What Is a Grace Period for Mortgages?
Your mortgage grace period can help save your home from foreclosure should you miss a mortgage payment or two. Foreclosures cause lenders to lose money, on average about $60,000 per foreclosure according to data gathered by the Federal Home Loan Mortgage Corporation (Freddy Mac). Your mortgage company has a vested interest in working with you to keep your home, even when finances are tight. The grace period is the time your lender allows for this to happen.
Identification
One definition of the term "grace period" applies to your monthly mortgage payment due date. You have a number of days beyond that date to remit your payment before late fees apply. Depending on the type of mortgage, paying within a certain period can also reduce interest accrual. But when discussing foreclosures, "grace period" means something else entirely.
Features
Typically, a home loan document will specify that the mortgage lender may begin foreclosure as soon as loan payments are 30 days late, but lenders often wait as long as 90 days. After one or two missed payment, the mortgage company's first action is to contact you to make payment arrangements.
Significance
Once the mortgage company determines that you are unlikely to bring your loan current, usually 90 days from the first missed payment, they file a Notice of Default. This officially alerts you that if you don't satisfy the terms of your loan by paying all balances due including accumulated fees, your home will be seized and sold at auction. Another 90 days may pass before the sale of your home at auction
Time Frame
The period between your first missed payment and the filing of the Notice of Default is commonly called the grace period. Other terms for this period are pre-forclosure or the reinstatement period. During the grace period, remedies for avoiding foreclosure are still available to you.
Potential
During the grace period, you may sell your home and repay the mortgage company with the proceeds of the sale. If your home is worth less than the value of the loan, the bank might choose to accept a short sale. The bank may also accept a deed in lieu of foreclosure. Or the bank may offer to restructure your loan, if current interest rates are low enough to bring payments down to a level that's affordable for you.
Considerations
To take best advantage of the grace period, as soon as you realize you will not be able to make your mortgage payment, contact agencies that specialize in assisting homeowners in financial distress. The U.S. Department of Housing and Urban Development can aid in finding housing counselors and non-profit organizations who can assist in avoiding foreclosure. For FHA loans, the Federal Housing Administration may be able to help with interest free financing to make up missed payments.
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