From time to time, a homeowner may struggle to make a mortgage payment on time. Most will be able to make the missing payment a week or two later when the next paycheck arrives. However, others may find themselves in a situation where they are unable to make multiple payments in a row.

If you are skipping multiple mortgage payments, you should be concerned about your financial situation. There are several important reasons why you may want to take action to improve your situation or to work out a payment arrangement with your mortgage company.

Falling Too Far Behind To Catch Up

A mortgage payment is generally among the largest expenses in a personal budget, and a considerable portion of your take-home income may be applied to a single payment each month. When you miss multiple payments, you may find that you have fallen too far behind to catch up with your payments.

This can effectively make it nearly impossible for you to improve your financial situation without taking drastic action, such as selling your home or borrowing money.

The Negative Impact On Your Credit Report

Late payments are reported to the credit bureaus as soon as the payment is at least 30 days past due. While your lender may charge you a late fee on your mortgage after the grace period expires, you still typically have extra time to make the payment that month without seeing an impact on your credit rating. However, when you have missed a second mortgage payment, your first missed payment has typically exceeded this 30-day mark. This means that you will likely see a negative impact on your credit rating.

The Potential For A Foreclosure

You are contractually obligated to make timely payments to your mortgage lender, and when you fail to do so, the lender has the legal right to begin foreclosure proceedings. This process can impact your credit rating. More than that, it can result in the loss of your home, including erasing any home equity that you have established in it.

As soon as you realize that you are unable to make a payment on a given month, you may consider reviewing financial options available to you. You may also speak with your lender about possibilities. A final option is to reach out to a mortgage professional to review refinancing options that may be available to you.

Periodically, many homeowners will receive a rather sizable amount of extra cash. This may be from a bonus from your employer, a refund on your tax return, a financial gift from a relative or something else altogether.

While there are many things that you could do with your windfall, you may be wondering if paying down your mortgage balance is a wise idea. Before you make your decision about how to spend your money, consider what impact your lump sum payment will have on your mortgage.

Reduction in Principal Balance

The most obvious impact a lump sum payment will have on your mortgage is an immediate reduction in your outstanding principal balance. Your regular monthly payments will be applied to both interest and principal, but your lump sum payment will be entirely applied to principal. Therefore, you can expect to see a rather sizable reduction in the outstanding balance, and this will have a direct and positive impact on your home equity.

More Effective Loan Payments

Your required monthly mortgage payments will not be lowered when you make a lump sum payment on your mortgage, and you will still be required to pay the same amount to your lender going forward. However, your interest charges for each month will be adjusted. Your interest will be calculated based on the current loan balance each month. A reduction in outstanding balance lowers the interest charges. This essentially makes your future payments more effective at debt reduction and reduces the amount of interest you will pay over the life of your loan.

A Change to the Final Loan Payment Date

Because each of your loan payments going forward will be more heavily weighted on principal reduction than on interest charges, the fact is that your final loan payment date can be accelerated. Depending on the amount of the lump sum payment that you make toward your mortgage, this may be an acceleration of a single month, several months or even several years in some cases.

Making a lump sum payment on your mortgage can have many positive effects for you. However, this is not the only option available when deciding how to spend or invest your windfall. Compare these benefits against the benefits of other options available to determine your best course of action. You may also speak with a mortgage professional for personal guidance and assistance.