What Happens When You Miss a Mortgage Payment? Missing a mortgage payment is stressful! It can have serious implications, but knowing your options and acting quickly can help protect your home and credit rating.
The days after a missed mortgage payment
When you miss a payment, your lender will likely reach out and remind you to pay. Lenders usually allow a short grace period of 1-2 days before applying any penalties.
If you can’t pay immediately, contact your lender. They may be willing to offer solutions, such as deferring the payment or temporarily reducing your monthly payments.
Late fees and interest charges
You may be charged late fees if the payment is still unpaid after the grace period. These fees vary depending on your mortgage agreement.
As well as late fees, interest will continue to accrue on the outstanding balance, increasing the amount you owe – Sometimes, default interest can also be added.
Repeated late or missed payments can lead to higher fees, and your mortgage lender may escalate the issue if the payments remain unpaid for an extended period.
Impact on your credit rating
Your credit score matters when securing home loans and financial products. Missing a mortgage payment may hurt your credit score, especially if the payment remains overdue for an extended period. Lenders in New Zealand report missed payments to credit reporting agencies, and this information can stay on your record for up to five years.
A dip in your credit rating can affect your ability to access home loans, credit cards, lines of credit and even insurance in the future. If you are struggling to make mortgage payments, the sooner you reach out to your lender, the better it will be for your credit health.
Mortgage arrears
When you miss mortgage payments, your loan will go into arrears, meaning that you owe the missed payments in addition to your current ones. Your lender may still work with you to create a payment plan, to catch up on the owed amount. These payment plans will likely come with additional interest charges.
Home repossession
In the worst-case scenario, if you continue to miss payments for a prolonged period (typically 90 days or more), the lender can initiate repossession proceedings. This process allows the lender to sell your property to recover the outstanding mortgage debt. Repossession is usually a last resort, and lenders will try to avoid this outcome by working with you to create a solution.
Repossession is a serious consequence that leads to the loss of your home and a bad credit rating. It’s crucial to reach out to your lender and mortgage adviser for help long before this ever happens.
What can you do if you miss a payment?
If you find yourself in the unfortunate situation of missing a mortgage payment, there are several steps you can take to get it sorted:
- Contact your lender: Communicate honestly with your lender as soon as possible. They may offer a temporary solution or provide flexibility on your payment schedule.
- Consider refinancing: If you’re facing long-term financial hardship, talk to your mortgage adviser about refinancing your mortgage. You may be able to get a better interest rate or extend the term of your home loan, to lower your monthly payments.
- Consider government support: If you’re struggling financially, government support may be available. For example, the New Zealand Government offers an accommodation supplement, which could help ease the pressure of your housing costs. Visit the Work and Income website to determine your eligibility for assistance.
The best approach is a proactive one
While this article is about what happens when you miss a mortgage payment, it’s best to take action before it gets to that point.
If you are in financial trouble and likely to miss a mortgage payment, contact your lender or mortgage adviser before the payment is due. Addressing the issue early and openly will give you the best chance of getting back on track.
By not waiting until the payment is missed, you demonstrate to the lender that you are facing the problem head-on, and it gives them time to offer you a solution.
Don’t panic, do act
Missing a mortgage payment isn’t necessarily the end of the world as long as you act quickly and proactively.
The sooner you address the situation, the more likely you are to find a solution that works for you and your lender. Options include restructuring your payments, refinancing, or seeking assistance.
At Platinum Mortgages, we help our clients have healthy homes and finances by finding the best mortgage solutions. If you need advice, get in touch with us today.