If you lose your job or face some other financial hardship, it may be difficult to pay your bills, or even cover your mortgage.
But skipping mortgage payments comes with serious consequences that could include losing your house.
Are you finding it hard to make your monthly mortgage payment? Here’s what to know about missed payments — and some alternatives that may be available.
When you miss a mortgage payment, a few things happen. First, your mortgage servicer will assess a late fee — up to 5% of the missed payment — and add it to your mortgage balance.
After the payment is at least 30 days late, they’ll also report it to the three major credit bureaus. According to FICO, this could reduce your credit score by as much as 83 points.
“Missing your mortgage payments will directly affect your credit score,” says Austin Horton, director of sales and business operations for Homie Loans.
If you keep missing payments, your score will continue to decline each time the lender reports it. Once you’re 90 days overdue, your score may be anywhere from 47 to 180 points lower. The exact amount depends on your starting score, account balances, and other factors.
Important: Most mortgage servicers give you a grace period — typically around 15 days. This means you’ll have between the 1st and the 15th to make your payment before the company officially deems it “late.”
If you fail to get current on your mortgage, your lender could move to foreclose on the house. Typically, this happens after you’re between three and six months late on payments.
Here’s what that process usually looks like:
If your state has a redemption period, there may still be a way to reclaim your home after it’s been sold off. To do this, you may need to pay the overdue amounts, your lender’s attorney’s fees, added interest, and other costs.
Important: In some states, lenders may need to go to court before they can foreclose on your house. In such cases, foreclosure typically takes longer than it does in states where courts are not involved.
If you think you won’t be able to make a monthly payment, call your mortgage servicer as soon as you can. They may be able to work with you.
“In general, servicers and lenders view foreclosure as a last resort,” says Craig Martin, managing director and global head of wealth and lending intelligence at JD Power. “It’s very costly and can be a long process which they prefer to avoid.”
Here are a few options you might consider instead of missing payments.
One option is to call your loan servicer and ask about forbearance. This allows you to pause your mortgage payments for a certain amount of time or, in some cases, make reduced payments instead.
There is usually no fee or penalty for this, and you won’t be charged any additional interest during the forbearance period.
However, you will need to repay the missed payments eventually. Your lender may allow you to set up a repayment plan and spread those costs out over time, or you may need to pay it back all at once. You also might be able to defer the missed payments to the end of your loan term. Your lender will contact you toward the end of your forbearance period to discuss options.
Refinancing can allow you to reduce your monthly mortgage costs, making the 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 out over more months, thereby reducing your payments.
Keep in mind that refinancing does come with closing costs. Freddie Mac estimates that these run around $5,000 per loan. Some lenders may let you roll these closing costs into your loan balance. But remember: This will increase your interest costs in the long run.
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. It can include extending your loan term, reducing your interest rate or, in some cases, even reducing your loan’s balance.
“If you’re experiencing financial challenges, you may consider a mortgage modification to adjust the terms of your loan to ease the financial squeeze,” says Christian Mills, a home equity conversion mortgage (HECM) loan specialist at Reverse Mortgage Funding. “You may be able to extend your repayment term or lower your interest rate, depending on the options your lender is willing to offer.”
Another strategy is to ask your lender about setting up a payment plan. These allow you to make up for your missed payments back over time.
“The lender wants to get paid, so they are often willing to work with you on a plan to get caught up,” Martin says.
A professional housing counselor can help you determine the best path forward. There’s usually no cost for this guidance.
If you’re not sure where to find a counselor near you, the US Department of Housing and Urban Development’s online search tool can help. All results are HUD-approved counseling agencies.
Your lender may be willing to offer other options, as well. One of these might include 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 potential strategy. With these arrangements, you hand over your property to the lender and avoid foreclosure. This helps you keep the foreclosure off your credit report. In some cases, your lender may also cover relocation expenses.
The best strategy is to avoid missing mortgage payments in the first place. To do this, make sure you have a healthy emergency fund. This ensures you have the cash to cover your payment if you lose your job or are struggling financially.
“It’s a great idea to have six months of reserves in the event that something should happen,” Horton says. “This would allow you six months to get back on your feet and continue making your mortgage payments.”
You should also have a good household budget, and make sure your credit score is strong, too. A good credit score will give you more options, such as refinancing, if things go awry.
Finally, if you think you might have an issue making your payments, call your loan servicer right away.
“Be proactive in engaging your servicer,” Martin says. “There are different options available, and waiting is not likely to improve your situation.”
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. Read our editorial standards.
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