Pandemic stirs missed mortgage payment concerns
“How many mortgage payments can I miss before foreclosure?” is a crucial concern these days, as the coronavirus continues to drastically impact household incomes.
As of May, more than 4 million mortgages were past due, according to Black Knight — and the delinquency norm, generally two or three missed payments and you're out, has been replaced with new rules in the pandemic.
First, however, let's look at missed payment practices under normal circumstances.
• What happens if I miss a mortgage payment?
A mortgage is a contract between a borrower and a lender in which the lender agrees to provide money upfront while the borrower agrees to repay the debt over time and with interest. As such, a borrower with late or missed payments can face penalties ranging from late fees to the loss of the home, which is collateral for the loan.
If you miss one mortgage payment, you'll likely be contacted by your lender, but it's unlikely your home will be foreclosed right away. You may receive a formal letter alerting you to the possible actions the lender may take. Do not disregard this notice — it's a serious matter.
Your lender also will report the missed payment to the credit reporting agencies, which can hurt your credit score. How many points you lose varies, but generally, the higher your score, the larger the reduction.
Although late payments are undesirable, they are often with little, if any, consequences. Many lenders have a 15-day grace period that allows borrowers to make payments after the due date without penalty.
If the payment is made after the due date — officially “late” — the lender is typically entitled to a late fee, generally a percentage, which is listed in your mortgage contract. If your monthly mortgage payment is $1,400, for example, a 5% late fee amounts to $70.
Note that if a mortgage payment is late by a few days past the grace period, it won't result in a negative mark on your credit report. The reason is that in order to be reported, the payment must be at least 30 days overdue.
If you believe you'll miss a mortgage payment, or already have, contact your lender or servicer as soon as possible. Your lender may offer you a forbearance or loan modification to help you through the hardship. If you're going to be late making your payment but otherwise have good payment history, you also can ask your lender if they'll waive the late fee.
• How many mortgage payments can I miss before foreclosure?
If you fail to get in touch with your lender after you miss a payment, you may receive a notice of default,
which is the earliest stage of the foreclosure process.
However, getting this notice doesn't mean foreclosure is a done deal. Delinquencies, even when three or more payments have been missed, often can be rectified. Avoiding foreclosure benefits both the borrower and the lender, so there's good reason for both parties to try to work out a resolution.
Keep in mind that with the pandemic, the protocols for late and missed mortgage payments have changed, and lenders and servicers are prohibited from initiating or finalizing a foreclosure until at least Aug. 31. If you've been granted forbearance, your lender is required to report your payments as current to the credit bureaus, as well. While these protections apply to most mortgage borrowers, they don't apply to all. Jumbo loan or portfolio loan borrowers, for example, may be excluded.
• Bottom line
The ideal strategy is to make full and timely mortgage payments in order to avoid late fees or worse, but because of the coronavirus, many people in good faith simply can't make their payments. If you find that late or missed payments are likely, call your loan servicer as soon as possible to explain your situation.