In previous decades, when a borrower missed a payment on a mortgage, the lender would often consider them one month behind until they eventually caught up. Most lenders would impose a late fee and other interest or penalties, tacking them onto the back end of the loan as long as the lender stayed current with the rest of their payments.
With the number of bankruptcy filings creeping higher each year, and with increasing pressure on lenders to return dividends to shareholders, mortgage companies have quietly resorted to creative accounting practices to put pressure on slow payers.
Under new rules, a mortgage lender can ding your credit report every month that you are behind on a payment. In addition, they can impose penalties and late fees during the month you missed your payment. To add insult to injury, if you neglect to catch up with your payments the following month and you don’t pay all of your late fees, the lender can impose late fees – on your late fees. You might miss a payment for any number of reasons. It could be something as innocent as a check getting lost in the mail. Or it could be a symptom of a bigger problem like a divorce or a job loss. Either way, you receive equal treatment.
And the news gets worse. Many mortgage lenders have added clauses to their agreements that stipulate they can initiate a foreclosure on your home if you miss a predetermined number of consecutive payments, or if you miss too many payments in a given period. Therefore, you may only be a few hundred dollars behind on your mortgage, but you could find yourself in the same situation as someone who has not made payments on their home in six months. For example, if your March payment arrived one day late, you incur a $50 late fee. Because you use a coupon book to track your loan, you might not even know you were assessed that fee in the first place.
Although your next five payments arrived on time, your lender could charge you a late fee in April for failing to pay your March late fee. They could then charge you two late fees in May, for missing your March and April fees. Before long, the late fees snowball out of control and you have to take drastic measures to save your home. T
herefore, experts recommend that you use secure online banking to make mortgage payments that can be independently traced and verified. Call your lender’s automated customer service line at least once each month to confirm that your payment has been received, and that you are current on all outstanding installments and past late fees. A little extra care and recordkeeping on your part can prevent much frustration.