Homeowners

The 411 on Partial Mortgage Payments

I recently heard about partial mortgage payments, and I thought it was both an interesting and pressing issue I should discuss with you guys. Let's say you just bought your first home, and you made a payment on time, after you send the payment you look at your statement and realize, there is an escrow on the account and you hadn't been paying it. Another scenario could be that you are going through a financial hardship and you haven't been able to make the full payment on your mortgage, so you've sent in what you can the last few months. In either situation only a portion of the amount owed is paid; this is called a "partial mortgage payment". Keep reading to find out how lenders treat a partial mortgage payment.

Suspense Account

Even if you are only short a minimal amount on your payment, the lender will not recognize that you've made a payment at all. Instead, one of two things will happen, they will either return your check to you or place the money into a "suspense account".  The servicer will keep the borrower's partial payment in the suspense account before crediting the money to the loan. In other words, they hold the money in the account until there is enough to cover the previous debt.

Let's say your mortgage payment was $1,200, you were only short by $100. The bank will not apply the $1,100 paid to your principal, interest, or escrow fees (if you have them). Instead, they will hold the funds until you make another payment the next month. If the following month you make another partial payment of $1,100, the bank will take $100 out of this payment and add it to the previous month's payment to complete it. They will likely also charge a late fee to satisfy the last month's payment. The difference will remain in your suspense account; the amount will remain there until you have enough to satisfy the next payment and so on.

Does It Affect My Credit?

You will see a hit on your credit if you get into this situation because technically you have been late on your payments. Unless you make a large enough payment to satisfy all outstanding amounts, you are in what's called a "rolling" account—being consecutively 30 days late on your payments.

What If You Overpay?

If you overpay, your lender may use a suspense account as well. If you add a few dollars or even cents every time you make a payment, your lender can put the overpayment in a suspense account—If you're curious and want to know, you can contact your mortgage servicer to find out if you have funds in suspense.

What to Do If You Can't Make a Full Payment

The best thing to do if you know you cannot make a payment in full or at all is to contact your lender as soon as possible to discuss your options early on. There is a chance they might be able to help you change the terms of your loan to something you can better afford. The worst thing you can do is push away the issue and not address it as soon as the situation arises. It is also very important to always stay informed; many programs exist out there that are only a click away. Make sure you do your research, and contact your lender as early as possible if you cannot make a payment– there are many programs out there to help you.