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When a Payment is Late

It’s important to make your mortgage payments on time. But if you’re late on a payment, you need to know what certain terms really mean. Most homeowners know a late payment on a home loan can result in a negative item on their credit report. But when exactly is your payment deemed to be “late”?

Mortgage payments typically are due on the first day of each month, which means a payment received by the lender on the second day of the month is considered late, technically-speaking.

However, most lenders offer a grace-period during which borrowers can make-up late payments. Grace periods are usually 10-15 days beyond the due date. This means a payment that’s received by the lender on or after the second day of the month – but on or before the 10th or 15th day of the month – technically, would be late, but could also be within a grace period.

Penalties usually kick in after the grace-period expires

Most lenders won’t assess a late fee or report a late payment to the credit bureaus until the grace period ends. That means you may be able to make technically-late payments during this period without suffering the adverse consequences of a late fee or a mark on your credit report.

Once the grace period expires, though, you’ll probably receive a 15-day late notice from your lender and be assessed a late-payment penalty. If you receive such a notice, act quickly because if the lender doesn’t receive your payment within another week or so, you’ll probably get more letters and telephone calls.

30 days late: What happens and what it means
Grace period or not, payments that are 30 days late or aren’t received on or before the last business day of the month likely will be reported as “late” to the credit bureaus.  This can be tricky if the month ends on a weekend or happens to be February; the only month that has fewer than 30 days. If February 27 and 28 were a Saturday and Sunday, a payment that wasn’t received on or before February 26 could be reported as late. A “leap” year, of course, would add an extra day to this scenario.

If, on the other hand, a month has 31 days and the last day of the month is a business day, a payment received on that day probably wouldn’t be reported as late, even though the 31st day would be one day more than the 30-day period. Not all lenders would look at this in the same light so try to get that payment in before the end of the month!

Proof of receipt is recommended
Unless you send your payment by certified mail or overnight delivery to an address where a live person signs for the receipt, you may have no record of when your payment was received. Most lenders and loan servicing companies offer a pay-by-phone, automated debit or an online payment option, any of which are great ways to ensure your payment is received on time.

If you don’t know when your payments are due, whether there is a grace period, when the lender reports late payments to the credit bureaus or what methods you can use to make your payments, read your loan documents or call your lender or loan servicing company. Ask specific questions to find out what rules apply to your individual situation.

Finally, keep in mind that closed-end loans (e.g., a 30-year mortgage) differ in some respects from open-ended loans (e.g., a home equity line of credit). If you make a payment later on an open-ended loan, you could owe more interest and a smaller amount of your payment might be applied to interest expense because the interest is calculated on the number of days between your payments.

If you would like to dialogue about this further, please do not hesitate to contact me.

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