What If I Miss My First Mortgage Payment
While mortgages typically have a due date on the first day of the month, many have a grace period through the 15th day of the month. This means that as long as the lender receives your payment by the 15th, no late fees will apply, and the payment will be considered on-time.
Payments not made in a timely manner could be subject to late fees. Policies may vary among lenders, but if you are more than 30 days late, you could be reported as delinquent to the credit bureaus, something that will negatively impact your credit score.
If you realize youve missed a payment and are past your loans grace period, try contacting your lender as soon as possible and make a payment immediately. In certain cases, the lender may waive late fees, or agree to not report you delinquent to the credit bureaus if they are aware of your situation. To avoid the possibility of missing a payment, stay on top of your budget, enroll in auto-pay, and give yourself a monthly recurring reminder to ensure the payment is applied to your account.
Keep Your Mortgage On Track From The First Payment
Understanding when the first mortgage payment is due will help you replenish your cash to afford the first payment. Making this first mortgage payment on time will give you a solid foundation for continued on-time payments. With on-time mortgage payments, you may be able to build a strong credit score that can help with other financial needs down the road.
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Be Careful About Scheduling First Mortgage Payment
Many people like to schedule their closing as late in the month as they can to minimize out-of-pocket closing costs. Borrowers should avoid closing on Fridays, however, especially before holiday weekends.
Friday closings are famous for errors and problems. And if your loan documents have to be re-drawn or your final documents dont make it to the county clerk on time, you could experience a world of problems. Your rate lock might expire, for example or all of your things could be in a moving truck in the driveway but you dont yet have a house into which you can move your things.
Dont cut it too close.
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How Much Is Your First Mortgage Payment
In most circumstances, your first payment amount will not vary over time. If you continue to make that same payment, it will stay the same over the course of your mortgage.
Your mortgage follows an amortization schedule. For the entire term of your loan, your mortgage lender has a schedule breaking down how much of each payment is going toward principal and how much toward interest. Your first payments are comprised of mostly paying the interest, with any extra you pay going toward the principal.
Your mortgage payment will also include paying toward an escrow account, which collects money for insurance and taxes. Other fees can be included in your payment, such as processing fees and fees for late payment.
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Pay More To Pay Off Early
Note that most people make 12 monthly mortgage payments a year. But others pay more than 12. This allows them to pay off their loan early, says Bruce Ailion, Realtor and real estate attorney.
A popular method is making a 13th payment toward your principal once a year, Ailion says. With this approach, you choose a month when you have extra funds. Then, you make two payments that month. You would make your normal payment on the first. But youd make an extra full payment on the 15th of the same month.
Ailion suggests checking with your lender first.
You want to make sure your extra payment is credited properly, he says. Also, not all lenders will permit this method of payment.
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An Idea For The Money You Didn’t Have To Spend
If you’re surprised to learn that you’ll have anywhere from 30 to 60 days to make your first mortgage payment, why not use the money you might save to start an emergency savings account? Funds from the account can be used whenever you have a maintenance issue that needs to be addressed. If your dishwasher leaks, gutters need to be cleaned, or the house’s exterior needs power washed, you’ll have the money to get the job done.
Mortgage Interest Is Paid In Arrears
Mortgage interest is paid in arrears, which means after it’s accrued, not before. Interest on your mortgage begins accruing at closing and doesn’t stop until the loan is satisfied in full. You’ll prepay interest for the month in which you close at closing.
If you close in March, the interest accrued for the portion of March during which you own the house will be prepaid at closing. If you close March 15, you’ll be charged prorated daily interest from March 15 through March 31. If you close March 1, you’ll prepay interest for the entire month. If you close March 30, you’ll prepay interest for March 30 to March 31.
Interest continues to accrue in April, the first full month after the month in which you closed. Therefore if you close March 15, and you’ve prepaid interest for March, the interest that accrues in April gets paid in your first full mortgage payment, due May 1.
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Prepaid Interest Costs At Closing
On your closing day, you will owe prepaid interest for the amount of time before the first full month of your new mortgage.
Going back to our earlier example to break that down: If you close on June 2, you will prepay for your mortgage interest from June 2 to 30. Then, on your first mortgage payment on August 1, you would pay the interest that accrued over that first full month of the mortgage in July.
These interest fees, along with all the other details of your loan transaction, are conveniently packaged in the closing disclosure your lender is required to provide. Prepaid interest fees are listed in the Other Costs section. Your loan officer will be your go-to resource for any concerns you might have about understanding your mortgage.
This toolkit provides an in-depth guide to understanding your home loan and more detail on the closing disclosure.
Closing Dates And Interest Payments
Besides determining when your first payment is due, your closing date also affects the amount of interest that gets tacked onto the loan. When you close on a mortgage, youre required to pay for any interest that accrues between the closing date and the end of the month.
If youre closing on the last day of the month, youre not going to get hit with a big interest bill. But if you close near the beginning of the month, youll have to pay more in interest.
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Later In The Month Payment Idea
What if a mortgage payment made during the first 15 days of the month just does not fit in the budget? First of all, no one should consistently pay past the grace period and accrue late payment charges. Then, how about pay early? Thats right! A buyer could make their payment date what they like by paying early. For instance, lets say the closing date is June 15th and the first payment is due August 1. The buyer really wants a due date on the 25th of each month. Well, the buyer could make the first mortgage payment on July 25th and continue doing such every month. In reality, the payment will always be earlier than the actual due date.
What Is Mortgage Insurance
There are two kinds of insurance associated with a mortgage payment. The first one is property insurance, which protects the home and everything in it, more or less, from man-made and natural disasters. The second kind of mortgage insurance is called PMI and if you bought your home with a downpayment of less than 20%, you will have to pay this insurance in order to protect the lender, if you suddenly can’t pay your loan back.
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Mortgage Interest And Principal Payments
If you pay your mortgage a few days early, you will gradually shorten the term of your mortgage loan. The same is true if you add some extra money to just the principal payment each month.
Mortgage interest is paid in arrears, which means it is paid the month after it is due. The principal, however, is paid in advance. In our example, this means that your prepaid interest will be for the month of February. You will also accrue interest in March prior to your first mortgage payment on April 1. The accrued interest in March is part of your mortgage payment in April. The principal payment is then paid in advance for the month of April.
Each portion of your mortgage loan payment that is paid toward the principal reduces your loan balance. In the month of May, you will then pay on a lower principal balance. At closing, you will receive an amortization schedule for your mortgage loan that shows how much of your payment goes toward interest and toward principal. You will also receive a First Payment Letter that gives you the details of how and where you make your first payment and future payments.
Private Mortgage Insurance Or Mortgage Insurance
Unlike homeowners insurance that offers protection for you as the homeowner, private mortgage insurance protects the lender in the event you are unable to continue making payments on your conventional loan. PMI is typically required on loans that have a down payment of less than 20%, and can be added to your monthly mortgage payment. Mortgage insurance is required for other loan types, such as an FHA loan. Depending on the terms of your loan, PMI may be removed once you accumulate 20% equity in your home. PM and MI could be ended by refinancing to a brand new loan altogether.
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Is There A Grace Period For Late Payments
Luckily, yes. Without control, we may stumble upon other expenses that were at the time a higher priority than paying our monthly mortgage.
Most mortgage lenders will not be strict about the due date of the first of the month. Usually, they will offer a 15-day grace period starting from the first of the month. That means the actual last day you have to make your payment is the 15th of the month.
Still, you should proceed with caution. Most homeowners should have any kind of bank account, and be fully aware of the fact that transactions dont go through immediately or even the next day. If you are planning to make a late payment, aim to make the transfer no later than the 10th of the month, allowing up to five days for it to populate in your mortgage account.
You Might Double Up On Rent And Mortgage Interest
Closing costs are not the only payments to consider when selecting a settlement date. For those making the transition from renter to homeowner, there is rarely a need to pay rent while simultaneously making a first mortgage payment.
If the buyer is buying his or her first home, closing near the end of the month could mean less overlap with an existing rental lease, said Chandler.
By limiting overlap, the buyer can further reduce the amount of out-of-pocket expenses required at the time of closing.
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Choose An Accelerated Option For Your Mortgage Payments
An accelerated payment option lets you make weekly or biweekly payments. With this option, youre putting more money toward your mortgage than with a monthly payment.
Accelerated payments can save you money on interest charges. By accelerating your payments, you make the equivalent of one extra monthly payment per year.
The Time Of The Month When You Close
The time of the month when you close impacts how much time will be between closing and your first payment. For instance, if you close on May 3, your first payment may not be until July 1.
This doesnt mean youre skipping a payment. Youll prepay the interest for May 3 31 when you close. Planning your closing date in the beginning of the month means youll need to bring more money to the closing table.
However, it gives you more time between closing and paying your first mortgage payment.
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What Makes Up Your Mortgage Payment
Four factors make up your mortgage payment :
- Principal: The amount you borrowed from the lender to cover the cost of your house.
- Interest: The amount the lender charges for the money you borrowed. Its calculated as a percentage. You prepay interest on your mortgage at closing.
- Property Taxes: These taxes are typically set by your municipal government and may change over the course of your mortgage.
- Insurance: Your closing costs might include a year of homeowners insurance premiums that you pay upfront. After the first year, a monthly premium is typically tacked onto your mortgage payment. Depending on your loan type and the size of your down payment, you may be required to pay for mortgage insurance.
While your lender keeps the principal and interest you pay each month, your tax and insurance payments are typically held in an escrow account and paid out when theyre due.
MoneyFact
An escrow account is used by a third party to collect and distribute money on behalf of other parties.
What Happens If I Miss A Mortgage Payment
The grace period gives you some flexibility for making your mortgage payment. But, if you pass the grace period, you could face penalties from your lender. All mortgage companies have different policies regarding late fees, so you should read the fine print in your agreement.
Lenders usually charge a late fee if you miss the 15-day grace period. Additionally, they may report your payment as delinquent to the credit bureaus if you are more than 30 days late. Delinquent payments can remain on your credit report for years, so you should do everything in your power not to miss your mortgage payment.
You should contact your lender directly if you pass the grace period and miss your mortgage payment. Although some lenders have strict rules and will not budge on their late fees, you might be able to negotiate if you speak directly with a customer service agent. Your lender also may not report the delinquent payment to the credit bureaus if you explain your situation to them.
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Do You Skip A Mortgage Payment When You Refinance
Some lenders actually advertise the chance to skip a mortgage payment when you refinance. But thats not whats really happening. When you refinance, your new lender gets a mortgage payoff from the old lender. That payoff includes mortgage interest up to the day you close.
So, if you close your refinance on August 29th, your payoff includes interest up to August 29th. Your prepaid interest for the new loan is just two days worth, and your first payment is due on October 1. So you dont make a payment in September, which might seem like you skipped it. But in reality, your closing costs on August 29th included an amount covering most of your September payment.
If youre really in a bind and want to miss a mortgage payment plus not pay out-of-pocket closing costs, you have a couple of options:
What To Expect When Paying Your First Mortgage Payment
You’ve secured your mortgage, closed on your new house, and have begun the move-in process. Now, it’s time to prepare for your first mortgage payment. Although making your monthly payment will eventually become a regular part of your routine, the first mortgage payment can feel like a big milestone. To avoid setbacks, you should know when your first bill is due, what your payment options are, and what may happen if you miss the payment.
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