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What can you do about a missed mortgage payment?

by Corben Grant on 26 Jan 2022

When you sign a mortgage contract, you are agreeing with your lender that you can, and will, pay your mortgage payments when they expect you to. There are many processes in place to ensure that mortgage borrowers are, in fact, able to maintain the mortgages they take on, such as debt service limits and the mortgage stress test.

However, despite their best efforts, some people find themselves in the unfortunate situation of being unable to pay their monthly mortgage payments.

This is understandably not a great place to be in and can cause a lot of anxiety for people who fear they may lose their homes and destroy their credit. And, while missing payments is certainly something you should be concerned about and do your best to avoid, if you find yourself in this situation there are things you can do to improve your situation and hopefully solve the problem with minimal damage.

In this article, we are going to look at what happens when you miss a mortgage payment, how it will affect you, and what you can do to remedy the situation.

Before you miss a mortgage payment

Prevent missed mortgage payments before they happen

One of the best strategies is to prevent missed mortgage payments before they happen at all. Being proactive with your financial situation can help you avoid problems before they come up. This can be done in any number of ways, but effectively, it comes down to responsible money management.

This could mean having emergency funds for when something goes wrong and you find your income reduced, avoiding major spending that can leave you with nothing left to make your payments, or reducing your lifestyle to fit within your financial bounds.

Contact your lender before you miss a mortgage payment

If missing your payment is seemingly unavoidable, there are still actions that you can take rather than just letting the payment date pass. 

The most important thing is to contact your lender and be upfront with them about your situation. Let them know you will likely be unable to make a payment and discuss any options you have to correct the situation. This won’t necessarily solve all your problems, however, your lender will be much more likely to work with you and make a compromise before you have defaulted rather than after the fact.

If you're going to be able to pay soon, your lender may even just allow you to be late without consequence or for a small fee. If you are going to be unable to pay for a significant amount of time, you will need to come up with a repayment plan with your lender or prepare for legal action. You may also be able to adjust your mortgage in order to make your future payments more manageable such as extending your amortization period or by switching to a blended mortgage.

Dealing with a missed mortgage payment

After you miss a payment you need to contact your lender as soon as possible if you haven't already. Otherwise, trust that they will be getting in touch with you shortly as missed payments are something they will take very seriously. They will want to discuss with you what happened and how you will fix it. In general, if it's your first missed payment, you aren't going to lose your house immediately so you have some time to make things right. You may also want to consider consulting professional advice from a lawyer or mortgage professional, in order to be sure of what options are available to you.

How late can my payment be before the lender takes action?

A lender can take legal action after 15 days of no payment, though this is rarely the case. Most lenders will not take that sort of action until around 90 days after your missed payment. The legal process that your lender pursues may go as far as the power of sale or foreclosure, resulting in the loss of your home. It's important you talk to your lender about repayment so you can avoid these harsh consequences.

Repayment options are available

There are a few options available to deal with a missed payment. One common option is a mortgage deferral during which you will not be required to make mortgage payments. However, your mortgage principal will still accrue interest and you will still be required to pay the amount of the missed mortgage payments. Other options include skipping a payment, interest-only payments, mortgage capitalization, and more.

One thing you should know is that you can't simply miss a payment and keep going like nothing happened. Mortgage lenders will still expect you to pay back that money. This could be all at once or it could be in the form of increased monthly mortgage payments, a longer amortization, an increased mortgage balance, or a repayment plan unique to your situation. In addition to repaying your missed amount, you will also need to pay any additional interest accrued as a result and any potential late fees your mortgage lender may tack on.

What is rolling late?

There is a situation that can occur known as "rolling late" where, if you miss a payment, the next payment, even if paid in full, will still be considered late as the money you put in is still going towards paying off your last missed payment. In this way, late payments can continue to stack up if they aren't handled properly. This means a single skipped payment can appear as many more, which can greatly affect your credit score. In order to stop the rolling late, a double payment would have to be made.

Will it affect my credit?

Missing a mortgage payment can affect your credit score significantly. When you miss a mortgage payment, your mortgage lender can send that information to the relevant credit bureaus, who use your payment history as a large part of your credit score calculation. You will likely see a drop in your credit score as a result. This can affect your ability to get loans in the future and can cause you to get poor mortgage rates if you try to get another mortgage, or prevent you from getting one at all.

Luckily, there are ways to improve a damaged credit rating, so it isn't the end of the world. However, fixing poor credit can take a lot of time and effort and you should do your best to preserve it while you can.

The good news is that a single missed payment should not affect your credit score too great, especially if you take steps to make it right quickly. Generally, the sooner you can repay your missed amount, the less it will affect your credit score.

How many mortgage payments can you miss?

Depending on your mortgage terms, you can miss a monthly payment date once or twice and still maintain good standing with your lender. However, if a late payment becomes a missed payment, or you continue to miss payments, this can cost you a lot of money, ruin your credit score, and cause you to lose your home. If you predict you will continue to miss monthly payments, you should seriously consider selling your home before you cause more damage to your financial health.

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