What Happens If You Make a Partial Mortgage Payment?
Explore the consequences of an incomplete mortgage payment. Understand lender policies, financial impacts, and how to manage your loan status effectively.
Explore the consequences of an incomplete mortgage payment. Understand lender policies, financial impacts, and how to manage your loan status effectively.
A partial mortgage payment occurs when a homeowner remits less than the full amount due for their monthly mortgage obligation. This situation might arise due to various factors, such as unexpected financial difficulties, temporary income disruption, or simply a miscalculation. Understanding the ramifications of such a payment is important, as it can significantly affect a borrower’s financial standing and the status of their home loan.
Mortgage lenders have specific protocols for handling payments that do not cover the full amount due. Lenders often place partial payments into a “suspense account,” a temporary holding place until the borrower remits the remaining balance needed to constitute a full payment. The Consumer Financial Protection Bureau regulations generally require servicers to inform borrowers about funds held in a suspense account on their monthly statements.
In some instances, if a partial payment is made, the lender might return the payment to the borrower, especially if their policy strictly requires full payments. If the funds are returned, the borrower remains responsible for the full original payment amount, which is still considered outstanding.
While less common, some loan terms or specific lender policies might allow for the application of a partial payment directly. Even in these cases, the loan is usually still considered past due if the full contractual amount is not received by the due date. This means the borrower may still face consequences.
Many mortgage contracts include a grace period, typically ranging from 10 to 15 days after the due date, during which a payment can be made without incurring a late fee. If only a partial payment is made, even within the grace period, the outstanding balance can still lead to penalties once the grace period expires.
Making a partial mortgage payment can lead to several immediate financial repercussions. One of the most common consequences is the assessment of late fees. These fees are typically calculated as a percentage of the overdue payment, often ranging from 4% to 5% of the principal and interest portion of the monthly payment, though state laws may limit these amounts. Even if a partial payment is made, a late fee is usually applied to the full amount that was not received by the due date or after the grace period.
A partial payment generally does not prevent the loan from being marked as “past due” or “delinquent” if the full payment is not received. A loan is commonly considered delinquent after 30 days past its due date. This can trigger additional charges and negatively affect the borrower’s credit.
The impact on a borrower’s credit score is a notable consequence. When a mortgage payment is reported as 30, 60, or 90 days past due, it can significantly lower the borrower’s credit score. Payment history is the most substantial factor in credit score calculations, and a single late payment reported to credit bureaus can remain on a credit report for up to seven years. Even if a partial payment was made, the loan’s status as delinquent due to the unpaid full amount can still result in a credit score reduction, potentially affecting future access to credit at favorable terms.
Partial payments can also affect the escrow account, which holds funds for property taxes and insurance. If the portion of the payment allocated to escrow is not fully met, it can lead to a shortage in the account later. This shortage might require the borrower to make up the difference through a lump sum payment or increased monthly escrow contributions in the future.
Proactive communication with the mortgage servicer is important when a borrower anticipates or has made a partial payment, as it can open a dialogue and potentially lead to solutions. Many lenders are willing to work with borrowers experiencing financial hardship.
Borrowers should review their loan documents or contact their servicer to understand specific policies regarding partial payments, suspense accounts, and late fees. Servicers are generally required to provide information about funds in suspense accounts on monthly statements, including what needs to be done for the funds to be applied. Understanding these policies can help borrowers avoid further complications.
If a partial payment is due to temporary financial hardship, servicers may offer various options to help borrowers get back on track. A repayment plan allows the borrower to pay the missed amounts over a set period, in addition to their regular monthly payment. Forbearance provides a temporary reduction or suspension of payments, with the missed amounts typically becoming due at the end of the forbearance period. A loan modification involves a permanent change to the loan terms, such as adjusting the interest rate or extending the loan term, to make payments more affordable. These options aim to prevent the loan from escalating to default.
Continued underpayment or failure to make full payments will eventually lead to the loan being declared in default. Federal regulations generally prevent foreclosure proceedings from starting until a loan is 120 days past due, providing a window for borrowers to resolve the delinquency. However, if the situation is not resolved, default is the precursor to the foreclosure process, which can result in the loss of the property.