Technically speaking, you’ll have to make your mortgage payment on the exact day it is due. You have a certain amount of time between when your mortgage payment is due and when it is officially marked late. The mortgage grace period is an important tool to understand as a homeowner, so you can take advantage of it and not misuse it.
Let’s take a closer look at the mortgage grace period, how it works, and how long you have to make your mortgage payments “on time.”
The “grace period” is the amount of time after your mortgage payment is due, during which you can still make your mortgage payment without it being counted as late and without incurring late fees. Late fees can easily range from three to six percent of your monthly mortgage payment amount, so the extended time for a grace period serves as a substantial benefit.
Your lease and mortgage documents should explicitly define the grace period. Think of this as a short time during which your mortgage servicer is willing to accept a past due payment for your mortgage as "on-time," even if it isn't technically received after it's due.
Grace periods are essential due to the possibility of unpredictable circumstances. Say you send a check to your mortgage lender, but it gets delayed because of bad weather. You can’t reasonably be expected to pay a late fee to your lender if your mortgage payment arrives a day late, right?
The grace period accounts for these circumstances and any other financial difficulties borrowers may face. For instance, maybe your workplace is having trouble paying its employees. The grace period allows you to make your mortgage payment a week or more after it is technically due without incurring any credit or late fee penalties.
The exact length of your mortgage grace period depends on your lender, your lease arrangement, and your history with the lender. Most mortgage payments are due on the first of each month. Most grace periods are between one to three weeks, with the average hovering around 15 days.
So, if your lender has a grace period of 15 days, and your mortgage payment is due on the first of the month, you’ll have until the 16th to make your payment on time and without penalties.
Many credit cards have similar grace periods in which you can make technically late payments without bump steer interest rates or problems with your credit report. However, a late mortgage payment is generally more serious, as your mortgage company has much more money at risk if you default on your real estate loan.
Given this fact, if it’s your first time facing a late fee, you should look into other ways to prevent missed payments or issues with your loan servicer, like:
While you can use the grace period to make your mortgage payments on time, it’s always best to make your payments as close to the first of the month (or whatever day your payments are due) as possible. The sooner your lender receives your mortgage payment, the sooner they know you are not running the risk of defaulting on your loan.
Furthermore, it's easy to build up the bad habit of putting off your mortgage payments for a few days. If you don't pay attention, you might accidentally let the payment schedule slide by a week, then two, and then suddenly be at risk of late fees and foreclosure!
In addition, your payment history — including how often you make your mortgage payments on time — is a huge factor that affects your FICO score.
If you make your mortgage payment after the grace period ends, your lender will likely charge you a late fee. Late payment penalties can be three to nine percent or more of your monthly payment amount due.
For example, if you have a $1,000 payment every month, and your lender’s late fee is five percent, you’ll pay $50 extra if you make the payment late that month.
Some lenders even charge extra late fees if your payments come even later than usual, like 60 days after the bill is due instead of 15 to 30 days. Over time, these fees can add up, making it even more difficult to catch up on your mortgage payments.
The average 15-day grace period only affects late fees by changing when your lender can levy a fee against you.
As noted above, missing your mortgage payment or making a payment after the grace period ends can severely affect your credit score. If your mortgage payment is over 30 days late, your credit score will plummet significantly. And, if your payment is 30 days or more late, your lender can technically report that payment delinquency to the credit bureaus.
This shows future lenders that you aren't necessarily trustworthy with mortgage loans and other high-value instruments. Your payment history can account for up to 35 percent of your credit score, and each late payment can drag your score further down. This is doubly true if you make late payments that are 60 days late or longer.
While the grace period is an important tool and can help you avoid disaster, it should not be abused.
As you can see, you have between one to three weeks to make your mortgage payment on time after the due date officially arrives. This can still be a bit confusing, especially if your lender tends to be strict in some billing cycles and more relaxed during others.
You can make things simpler and easier for your finances by working with Balance. As home co-investors, we can purchase and pay off your home loan, taking a certain percentage of your home’s future value or equity in exchange.