Obviously, no one wants to miss their mortgage payment, but life can be pretty unpredictable. During these unfortunate and uncertain times, worrying about missing a mortgage payment can add a load of stress on top of what many citizens are already dealing with. When deciding between feeding your family and paying your mortgage, the mortgage tends to become less urgent. Be sure to take some time to breathe. Federal mortgage servicing laws prevent the start of foreclosure on a home until a borrower is more than 120 days late on their mortgage payments. This doesn’t mean plan to take 120 days break before making a payment. This is to reassure you that small mistakes aren’t detrimental to the overall ownership of your home.
There are many steps that one can take to soften the blow of a financial crisis, such as missing a mortgage payment. The first step taken should always be contacting the mortgage lender as soon as you know you cannot make the payment. The worst thing a borrower can do is disregard the importance of communication with the lender. People often avoid this step due to embarrassment, but you won’t know what your options are until you ask. Be open, honest, and ready to explain your hardship. I want to add reassurance by saying you won’t be the first person that can’t make your mortgage payment on time and you won’t be the last. Informing a lender before a delinquency can show that you are a responsible borrower and lenders tend to be more accommodating if you notify them first. This can also help avoid unavailable opportunities due to already being delinquent. Many lenders have forbearance programs and payment plans to assist borrowers that may have fallen on hard times.
The lender may remind you of a grace period, usually between 7-15 days after the payment’s due date, which may or may not consist of a late fee. Sometimes we find that we need more than 15 days to make this late payment. A borrower may find that their payment may be up to 30 days late. While this does consist of a late fee, it’s important to remember that you will not take a hit to your credit report for late payment until you are 30 days late. Making that payment by the 29th day late is crucial to avoid the reporting of a late payment to the credit bureaus.
There are times when 30 days is just not enough time. Letting a lender know that you can’t make the deadline within the 30 day period is important. They may offer to defer the payment for the month by adding it to the back of the loan. You will still pay interest but avoid the late payment. The lender may also give the option of having a separate payment plan for that monthly payment.
In a more serious delinquency, loan modifications may be available. A loan modification or forbearance is a formal agreement between a lender and a borrower. This agreement will modify or amend a pre-existing loan agreement/contract. When modifying a loan, a borrower may ask to lower the interest rate or monthly payment. This is the act of making a new contract to replace the first one. Loan modifications are designed to offer the ability to adjust the terms of a loan and hopefully make it more affordable to prevent defaulting. During a forbearance, a lender also may decide to suspend payments for a short period of time while the borrower gets back on their feet.
Due to COVID-19, millions of Americans are seeing themselves out of work or laid off. Many mortgage lenders are offering deferred payments up to 12 months. It’s important to contact your lender to see what options you have available. You want to be the one contacting your lender, not the other way around. There are also many outside organizations that will offer mortgage/rent assistance for those who qualify. One of the best ways to avoid late payments is by reaching out to a financial education coach to create a budget that works for you. If you are in need of financial coaching, credit assistance, budgeting help, or even just emotional support, set up a one-on-one virtual coaching appointment with any of our coaches. As always, it’s 100% free and no judgment. As a non-profit organization, we are dedicated to assisting all members of our community.
Join me on April 29th, 2020 at 2 p.m. for an interactive class where you will be able to gain more knowledge of the specific topic, as well as ask specific questions.
Tamika Staten, Financial Education Coach