- If you miss a mortgage payment, you incur late fees and hurt your credit score.
- After three missed payments, your lender can begin foreclosure. You can lose your home.
- Before you miss payments, call your credit servicer to discuss possible alternatives.
If you lose your job or face some other financial hardship, it can be difficult to pay your bills or even cover your mortgage.
But skipping mortgage payments has serious consequences that can include losing your home.
Having a hard time making your monthly mortgage payment? Here’s what you should know about missed payments – and some alternatives that may be available.
What happens if you miss mortgage payments?
When you miss a mortgage payment, a few things happen. First, your mortgage servicer charges a late fee – up to 5% of the missed payment – and adds it to your mortgage balance.
After the payment is at least 30 days late, they also report it to the big three credit bureaus. According to FICO, this could reduce your credit score by as much as 83 points.
“Failing to make mortgage payments has a direct impact on your credit score,” says Austin Horton, director of sales and business operations at Homie Loans.
If you continue to miss payments, your score will continue to drop each time the lender reports it. Once you are 90 days overdue, your score can be anywhere from 47 to 180 points lower. The exact amount depends on your starting score, account balance and other factors.
What happens if you don’t make the mortgage payments?
If you don’t get your mortgage up to date, your lender could foreclose on the home. Usually this happens after you are between three and six months behind on payments.
This is what this process usually looks like:
- Your lender will contact you to request repayment. You can call, send letters, or both.
- You will receive a letter of formal notice or expedited notice in the mail. This gives you 30 days to make up payments.
- If you don’t bring your loan up to date, your lender will schedule a sheriff’s sale or public trust sale. Then they sell your house to recoup their losses. You should receive a notice of the sale date in the mail and with a notice on your front door.
If your state has a payback period, there may still be a way to reclaim your home after it’s sold. To do this, you may have to pay the amounts past due, your lender’s attorney’s fees, additional interest, and other costs.
6 options if you can’t afford your monthly payments
If you think you can’t make a monthly payment, contact your mortgage officer as soon as possible. Maybe they can work with you.
“Generally, service providers and lenders view foreclosure as a last resort,” said Craig Martin, managing director and global head of wealth and lending intelligence at JD Power. “It’s very costly and can be a lengthy process that they prefer to avoid.”
Here are some options you could consider instead of missing out on payments.
One option is to call your credit servicer and ask for leniency. This allows you to pause your mortgage payments for a period of time or, in some cases, make reduced payments instead.
There are usually no fees or penalties for doing this, and you will not be charged any additional interest during the deferral.
However, you will eventually have to pay back the missed payments. Your lender may allow you to set up a repayment schedule and spread these costs over time, or you may have to pay it back all at once. You may also be able to defer the missed payments until the end of your loan term. Your lender will contact you towards the end of your forbearance period to discuss options.
Refinancing can reduce your monthly mortgage costs and make payments more affordable.
For this strategy to work, you would need to qualify for a lower interest rate than you have on your current mortgage loan, or you would need to refinance into a longer-term loan. This would allow you to spread your balance over several months and thereby reduce your payments.
Remember that refinancing comes with closing costs. Freddie Mac estimates these to be around $5,000 per loan. Some lenders allow you to include these closing costs in your loan balance. But remember: This will increase your interest costs in the long term.
3. Loan Modification
Modifying your loan may also be an option. This is when your lender agrees to change the terms of your loan to make it more affordable. This can include extending your loan term, reducing your interest rate, or even reducing your loan balance in some cases.
“If you’re struggling financially, you can consider a mortgage modification to adjust the terms of your loan to alleviate the financial squeeze,” says Christian Mills, a mortgage lending (HECM) specialist at Reverse Mortgage Funding. “You may be able to extend your repayment period or lower your interest rate, depending on the options your lender is willing to offer.”
4. Amortization Schedule
Another strategy is to ask your lender about setting up a payment plan. These allow you to catch up on your missed payments over time.
“The lender wants to get paid, so they’re often willing to work with you on a plan to get caught up,” says Martin.
Your estimated monthly payment
- Pay a 25% you would save yourself a higher down payment $8,916.08 on interest charges
- interest rate reduction 1% would save you $51,562.03
- pay surcharge $500 each month would shorten the loan term by 146 Months
5. Contact a housing consultant
A professional housing consultant can help you figure out the best way forward. There are usually no costs associated with this guide.
If you’re not sure where to find an advisor near you, the US Department of Housing and Urban Development’s online search tool can help. All results are HUD-approved advice centers.
6. More options
Your lender may also be willing to offer other options. One of these could be a short sale, which allows you to sell your home for less than you owe on the mortgage.
A deed in lieu of foreclosure is another possible strategy. With these agreements, you surrender your property to the lender and avoid foreclosure. This will help you keep foreclosure off your credit report. In some cases, your lender may also cover the cost of moving.
This will prevent you from defaulting on your mortgage
The best strategy is to avoid defaulting on mortgage payments in the first place. To do this, make sure you have a healthy emergency fund. This ensures you have the money to cover your payment if you lose your job or are financially strapped.
“It’s a great idea to have six months in reserve in case something happens,” says Horton. “This would give you six months to get back on your feet and resume your mortgage payments.”
You should also have a good household budget and make sure your credit history is strong as well. A good credit score gives you more options, such as B. Refinancing if things go wrong.
Finally, if you think you might have a problem with your payments, call your credit servicer immediately.
“Be proactive about onboarding your service provider,” says Martin. “There are a number of options, and waiting is unlikely to improve your situation.”