“Happiness depends on what happens to you. Joy depends only on what happens in you.” – Ann Vaskamp
What to Do When Financial Difficulties Arise
Navigating the challenges of homeownership can be tough, especially when unexpected financial hardships arise. A hardship, in this context, refers to any significant life event or financial obstacle that impedes your ability to make your full mortgage payment on time. Whether it’s a job loss, a reduction in income, or a medical emergency, these situations can create stress and confusion about how to handle your mortgage obligations. This blog post will provide clarity on how to manage your mortgage payments during difficult times and dispel common misconceptions about late fees.
In Peter Ganong and Pascal Noel’s research paper written in 2020 on why mortgage borrowers default on their mortgages, they found that during the Great Recession of 2008 main reasons why mortgage borrowers default 94% of people default due to income loss, illness and divorce. Only 6% had defaulted due to being underwater on their mortgages.
What Constitutes a Hardship?
Job Loss: Losing your job can have an immediate and profound impact on your finances. Without a steady income, covering all of your monthly expenses, including your mortgage, can become challenging.
The Impact of Late Fees on Mortgage Payments
One of the major concerns during a financial hardship is handling late fees. Many people worry that if they can’t pay both their mortgage and the associated late fee, they might not be able to make the mortgage payment at all. This misconception can add to the stress of an already difficult situation. Here’s the truth:
Late Fees and Mortgage Payments: If you find yourself in a situation where you have the funds to make your mortgage payment but not enough to cover both the mortgage payment and the late fee, don’t panic. You can still make your mortgage payment, and the late fee will not compound interest in the same way your mortgage balance does.
Key Points to Understand:
Late Fees Are Typically a One-Time Charge: Late fees are usually a fixed amount or a percentage of your missed payment, and they don’t accrue interest in the same way that your mortgage principal does. While they can add up over time if not addressed, they won’t increase your mortgage balance by accruing interest.
Mortgage Payments and Late Fees Are Separate: Your mortgage payment and any associated late fees are handled separately. It’s crucial to prioritize making your regular mortgage payment to avoid further complications, such as potential foreclosure or damage to your credit score.
Addressing Late Fees: If you can’t afford to pay the late fee immediately, it will simply remain on your loan. While it’s not ideal to have late fees accumulating, paying your mortgage on time is more critical. You should plan to address the late fee as soon as possible, either by making a lump sum payment or negotiating with your lender for a payment plan.
Steps to Take When Facing a Hardship
The Importance of Staying Informed
Staying informed about your mortgage terms and available options is crucial during times of financial hardship. Understanding how late fees work, how to communicate with your lender effectively, and what relief programs are available can help you navigate through difficult periods more effectively.
Additionally, maintaining open communication with your lender and taking proactive steps to address any financial issues can significantly reduce the stress associated with managing your mortgage during tough times. By focusing on making your mortgage payments on time and addressing late fees as soon as possible, you can help protect your financial health and avoid further complications.
Conclusion
Experiencing a financial hardship can be overwhelming, but knowing how to manage your mortgage payments and late fees can alleviate some of the stress. Remember, while late fees can be a burden, they do not accrue interest and can be managed separately from your mortgage payments. Prioritize making your mortgage payments and communicate with your lender to explore options for relief. By taking these steps, you can navigate through financial difficulties more effectively and maintain your homeownership stability.
If you find yourself struggling with mortgage payments, take action as soon as possible to address the issue and seek assistance. The earlier you address the problem, the more options you’ll have for resolving it and minimizing the impact on your financial well-being.
