Find out what happens if you miss a mortgage repayment.
What happens when you make a late payment?
July 12th, 2010
Mortgage lenders tend to really dislike late payments. This is because late payments are often the first sign of an eventual default on the loan.
With most mortgages if a person does not make a payment by the required time in the month then they will be charged an extra fee or penalty that is either added on to the mortgage balance or is required to be paid with the mortgage payment. This can be quite substantial with some mortgages, particularly fixed rate mortgages or mortgages that have been extended to people with a poor credit history.
There will also be a warning letter sent out by the bank. This will usually be a standard letter and will also notify the borrower that there is a fine that is due and that further action could be taken if this happens again.
In some cases there may be a note on a credit reference file. It is relatively unusual for this to happen when there has only been one incident.
If there is only one late payment then this is where it will probably end. However when there are a number of late payments in short succession then there could be more serious consequences.
With many mortgages a penalty rate may be invoked. This is a far higher rate than the offered rate, and can add considerably to the cost of a mortgage. In most cases this is cleared after the mortgage is up to date, but when there is a promotional mortgage offer then the rate may default to the standard variable rate, which is higher than the promotional mortgage rate.
There may also be a notice that is issued. This can be the precursor to legal proceedings and possible eviction. This step is only taken in very serious cases, and is usually aimed at getting the borrower to take out a new loan, although clearly this is much harder. Selling up and moving to a smaller property may be an option for some borrowers.
If the late payment has been because there is a change in the date at which a salary has been paid, then it is a good idea to tell the bank so that payment dates can be resynchronised.
Current account mortgages can also be useful for those with irregular income. These do not have set repayment dates, but a maximum balance and an account into which the whole salary can be paid, and also paid out through transaction account facilities.
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