Nobody takes out a mortgage with the intention of missing payments. Unfortunately, nobody knows what may be around the corner either.
The events of last year reminded the world just how unpredictable things can be at the best of times. For a number of reasons, any homeowner could suddenly find themselves in a position where they simply cannot make their scheduled monthly mortgage payment.
In which case, what happens next?
While it is true to say that a missed mortgage payment can lead to heavy penalties and credit score damage, this is not always the case. It depends entirely on the policies of the lender and how the issue is handled by the mortgage payer in question.
One missed mortgage payment
For example, missing one mortgage payment and having until now paid every instalment on time might not be the end of the world. Just as long as you contact your lender as quickly as possible to explain why you are unable to pay this month, they are likely to show leniency.
If you choose not to speak to your lender and simply fail to pay the instalment, you are likely to incur fees and penalties. In addition, the missed payment could be logged on your credit history if it is not made within 30 days of the agreed-upon due date.
Two missed mortgage payments
Missing two mortgage payments in a row is likely to set alarm bells ringing with your lender. Again, missing a couple of mortgage payments and having contacted your lender to explain your situation may result in no action being taken against you. Contrary to popular belief, lenders would always prefer not to have to chase missed payments and go through the complications of reporting credit issues to the relevant bureaus.
Two missed mortgage payments in a row with no notification could see you facing even heavier penalties, along with significant damage to your credit score. It is therefore essential to contact your lender and openly discuss the issue if you are unable to pay.
Three missed mortgage payments
At this stage, the lender may decide to commence repossession proceedings. You will most likely be contacted several times by phone, after which a formal demand letter or ‘notice to accelerate’ will be sent by post.
This is essentially a final warning, indicating that repossession will take place if you do not settle your debt as quickly as possible.
Four missed mortgage payments
If you allow your debt to escalate and remain unpaid for 120 days or more, your lender will almost certainly provide you with formal notice of its intent to recoup its capital via the appropriate legal channels. Along with the long list of penalties and levies already incurred, you may now also be billed for the bank’s own legal fees.
Even at this late stage, your lender will most likely make every reasonable effort to allow you to keep your home and repay your debt. An agreement could be reached to repay a smaller amount each month until your situation improves, or perhaps take a temporary payment break. Either way, it is the sole responsibility of the debtor to contact their lender at the earliest possible stage in order to avoid eventualities like this outright.