What Happens If You Miss a Mortgage Payment?

From potential late fees to the impact on your credit score, missing a mortgage payment is a serious matter that requires immediate action.  Facing a missed mortgage payment can be a daunting experience, and it's essential to understand the implications and the necessary steps you need to take. 

So in this week's update, I’ll walk you through what happens when you miss a payment on your mortgage, how you can manage this challenging time and prevent it from happening again.

Consequences of Missing a Mortgage Payment

When you miss a mortgage payment, several things can happen, and it's important to be aware of these consequences.

Initially, your lender may charge you a late fee. These fees vary but can significantly increase the cost of your loan if they accumulate. Additionally, your lender will likely report the missed payment to the credit bureaus after 30 days, which can lower your credit score.

A reduced credit score can make it more challenging to borrow in the future. In the worst-case scenario, if you continue to miss payments, the lender may begin foreclosure proceedings to take possession of your property so addressing a missed payment quickly is super important to avoid these negative outcomes.

Legal Repercussions 

If mortgage payments continue to be missed, there can be serious legal repercussions.

The loan agreement you signed with your lender is legally binding, and failure to comply with the agreed terms can lead to default. Once in default, the lender has the right to issue a Property Law Act notice, which is a formal demand for payment.

If the overdue amount is not paid within the stipulated time, usually 20 working days, the lender may begin the process to sell the property through a mortgagee sale. This can result in the loss of your home and any equity you have built up over time. Furthermore, being subject to a mortgagee sale can make it more difficult to borrow in the future.

Steps to Take When You Miss a Payment (or are about to)...

Contact Your Lender ASAP

If you've missed a mortgage payment (or are about to), the first step is to contact your lender as soon as possible.

Proactive communication is key.

Explain your situation and the reason for the missed payment. Your lender will most likely be willing to work with you to find a solution, such as a revised payment plan.

It's important to remember that lenders generally prefer to avoid foreclosure/mortgagee sales because it's costly and time-consuming for them as well. By reaching out early, you show that you're committed to resolving the issue.

Make sure to keep records of all correspondence with your lender, including dates and the names of any bank representatives you speak with. This information can be valuable if there are any disputes or if you need to refer back to the conversations at a later date.

Explore Alternative Repayment Options

After contacting your lender, explore alternative repayment options that they may offer.

Some lenders may provide a grace period, allowing you a little extra time to make your payment without penalty. Others might suggest a repayment plan that spreads the missed payment across future instalments, temporarily reducing your monthly payment amount. In certain circumstances, restructuring your loan could be an option, which involves changing the terms of your loan to make payments more manageable.

It's important to understand the long-term implications of these alternatives, as you can end up paying more in the long run, but if it gives you the breathing space you need right now then it's probably a viable option.

Always read the fine print and ask questions to ensure you fully grasp how these changes affect your mortgage. Choosing the right option can provide the relief needed to get back on track without further harming your financial standing.

Seek Professional Financial Advice

When facing financial difficulty, such as a missed mortgage payment, it pays to seek professional advice.

Financial advisers or credit counselling services can offer valuable insights into managing your situation more effectively. They can help you assess your overall financial health, identify areas where you can cut costs, and develop a budget that accommodates your mortgage obligations. Moreover, they can assist in negotiating with your lender and may suggest solutions you hadn't considered. 

We are lucky in New Zealand to have free services available, such as budgeting advice from non-profit organisations like moneytalks  or the Citizens Advice Bureau. Or if you prefer a DIY option then sorted.co.nz have some great planning and budgeting tools available.

Remember, the goal is to address the immediate issue of the missed payment and to establish a solid financial footing to prevent future occurrences. Professional advice can be instrumental in achieving both objectives.

Preventive Measures for The Future

Build a Contingency Plan

Creating a contingency plan is essential for preventing future missed mortgage payments. This plan should include building an emergency fund that can cover your mortgage for several months in case of unforeseen circumstances such as illness or job loss. 

Start by setting aside a small amount each month, and gradually increase it as your budget allows. It's also wise to review your insurance policies, ensuring you have adequate coverage to help with mortgage payments during difficult times. I can refer you to an Insurance Adviser to help with this.

Regularly updating your contingency plan to reflect any changes in your financial situation is important. Remember, the goal is to have a safety net that gives you peace of mind and keeps you prepared for any financial hiccups that may come your way.

Importance of Regular Financial Check-ups

A mortgage isn't just a “set & forget” product. Your financial situation is probably going to go through ups and downs over the life of your home loan, so you need to regularly review it to make sure it’s aligned with your situation.

Take time at least once a year, or after any major life event, to review your financial situation. Examine your income, expenses, debts, and investments to ensure you're on track with your financial goals. This regular review allows you to adjust your budget, identify potential problems before they escalate, and ensure you are saving enough for your emergency fund.

It's also a good opportunity to reassess your spending habits and cut down on non-essential expenses. If you foresee a potential financial shortfall, you can act early to avoid future mortgage payment issues. Staying financially aware and responsive to changes in your situation can help you stay ahead and secure in your homeownership journey.

Working with your Mortgage Adviser to regularly review your mortgage is a proactive measure that can help prevent any future financial strain.

Being well-informed about your mortgage helps you make timely decisions that can safeguard your financial wellbeing.

Remember, we are here for the life of your home loan so reach out if you need a hand!

Cheers,

Simon 📲 021 322 109 📩 simon.ward@loanmarket.co.nz

The opinions expressed in this article should not be taken as financial advice, or a recommendation of any financial product. Simon Ward or Loan Market shall not be liable or responsible for any information, omissions, or errors present. I recommend seeking professional legal and/or mortgage advice for your own personal situation. My Disclosure Statement is available on my website.