Can You Make Partial Mortgage Payments?
Navigate the complexities of making partial mortgage payments. Learn servicer policies, how funds are applied, and the financial and credit implications.
A mortgage partial payment occurs when a borrower sends an amount less than the full scheduled monthly mortgage payment. While making a payment, even a partial one, might seem like a proactive step, mortgage servicers handle these payments according to specific policies. Borrowers should understand how servicers process partial payments and their implications.
Understanding Servicer Policies on Partial Payments
Mortgage servicers do not immediately apply partial payments to a loan’s outstanding balance. Instead, they place these funds into a temporary holding account, often called a “suspense account” or “unapplied funds account.” The funds remain in this account until the borrower submits additional payments that, when combined, equal a full monthly payment.
Most mortgage loan agreements stipulate that a full payment must be received before any funds are applied to the principal, interest, escrow, or fees. Servicer policies can vary, with some stating that partial payments may be returned if they do not meet certain criteria or if the account is significantly delinquent. Borrowers generally receive notifications about these suspense balances on their monthly mortgage statements, which detail the payment history and any unapplied funds.
The Process of Applying Partial Funds
Once the total amount in a suspense account equals a full monthly mortgage payment, the servicer applies these accumulated funds to the borrower’s loan. This application covers principal, interest, and any amounts allocated for an escrow account, in the order specified by the loan agreement. The application date is recorded as the date the last partial payment completed the full monthly amount.
Should partial payments never accumulate to a full monthly payment, servicers have different procedures. If funds remain in the suspense account for an extended period, they might be returned to the borrower. Alternatively, the account will remain in a delinquent status, as no full payment has been officially credited. The servicer may also use these funds to cover specific fees or charges if the loan agreement allows.
Communicating with Your Servicer Regarding Partial Payments
Proactive communication with your mortgage servicer is important when considering a partial payment. Contact the servicer directly to understand their specific policies. This initial outreach helps clarify how funds will be handled and what implications might arise.
Borrowers should inquire about whether partial payments are accepted, how they are held, and what conditions must be met for the funds to be applied to the loan. It is also important to ask about the potential impact on late fees and credit reporting. Documenting all communications, including dates, times, the names of representatives spoken to, and a summary of the discussions, provides a record of your efforts and the information received.
Potential Consequences of Non-Standard Payments
Making partial mortgage payments, especially if they do not result in a full payment being applied by the due date, can lead to several financial implications. A common consequence is the assessment of late fees. Most mortgage agreements specify a grace period after the due date. If the full contractual payment is not received within this period, late fees are generally applied, regardless of any partial payment held in a suspense account.
Failure to make the full required payment on time can also lead to a delinquency being reported to credit bureaus. Mortgage servicers report payments as 30, 60, or 90 days late, which can negatively affect a borrower’s credit score and remain on credit reports for several years. Persistent underpayments or a failure to bring the account current can eventually result in the loan being declared in default. This status can lead to more severe actions, including the initiation of foreclosure proceedings.
If a mortgage includes an escrow component for property taxes and insurance, a partial payment may not fully fund the escrow account. This can lead to a shortfall in the escrow balance, potentially requiring a higher monthly payment in the future to cover the deficit. In some instances, servicers may return partial payments to the borrower if they are below a specific threshold or if the account is in a severe state of delinquency.