When you buy a house, you might assume it’ll be smooth sailing. But life throws curveballs every once in a while. If you’re experiencing financial hardship, the key is not to panic. Contact your loan servicer as soon as possible if you know you’re going to be late or have trouble making a mortgage payment. They may be able to help you work out alternative arrangements, such as a payment plan or refinance.
You want to avoid making a late payment because it can have a far-reaching impact beyond your mortgage. Before we get into these costs, let’s discuss how late mortgage payments work.
Making your mortgage payment on time every month is crucial for maintaining a good credit score. But life happens, and you may occasionally find yourself needing to pay your mortgage a few days past the due date. Thankfully, most mortgage lenders provide a grace period that gives you some wiggle room if your payment is late. But does paying during the grace period impact your credit? Let’s take a closer look.
What is a Mortgage Grace Period?
A mortgage grace period refers to the number of days past your official due date that you can pay without incurring late fees or being reported as late to the credit bureaus. This grace period serves as a buffer in case unexpected expenses or events prevent you from paying by the due date.
The most common mortgage grace period is 15 days. So if your mortgage is due on the 1st of the month, you typically have until the 15th to pay before being assessed a late fee. The grace period may be shorter or longer, depending on your mortgage lender and loan terms, so check your paperwork to verify how many days of grace you have.
Paying During the Grace Period
Making your mortgage payment during the grace period while not ideal, will not directly harm your credit score. As long as your payment is received before the grace period expires, the lender cannot report the payment as late to the credit bureaus. You also avoid any late fees.
So in short, paying your mortgage during the grace period does not negatively impact your credit score. As far as the credit bureaus are concerned, the payment is on time.
The Downsides of Using the Grace Period
While paying during the grace period won’t hurt your credit, it’s still not recommended to make a habit of it. Here are some reasons why:
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Risk of Exceeding the Grace Period: If your payment gets delayed in the mail or takes a few extra days to process, you could wind up going beyond the grace period, resulting in late fees and credit damage.
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Loss of Interest: Making payments past the due date means you are holding onto funds longer and losing potential interest earnings.
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Indicates Disorganization: Frequently using the grace period could signal to the lender that you are disorganized or struggling financially.
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Can Become a Slippery Slope: While the occasional grace period payment is fine, it can easily turn into a pattern that leads to true delinquency.
How Late Payments Affect Your Credit
While paying during the grace period is okay, a payment that is 30 days or more past the due date can seriously damage your credit. Here’s what happens when mortgage payments are late:
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At 30 days past due, the lender can report the delinquency to the credit bureaus. This can cause your credit score to drop significantly.
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At 60 days past due, the negative impact on your credit score increases. Most lenders will start rigorous collections efforts.
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At 90 days late, foreclosure becomes a real possibility. Your credit score can plummet by over 100 points.
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A foreclosure can stay on your credit report for up to 7 years and make it very difficult to qualify for future loans.
Tips for On-Time Payments
To avoid credit damage and keep your mortgage in good standing, here are some tips:
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Pay on or before the official due date whenever possible.
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Set up automatic payments through your lender to ensure payments are always on time.
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Review payment dates and grace periods so you know how long you have.
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Contact your lender immediately if you anticipate an issue making a payment.
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Take advantage of loan modification programs if you are facing financial hardship.
While the grace period gives you some wiggle room, it’s always best to pay your mortgage on time. Protect your credit score and your good standing with the lender by making payments by the due date. But in a pinch, paying within the grace period is an option that spares your credit score. Just be sure to get back on track the following month.
When is a mortgage payment considered late?
For borrowers of a traditional mortgage, your payment is due on the first of the month unless your mortgage note specifically states otherwise. However, industry standard holds that you have an extended period of time to make your payment without incurring a penalty; this is known as the grace period.
There are really three different dates you have to think about. There’s the payment due date, the day the grace period ends and the day you’re considered to be delinquent. This delinquency date is when a payment is officially considered “late” for the purposes of your credit. That happens when the payment is at least 30 days past due.
If you pay between your due date and the end of the grace period, it’s all good. If you pay after your grace period, but before 30 days, you might be charged a late fee, but there’s no credit impact. Once your payment is at least 30 days late, it’s reported as late to the credit bureaus. This will lower your credit score and potentially have an impact on future mortgage qualification.
How will a drop in your credit score affect you?
While your payment history isn’t the only factor affecting your credit, it’s given the most weight – 35% of your overall score. So, what happens when your credit score drops?
The truth is, a drop in your credit score can impact several areas in your life, including the following:
- Purchasing a new home
- Refinancing your current home
- Obtaining a car loan
- Opening up new credit cards
- Applying for jobs
Completing any of these tasks can become more difficult when you have poor credit or a credit report that’s marked by late mortgage payments. It can even raise the cost of your insurance premiums. It’s crucial to make payments on time for your mortgage and other bills as much as possible.
Does Paying Mortgage During Grace Period Affect Credit? – CreditGuide360.com
FAQ
Does paying a mortgage during the grace period affect interest?
However, it’s important to check the contract for the specifics on the grace period. Under some loan contracts, no additional interest is charged during the grace period, but the majority add compound interest during the grace period.
Does paying in grace period affect credit?
Is paying within the grace period considered late?
Does paying a mortgage late affect credit?