FINANCE
What is a mortgage grace period and how does it work?
It refers to the time after the due date of a mortgage payment during which the borrower is not charged a late fee or considered to be in default.
A mortgage grace period is a temporary leniency provided by the lender to allow the borrower some additional time to make the payment without penalties.
The duration of the grace period can vary depending on the terms of the mortgage agreement and the policies of the lender. Commonly, grace periods range from 10 to 15 days, but they can be shorter or longer depending on the specific terms of the loan. These avoid late fees that can go as high as 6% of a typical mortgage payment amount.
How do mortgage grace periods work?
During the grace period the borrower has the opportunity to make the payment without negative consequences. If the payment is made within this period, the lender considers the payment to be on time, and the borrower will not incur any late fees or penalties.
However, it’s important to note that although the grace period provides a buffer before penalties are applied, interest may still accrue on the outstanding balance during this time. So, while you may not be charged a late fee, it is generally in your best interest to make the payment as soon as possible to minimize the additional interest costs.
If the borrower fails to make the payment within the grace period, the lender can then consider the payment as late, and late fees or penalties may be imposed.
Additionally, multiple missed payments beyond the grace period can lead to further consequences, such as damage to the borrower’s credit score and, ultimately, foreclosure proceedings.