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How a Missed Mortgage Payment Affects the Next Amount Due

Article Quant Q&A · Author: toing
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Summary

The document asks how to calculate the next amount due after a scheduled mortgage installment is missed. It compares three possibilities: pay both the overdue and current scheduled installments plus a late fee; recalculate the installment on the outstanding balance; or compound the overdue amount before adding the fee.

The accepted answer says that, for the US treatment described, the borrower generally pays the missed scheduled installment, the new scheduled installment, and any applicable late fee. It says interest is not compounded on the missed interest. Other responses likewise point to the loan contract and applicable rules, while mentioning that borrowers may seek a reinstatement or repayment plan. The answer is jurisdiction specific and does not establish a universal rule; the contract and local regulations determine the actual treatment.

Key ideas

  • The accepted answer describes paying the overdue installment alongside the next scheduled installment and any late fee.
  • It says missed interest is not compounded under the US treatment discussed.
  • The loan contract and applicable jurisdictional rules govern the actual payment obligation.
  • Borrowers may be able to arrange reinstatement or a repayment plan with the lender.

Tags

Fixed incomeRisk management
Full text
# How is payment calculated for a mortgage when already missed one payment (D30)?


# How is payment calculated for a mortgage when already missed one payment (D30)?












How is the interest and principal payment calculated when mortgage has already missed one payment? Are the new payments calculated off the new balance (non-amortized balance) or the original scheduled balance?

For example: 100k mortgage, 360 terms, 5% nominal rate, monthly payments, country: Mortgage

```
Period   Payment     Int    Princ  Remaining Balance
0                                    100,000.00 
1         536.82    416.67  120.15   99,879.85 
2         536.82    416.17  120.66   99,759.19 
3         536.82    415.66  121.16   99,638.03 
4         536.82    415.16  121.66   99,516.37 
5         536.82    414.65  122.17   99,394.20 
6         536.82    414.14  122.68   99,271.52
```

Now consider 6th scheduled payment (last in table), and consider that this was missed. Therefore, actual situation in 6th period

```
Period   Payment     Int    Princ     Balance
6         Missed    Missed  Missed   99,394.20 <- same as 5th period
```

How is payment for 7th period calculated? Which of the following is most appropriate?

```
( a ) scheduled payment for period 7 (= 536.82) 
      + missed payment for period 6 (= 536.82) 
      + late fee 
( b ) payment calculated of Balance 99,394.20 over 353 terms (= 538.15) 
      + missed payment for period 6 (= 536.82)       
      + late fee
( c ) payment calculated of balance 99,394.20 over 353 terms (= 538.15)
      + missed payment for period 6 compounded ( =(1+5/1200)*536.82 )
      + late fee
```

## Answer by toing (score 1, accepted)

https://quant.stackexchange.com/a/50930

US specific correct answer is (a). Interest is not compounded on missed interested. If you get late, you pay the scheduled payments and get back on track. Ofcourse, late fees await you but there is no interest charged on receiving late interest. Usually, late fees will be way more than that interest.

## Answer by djnavas (score 0)

https://quant.stackexchange.com/a/42439

In the case of failure to pay a fee, the problem is not financial calculation, but compliance with the obligations of the loan contract. Therefore, the viable option is the one you designate as 'a)', since the debtor pays the delayed installment, the late payment surcharge and the new installment of the loan that will be due, to get up to date with the payment plan.

## Answer by Magic is in the chain (score 0)

https://quant.stackexchange.com/a/42453

In the US, I believe the correct treatment is option a. Don’t think capitalisation of fees or missed payment is allowed. And if you are worrying about the missed payment not earning interest, don’t forget the late fees are big enough to cover that plus a lot more. And to add to that, you can’t charge fee on fee either- so called ‘pyramiding’ is not allowed. Individual customers can always ask the banks for help (reinstatement or repayment plan) if they have missed payment though.

In the UK, the regulator, FCA went to town with this issue a couple of years ago, leading to customers whose shortfalls has been capitalised receiving compensation.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.