an option. This is when your lender agrees to change the terms of your loan to make it more convenient. It can include extending the term of the loan, lowering the interest rate or, in some cases, even lowering the loan balance.
“If you are facing financial challenges, you may want to consider a mortgage modification to adjust the terms of your loan to ease the financial squeeze,” says Christian Mills, a home equity conversion (HECM) loan specialist at Reverse Mortgage Funding. “You may be able to extend the repayment term or lower the interest rate, depending on the options your lender is willing to offer.”
4. Repayment plan
Another strategy is to ask your lender to set up a payment plan. These allow you to recover missed payments over time.
“The lender wants to get paid, so he’s often willing to work with you on a plan to get involved,” says Martin.
Your estimated monthly payment
- Pay a 25% a higher down payment would save you $ 8,916.08 on interest expense
- Lower the interest rate by 1% would save you $ 51,562.03
- By paying a supplement $ 500 each month would reduce the loan term by 146 months
5. Contact a real estate consultant
A professional real estate consultant can help you determine the best path to take. There is usually no cost for this guide.
If you’re not sure where to find a consultant near you, the US Department of Housing and Urban Development’s online search tool can help you. All results are HUD approved consulting agencies.
Your lender may be willing to offer other options as well. One of these could include a short sale, which allows you to sell your home for less than you owe on the mortgage.
A substitute foreclosure is another potential strategy. With these provisions, you hand over your property to the lender and avoid foreclosure. This helps you keep foreclosure out of your credit report. In some cases, your lender may also cover the relocation fees.
How to avoid falling behind on your mortgage
The best strategy is to avoid losing your mortgage payments in the first place. To do this, make sure you have a healthy emergency fund. This you have the money to cover your insured payment if you lose your job or are struggling financially.
“It’s a great idea to have six months to spare in case something should happen,” says Horton. “This would allow you six months to get back on your feet and continue paying the mortgage.”
You should also have a good family budget and make sure your credit score is high too. A good credit score will give you more options, such as refinancing, if things go wrong.
Finally, if you think you are having trouble with payments, call your lender right away.
“Be proactive in engaging your servicer,” says Martin. “There are several options available and waiting is not likely to improve your situation.”