What happens if you miss a mortgage payment?
The answer isn’t as straightforward as you might think. When you miss a mortgage payment, you don’t just move forward with your other payments and forget about it. What happens is that if you miss a payment one month, you make a late payment the next month. And you are charged a late payment fee the next month. However, this can snowball. Because you made a late payment, the next month’s mortgage payment is also late, and so you will be charged a late fee for every month that follows – until you pay back the amount you missed to pay.
To better illustrate this scenario, imagine you miss 1 mortgage payment but make the following 12 mortgage payments on time. Your credit report will show 12 late payments, and you will be charged a late fee 12 times. This scenario actually has a name, it is called “rolling lates” – and it does affect your credit score.
Our advice? Don’t miss your mortgage payments! But that’s not very helpful now is it?
The truth is that if you know you are going to miss a mortgage payment, you should let your lender know in advance. You may be able to work something out, but an advanced warning given to your lender is both safe and smart and the sooner you act the better. If you can foresee missing a mortgage payment in the near future, the best thing to do is to speak with your lender. You can also speak with your mortgage broker for advice. Your mortgage broker may not be able to do much to help you since your mortgage contract is strictly between you and your lender, however a broker’s expertise may help you by way of providing personalized advice.
Missing a mortgage payment once or twice is no big deal, but if the quantity of missing payments escalates and a foreclosure or bankruptcy looks like a possibility down the line, you should definitely consider selling. Too many missed payments will damage your credit score, but a foreclosure or bankruptcy will present long term credit woes and that’s something you want to avoid at all costs, even if it means selling your home.
What’s most important is determining whether or not you can still afford your mortgage.
On a more positive note, there are quite a few different solutions if mortgage affordability has become an issue for you. First, you may be able to refinance your current mortgage to one with a longer amortization period. The main advantage here is that by extending your amortization period your monthly mortgage payments would fall to a more affordable level. If your cash flow problem is short term and expected to resolve, a second mortgage is a viable option as that would provide you with extra cash to satisfy your short term expenses.