Have you been so busy that you had forgotten to pay for your mortgage payment?
Are you worried about what will happen next?
In this article, we will go through the 5 most asked questions on missing your mortgage payment, as well as what to do if you do not have the financial means to repay your loans.
1. What happens when I miss a mortgage payment?
Before anything, it is best for you to settle the mortgage payment quickly. Nonetheless, if your payment falls beyond the grace period (usually 15 days from the due date) specified by your lender, you will incur penalty charges. Interest will be charged on your mortgage, and this would vary from lender to lender. This late fee charge can be calculated either on a monthly or daily basis, dependent on the type of contract you signed with the lender. DBS Bank, as of June 2022, charges an overdue interest of 5% above DBS Prime Rate on the overdue amount.
Let’s take DBS Bank’s rate as an example.
Current DBS Prime Rate is 4.25% p.a.
If your monthly instalment is $3,200, the late payment charges that you incur will be:
$3200 x (5% + 4.85%) x 1/12 = $26.27
This may not seem like a considerable number now, but if you fail to make full repayment consistently, the compounded interest will lead to negative amortization.
What this means is that you will pay lesser on the principal sum instead of paying more through the amortization. With the additional interest pegged for the late payment, you will find yourself in a rat race to clear interest despite all that paying without seeing much effect for your principal sum reduced.
2. Does missed mortgage payment affect credit?
Credit score is an important indicator lenders take into consideration when deciding on whether to lend. It indicates how likely an individual will repay his/her debt and the probability of default.
Your credit score will range from 1000 to 2000; the risk grade ranging from AA to HH. Individuals with a credit score of 1000 have the highest chance of defaulting on payments. Similarly, individuals with a HH Risk Grade have a high probability of default.
Missing a mortgage payment could have a significant impact on your credit score. This would remain on your credit reports for up to 7 years.
3. What happens if I miss a few mortgage payments?
If it’s your first time missing your mortgage payment, the damage it will cause to your credit will not be too large but remember to not miss the next one! Missing several mortgage payments may eventually lead to foreclosure, and that’s not something you want to have on your credit.
Foreclosure will not only greatly lower your credit score, but also limit your qualifications for new loans or credit for the next 7 years.
4. Can I still get a mortgage if I missed my mortgage payment?
When requesting for a bank loan, banks may request for your credit report to assess your financial status. For that reason, credit score does play a significant role in their decision making.
Of course, you can still get a mortgage, provided if you have not missed your mortgage payment several times. Besides, it is not the only factor lenders consider when making lending decisions.
Different credit providers may assess your credit situation differently. Your annual salary, bankruptcy information and length of employment are also taken into account during your loan application.
So, even if you had missed a mortgage payment, don’t worry. If one lender rejects your loan request, there is still a chance for you to get a mortgage with others.
5. Can late mortgage payments be removed from my credit report?
Unfortunately, no. Your credit report will reflect all your late mortgage payments within the past 7 years.
However, in cases where a creditor inaccurately reports your mortgage payment as late when you paid on time, you can raise a dispute with the Credit Bureau. An investigation will be carried out, and your credit report will be immediately rectified if there are any errors. Additionally, the revised report will be sent to all Bureau members who have made enquiries on you in the past 12 months to inform them of the change.
Now that we’ve answered the top 5 most asked questions on missing your mortgage payment, let’s move on to what you can do if you unable to pay your mortgage loans on time.
Refinance
Compare the best rates from different lenders to see which fits your need the most. Your loan can either be pegged to a fixed or floating interest rate. Make sure you consider the different fees you may have to incur from refinancing such as termination fees as well as lock-in period before deciding.
If you are refinancing from a HDB loan to a bank loan, you will not be able to refinance with HDB anymore after opting out from your existing HDB loan.
Speak to your bank or a mortgage advisor
Speak to your bank and see if they can provide a payment extension or refinancing plan given your circumstances. Bank lenders may be open to negotiate if you show sincerity in paying your loans. They may modify your loans to make your payments more affordable.
Alternatively, you can speak with a professional mortgage advisor on the available refinancing packages and advice for the best way forward.
Seek Help from Credit Counselling Singapore
Credit Counselling Singapore (CCS) is a government organization which provides financial support and guidance on debt management. Instead of paying off your debt for you, CCS provides counselling sessions to address your debt problems. In addition to that, CCS also has support measures in place to help you restructure your debt while working with creditors.
CCS even facilitates debt repayment arrangements for selected debt-distressed borrowers to ensure that borrowers can repay their debts fully. Individuals placed on the Debt Management Programme (DMP) may benefit from lowered interest rates and extended debt repayment periods.
Worried about missing your mortgage payments again? Keep in mind these tips:
1. Keep track of all the mortgage payment due dates and pay early!
2. Make sure you pay your mortgages in full to avoid additional interest charges
Always exercise precaution and plan before taking on a mortgage loan. If you’ve missed your payment, pay them off immediately. Remember to pay your mortgage loan on time in the future to avoid having bad marks on your credit report for the next 7 years.
