There are two topics to cover in this article: 1. The scoop about when your mortgage payment is due, and 2. The scoop about your mortgage balance. These are important for several reasons.
I don’t know how many times I have heard on the phone from a home owner, I have missed my mortgage payment a few times here and there, but my credit is pretty good otherwise. In those same conversations, I have heard surprising more than I expected, "I don’t know when my payment is due, I think the 1st." What typically happens when I pull the homeowner’s credit report is that I get a perfect mortgage payment history. Of course my customer is very happy knowing that their credit is still in good standing. I love to be the bearer of good news. All of this does point however to the question that every homeowner should know: "When is a mortgage payment late?"
Here’s the scoop: mortgage payments are typically due on the first of the month. Most mortgage companies give you a 15 day grace period from the 1st of the month to make your payment. Making your payment during this time is perfectly fine.
If you miss paying your mortgage during this grace period, then the mortgage company will typically give you a 15 day penalty period to make your payment. This will give you to the end of the month or 30 days to make your payment. If you make your payment during the penalty period, there will be some sort of penalty fee to pay. These penalty fees aren’t that big of a deal, but they are unnecessary and a waste of your money. Your credit report won’t be affected if you make your payment during this period either.
Now for the really bad news, if you make your payment after the penalty period, you are now going to be hit pretty hard on your credit report, perhaps have to pay a higher fee to catch your mortgage payment up.
Here’s another suggestion regarding your mortgage payment that if you follow you’ll save yourself a ton of heartache. If you have to pay your mortgage payment after the penalty period (more than 30 days after your due date) you need to make the full payment including any late fees etc. Make sure you know what your payment is if you are paying it late. The mortgage company might mail your payment back to you without cashing you check. If they send it back to you, don’t spend it. Keep that money set aside until you can work out what your payment is supposed to be and then make the payment again. I have talked to many homeowners who sent in a partial payment after the due date and got their check back uncashed.
Next, let’s look at your payment and how it impacts your mortgage and payoff balances if you were to refinance.
If you recall when you got your mortgage you were most likely charged daily interest to the end of the month from the date that your loan funded. For a purchase, this is typically the day you get your keys. So if you got your keys on the 15th of the month then you were charged 15 days of interest to the end of the month. And if you recall, you didn’t have a mortgage payment at the end of that month but rather you “skipped a month” and had your first payment due the first of the second month that you had your mortgage. For example, if you got your keys on September 15 your first payment wasn’t due until November 1.
The terminology is that you pay your mortgage in the arrears. This means that the payment that you made on November 1 from my previous example pays the interest and principal that was due in October. With this payment structure, it is highly possible and probable that when your loan officer pulls your credit and you see the mortgage balance, this won’t be the balance that is due when you pay your mortgage off. Why this is is that you will have to pay the interest due from the previous month. Or if you payoff your loan on the 15th of the month and you made your 1st of the month payment, then they will charge you for 15 days of interest to the 15 when the new mortgage takes over.
So don’t be surprised if you will need to borrow slightly more that you thought to make up for this extra interest that you have to pay. In my early career as a mortgage loan officer I forgot to tell my customers this and upset a few of them along the way. I don’t make this mistake at this point in my career, but I do hear from time to time of junior loan officers making this error. So watch out for it.