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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
Introduction Mortgage Grace Period
When you borrow money from the bank or a lender, you are expected to pay back the loan installments on monthly basis.
However, there could be some unavoidable life events or any other natural events due to which you might not be able to make the monthly payments.
In this case, the bank or the lender might give you a grace period. In this post, we will understand what is grace period, is and how it works.
What is a Grace Period?
A grace period is a time allotted by the lender or the bank to the borrower to make the payment even after the last date of payment has passed without charging any late fees, penalties, and without reporting to the credit bureaus.
What does a Mortgage Grace Period Mean?
When people think about buying homes, most of them will look to get mortgages as a part of home buying transactions.
During the process of getting a mortgage, the borrower has to go through a lot of mortgage terminologies like loan tenure, monthly payments, escrows, etc.
While you are at closing your title company will ask to sign tons of documents and you can’t read the entire fine lines at the time of closing.
You must take a look at the mortgage note that the kinder will provide you with a copy of after you have closed on a house.
The original mortgage note will be kept by the lender and would be returned to the borrower only once the mortgage is paid off.
On the mortgage note, you will know if your lender is providing a mortgage grace period for your mortgage payments along with the payment due date every month. (Mostly 1st of every month).
The mortgage grace period will help you prepare for your monthly mortgage payments and will avoid any late fees or credit issues.
You might also find the information about the mortgage grace period on your mortgage statements.
However, if you are making your first payment, you might want to check on the mortgage note to ensure the due date and if the lender has given a provision of mortgage grace period for your specific loan.
What is the Mortgage Grace Period Duration?
A mortgage grace period is the time extension that a lender gives to the borrower after the due date of his monthly mortgage payment.
Let’s say that your mortgage payments are due on the 1st of every month, the lender will provide a grace period of fifteen days or two weeks to the borrower before considering the payment as late payment and charging late fees, and reporting to the credit bureaus.
The lenders provide the grace period because every individual might have a different payment schedule, and might face some financial difficulties as well.
The grace period gives the borrower a chance to make the payment before the mortgage grace period expires and avoid any late payments or have any negative impact on the credit score.
Payment Made Within the Mortgage Grace Period
If the borrower is making the mortgage payments within the mortgage grace period, the lender would not charge any late fees, penalties, or report to credit bureaus.
Some lenders might charge a percentage of your payments as a penalty for missing the payment; hence, the grace period for mortgage payments may save a lot of money if you ever miss the due date for your monthly mortgage payment.
To avoid missing the due date for your mortgage payments, you can ensure that you pay them on or before the due date. The fastest mode of payment is online.
The borrower can also choose for auto-debit from the linked bank account so that you don’t have to keep the due date in mind.
The payment will be automatically deducted from your account on the due date.
Payments Made After the Mortgage Grace Period
If you are unable to make the payment within the mortgage grace period the lender will be charging you a late fee.
The late fee could either be a percentage of your monthly payment or a flat fee. The late fee structure may vary from lender to lender.
To be current on your monthly mortgage payments, the borrower would have to clear the late fees along with the mortgage payment which was due.
If the borrower does not pay the late fees the lender may carry forward the amount to the next month and report it as an unpaid outstanding amount.
The lender will also report to the credit bureaus if the payment is not been made within the grace period. The lender usually reports late payments after 30 days.
Once the lender updates as a 30-day late payment, your credit score will be dropped drastically.
Due to this, you may have to face challenges when you are planning to borrow in the future.
Conclusion
The mortgage grace period is great to have as it gives you breathing space for the borrower to make the payment if the due date is missed.
In case you are unable to make the payment even within the mortgage grace period, it is suggested that you speak to the lender and explain the reason for the difficulty so that they could work out some options for you.
