What Is a Payment Reversal on a Mortgage?
Understand mortgage payment reversals. Get clear insights into why they occur, their effects on your home loan, and how to respond effectively.
A mortgage payment, typically made monthly to cover principal, interest, taxes, and insurance, represents a significant financial commitment. While generally routine, a payment can sometimes be unexpectedly reversed. Understanding this process is important for maintaining financial stability and homeowner responsibilities.
Understanding Mortgage Payment Reversals
A mortgage payment reversal occurs when a payment, previously processed and applied to a mortgage account, is subsequently withdrawn or returned. This effectively undoes the original transaction, meaning the funds are no longer considered received by the mortgage lender.
When a payment is reversed, the mortgage account reverts to its status before the payment was credited. The amount previously thought to be paid becomes outstanding again, potentially leading to a delinquent status. The lender will then require the borrower to resubmit the payment to bring the account current.
Reasons for a Reversal
Several factors can lead to a mortgage payment reversal. Insufficient funds (NSF) is a frequent cause, occurring when the bank account lacks enough money to cover the payment.
Other reasons include incorrect account information, such as an error in the bank account or routing number for an electronic payment. A borrower manually stopping a payment, a bank error, or suspected fraudulent activity can also result in a reversal.
Borrower Implications
A mortgage payment reversal carries several consequences for the borrower. Lenders impose late fees if the original payment due date is missed due to a reversal. A returned payment fee, also known as an NSF fee, may also be charged by the lender, often ranging from $15 to $75. These fees increase the overall amount owed on the loan.
A missed or late payment due to a reversal can negatively affect a borrower’s credit report and score. Payments reported as 30 days or more past due can cause a significant drop in credit scores, potentially 50 to 100 points or more. This negative mark can remain on a credit report for up to seven years, impacting future borrowing opportunities. A reversal can push the loan into a delinquent status, and repeated unaddressed reversals could contribute to foreclosure proceedings.
Steps to Take
If a mortgage payment is reversed, immediate action is necessary. Borrowers should contact both their mortgage lender and their bank without delay to determine the reason for the reversal. Promptly arranging for the re-submission of the payment helps prevent further fees and negative credit reporting.
To avoid future reversals, maintain adequate funds in the bank account used for mortgage payments. Before initiating electronic payments, double-check bank account and routing numbers to prevent errors. Setting up payment reminders or utilizing automated payment services can help ensure payments are made on time. If financial difficulties arise, proactively communicate with the mortgage lender for potential solutions before a payment becomes overdue.