Mortgage Payment Grace Period

[Count of Notre Dame]

Does anyone pay their mortgage after the initial "due date", but before the end of the grace period, on a monthly basis? My mortgage service provider does not assess a late fee until receiving payment after the 10th calendar date. I'm wondering why I should pay them on the 1st of the month if it's not really due until the 10th? I'd rather setup an automatic payment for the 10th, but wondering if there are any downsides to this? I won't be gaining much of a financial benefit by paying later, but I don't like the idea of paying someone before the money is really due (similar to property tax "due dates" 2 months before they are really late).

[OnceARunner]

The only risk I see is the potential of something going wrong with the payment. While rare, if you are paying towards the beginning of the month, it gives you time to sort it out before the true due date.

[gr7070]

To use your terms the money is "really due" at the initial due date. So you would not be paying before it's really due. Maybe what you meant is you don't like paying until just before there is a penalty incurred?

I and many others do pay after the due date. I don't do it to gain a tiny bit of interest. I don't do it because it doesn't sit well with me because if the "really due" issue.

I get paid on the first of the month. Paying afterwards gives me that added cushion in my checking account. I probably don't need that added cushion, but just in case it's there. My date paid is around the 5th.

[mw1739]

My bank setup the mortgage to autopay on the 5th of the month for whatever reason when I took out the loan. Hadn’t been a problem in the 8 years I’ve had the mortgage.

[cchrissyy]

same story for me, so autopay is on the 8th

[FlyAF]

I don't like the idea of paying someone before the money is really due

Didn't you sign a contract agreeing to the due date of the 1st? Wouldn't that make it the "really due" date?

People are so weird about money.

[Jack FFR1846]

Don't mortgage companies typically report to the credit agencies the average days to pay? If I were looking at you for credit and found that on average you were 8 days late paying, I'd skip you and take someone who pays on time, always. Or for a loan, give you the 16% rate instead of the advertised 2.9% rate.

[tjtv]

They don't report anything until you are >30 days late.

[as9]

One of our larger paychecks comes on the 7th of every month so we've always had it set to autopay on the 8th. When we first got the mortgage I confirmed with two different people that this wouldn't be a problem. I do this because the rest of our recurring bills are all in the second half of the month so it makes managing cash flow easier.

[willthrill81]

Don't mortgage companies typically report to the credit agencies the average days to pay? If I were looking at you for credit and found that on average you were 8 days late paying, I'd skip you and take someone who pays on time, always. Or for a loan, give you the 16% rate instead of the advertised 2.9% rate.

Charles Givens, a financial writer back in the 1980s, reported that he once took advantage of a pretty big float between receiving rents on various properties and the end of the mortgage grace period on something like the 15th of the month. Keep in mind that this was back when interest rates were high. He discovered that the banks were reporting his payments as late even though they were not assessing him a late fee.

I don't know whether any banks still do that or whether it's bank dependent though. It's something that the OP's bank should be able to tell him easily though.

[Count of Notre Dame]

To use your terms the money is "really due" at the initial due date. So you would not be paying before it's really due. Maybe what you meant is you don't like paying until just before there is a penalty incurred?

I and many others do pay after the due date. I don't do it to gain a tiny bit of interest. I don't do it because it doesn't sit well with me because if the "really due" issue.

I get paid on the first of the month. Paying afterwards gives me that added cushion in my checking account. I probably don't need that added cushion, but just in case it's there. My date paid is around the 5th.

I forgot to add another reason, similar to yours, which is my cash in my checking account drops drastically in the first few days due to many bills paid then, and I'd like to smooth that out for optics.

[TetrisCollider]

Our mortgage due date is the 1st of the month. Our grace period is until 16th of the month. I have been paying towards the end of the grace period for years. Not once was this reported as late payment on any of my reports (CC, Chex or LexisNexis).

Many years ago (over a decade) I decided to experiment with paying all of our bills towards the latest dates possible while not incurring any late fees - vs paying them as soon as they came in. As the outcome of that experiment, I was able to increase my "float" over the course of one year by 1-2 months of bills. This is how I manage our bills since then.

P.S. I have a "perfect" FICO Credit Score of 850.

[mortfree]

I usually pay my mortgage around the 12th of the month.

BEFORE the due date.

Meaning I just paid the March payment on February 10th.


Disclaimer: If interest rates on savings were higher I might be inclined to wait to pay closer to the due date.

[tomd37]

Don't have a mortgage payment, but if paying online automatically on a certain date, don't forget to take into account the payment receipt date if the payment date falls on a weekend or holiday. My bank pays in advance if a payment date falls on one of those type daes.

[Triple digit golfer]

Seems like a lot of overthinking. If it's due on the first, just because you aren't penalized if you pay a couple weeks late, doesn't mean the payment isn't due on the first.

I pay my bills on time.

[seawolf21]

I have mortgages serviced my United Wholesale and Nationstar/Mr. Cooper. Both offer auto pay to occur on the 16th of the month. Been doing this for a number of years. No problems.

OP may want to check loan documents to confirm actual grace period. Every loan document I’ve seen gives you 15 or 16 days grace so if OP servicer is charging a late fee on the 10th, they are going against the loan terms.

[LittleMaggieMae]

I'm pretty sure all of my mortgages had a "payment is Due the 1st of the month, but had to be paid by the 15th or be considered late and fees would be added".

My very first mortgage with a local S&L had a passbook. I would stop in the S&L every month after the 1st of the month (usually a Saturday) hand the teller a check and the passbook.

All of my other mortgages I've automated the payments to pay on the same day of the month - usually the 3rd or 5th of the month. It works with my paychecks and other bills. I don't feel the need to wait until the last possible moment to pay the mortgage. It would add a layer of annoyance if the automatic payment didn't go thru for some reason (had that happen on one of my mortgages - but I caught the problem in plenty of time to fix it). Also, I think there's some thing with the Interest -- if you pay on the 1st you'll save some infinitely small amount of interest --versus paying on the 15th. I noticed that with that old passbook mortgage I was paying on the first Saturday of the month - when I put the mortgage info and my payments into a spreadsheet I always had to adjust every year or two by a some cents so the spreadsheet would match the passbook. If you want to save money on your mortgage - pay on the 1st of the month.

I do remember mentioning to a friend that I would pay the mortgage on the first Saturday of the month and she gave me the hairy eyeball because I was paying it LATE! it was due on the 1st and therefore it should be paid on the 1st. I think I was less of a person in her eyes for that transgression.

[TropikThunder]

Seems like a lot of overthinking. If it's due on the first, just because you aren't penalized if you pay a couple weeks late, doesn't mean the payment isn't due on the first.

I pay my bills on time.

If it mattered to the bank that you paid on the 1st, then they would charge a late fee on the 2nd. They don't. So if it doesn't matter to the bank, it also doesn't matter to me, so I pay around the 14th. And I don't lose any moral superiority points for doing it that way.

[Count of Notre Dame]

Seems like a lot of overthinking. If it's due on the first, just because you aren't penalized if you pay a couple weeks late, doesn't mean the payment isn't due on the first.

I pay my bills on time.

I overthink all of my financial life! I think I would define on-time as in not penalized, as defined by credit agency reporting and penalties? I don't think this is the same as not paying your contractor or handyman right away when presented with the bill.

[PAdad]

I sometimes don't even receive my mortgage document until a day or two before the 1st of the month despite it being 'due' on the 1st. The grace period is until the 16th. It is physically impossible to get my payment there before the 'due date' in this case unless I hand deliver it.

In fact, for the first payment, the bank had not sent us any information on how to submit a payment until a day or two before the 'due date'. In this case, I was very worried as this was my first mortgage payment ever. I emailed our mortgage contact a week or two before the 1st of the month. She explained that we have until the 16th to pay and there was nothing to worry about. This time I had hand delivered it as I was still paranoid, but didn't bother subsequently.

I conclude that my bank treats the 'due date' as being a totally fictitious date.

EDIT: For actionability in this thread, I still try to send it before the 16th in case there is some issue with timing or it gets lost etc. But I certainly do not feel obligated to send in by the 1st.

[ray.james]

I have read about it but never bothered. My checking account has a float of 1 month and as such since it is earning a pittance if any, I do not bother with it. The grace period in itself is not that long.

Our property taxes are a different story; as the grace period is close to 2 months. In the years I am paying down debt/roth contributions, I pay the county right before delinquent date.

[Thos]

I was told at one time that the payment date changed the proportion of the payment allotted to principal vs interest within a given payment. Therefore, always paying on the due date would result in the loan ending up as projected. That paying early would increase the proportion of principal and paying late would increase the proportion of interest. The late date was to prod folks to pay within a reasonable window. If this is true, paying as early as possible should minimize the final total cost of the loan. I changed my behavior and maybe saw a smaller interest dollars reported at the end of year than I would have expected. The one area where it doesn't seem to hurt is our credit score. (I thought that topped out at 850, but apparently was wrong).

[tjtv]

That paying early would increase the proportion of principal and paying late would increase the proportion of interest. If this is true, paying as early as possible should minimize the final total cost of the loan.

Generally speaking - that is NOT true.

[as9]

I was told at one time that the payment date changed the proportion of the payment allotted to principal vs interest within a given payment. Therefore, always paying on the due date would result in the loan ending up as projected. That paying early would increase the proportion of principal and paying late would increase the proportion of interest. The late date was to prod folks to pay within a reasonable window. If this is true, paying as early as possible should minimize the final total cost of the loan. I changed my behavior and maybe saw a smaller interest dollars reported at the end of year than I would have expected. The one area where it doesn't seem to hurt is our credit score. (I thought that topped out at 850, but apparently was wrong).

As noted above, I have always paid a week after the "due date" and our payments have followed the amortization schedule exactly.

[8foot7]

I have paid each month on or the nearest business day before the 15th for 20 years over 4? 5? different mortgages and have never had an issue, never been reported late, credit score over 780, lowest interest rates, etc. Most recently got a mortgage in 2017 for over half a million bucks with more than 20% down. If there is some non-late fee penalty for paying during the grace period, it is essentially immaterial.

[Count of Notre Dame]

I have paid each month on or the nearest business day before the 15th for 20 years over 4? 5? different mortgages and have never had an issue, never been reported late, credit score over 780, lowest interest rates, etc. Most recently got a mortgage in 2017 for over half a million bucks with more than 20% down. If there is some non-late fee penalty for paying during the grace period, it is essentially immaterial.

Thank you for the feedback! Just refinanced my mortgage and BofA requires a payment by the 16th, and I have setup my autopayment for the 12th to allow time to resolve a payment issue should I have one. I don't feel like there is a moral obligation to pay before the penalty / credit reporting date. I'm sure there are plenty of BHs who pay their property tax on the real due date, not the two month earlier suggested date.

[Goal33]

I pay mine automatic on the 13th. Loan servicing with Mr. Cooper. No issues.

[Admiral]

I pay mine automatic on the 13th. Loan servicing with Mr. Cooper. No issues.

+1. Also Cooper. I pay on the 7th usually. I've had mortgages for 25 years and not once have I ever paid on the 1st. Credit score is 830. They don't care as long as it's within the grace period.

[tonyclifton]

Our mortgage lender, Third Federal, uses the “grace period” to help match up direct deposits (paychecks) with automatic withdrawals (mortgage payment). Third Federal will withdraw the mortgage payment as soon as there is sufficient cash in the account. This is great when paycheck arrival floats around due to business days and holidays.

[samsoes]

I have paid each month on or the nearest business day before the 15th for 20 years over 4? 5? different mortgages and have never had an issue, never been reported late, credit score over 780, lowest interest rates, etc. Most recently got a mortgage in 2017 for over half a million bucks with more than 20% down. If there is some non-late fee penalty for paying during the grace period, it is essentially immaterial.

Thank you for the feedback! Just refinanced my mortgage and BofA requires a payment by the 16th, and I have setup my autopayment for the 12th to allow time to resolve a payment issue should I have one. I don't feel like there is a moral obligation to pay before the penalty / credit reporting date. I'm sure there are plenty of BHs who pay their property tax on the real due date, not the two month earlier suggested date.

On the mortgage note you signed, what day of the month does it say that payments are DUE?

[drk]

I use Bill Pay, and this thread got me to check my mortgage servicer's auto-pay options for the first time: it allows auto-pay as late as the 16th of the month, effective to the first of the month. I haven't been taking advantage of that float, but I will if/when money market funds start paying interest again.

[safari]

I pay bills as soon as I receive them. I got enough money sitting in checking and savings to not worry about the float. I paid my property taxes for the entire year before Nov 1. I also like paying off credit cards before the statement closes, so that my bill is $0, which makes my credit utilization really low. I could have saved a few extra dollars by taking advantage of the grace period, but it's not worth it for me. Just a personal preference. In the past when I was living paycheck to paycheck, I used to pay bills close to the due date.

[whodidntante]

Don't mortgage companies typically report to the credit agencies the average days to pay? If I were looking at you for credit and found that on average you were 8 days late paying, I'd skip you and take someone who pays on time, always. Or for a loan, give you the 16% rate instead of the advertised 2.9% rate.

Charles Givens, a financial writer back in the 1980s, reported that he once took advantage of a pretty big float between receiving rents on various properties and the end of the mortgage grace period on something like the 15th of the month. Keep in mind that this was back when interest rates were high. He discovered that the banks were reporting his payments as late even though they were not assessing him a late fee.

I don't know whether any banks still do that or whether it's bank dependent though. It's something that the OP's bank should be able to tell him easily though.

I don't think banks are allowed to report 15 days late as late anymore.

[Nerdette]

I pay bills as soon as I receive them. I got enough money sitting in checking and savings to not worry about the float. I paid my property taxes for the entire year before Nov 1. I also like paying off credit cards before the statement closes, so that my bill is $0, which makes my credit utilization really low. I could have saved a few extra dollars by taking advantage of the grace period, but it's not worth it for me. Just a personal preference. In the past when I was living paycheck to paycheck, I used to pay bills close to the due date.

I do this too. Peace of mind and good enough pay better dividends on my time than chasing micro optimization strategies.

[Byron the other]

There seems to be little gain by delaying payments by say, two weeks. That simply shifts equal payments by two weeks each, meaning that the only "interest gain" one would have from delaying the payments in this way is the amount of interest on the initial payment for two weeks. Not enough for me to bother calculating given the length of time I intend to keep the house. As always, I would be happy if someone can point out a hole in my logic.

[MrJones]

There seems to be little gain by delaying payments by say, two weeks. That simply shifts equal payments by two weeks each, meaning that the only "interest gain" one would have from delaying the payments in this way is the amount of interest on the initial payment for two weeks. Not enough for me to bother calculating given the length of time I intend to keep the house. As always, I would be happy if someone can point out a hole in my logic.

Let's assume you earn interest in your savings bank account. The total additional time you're earning interest is 14 days (the delay per payment) x 12 payments, each year.

So savings is not just on the initial, it's on every single payment that's delayed.

[Cobra Commander]

I used to pay on time (before the due date) and then I totally got screwed by my mortgage company because they applied the payment to the balance rather than the next month's payment. It took a lot of work to straighten it out and they even told me to just pay after the due date to avoid this issue.

[the_wiki]

I did the math and assuming a twice monthly paycheck and a $2000/mo mortgage, you'd make about $86 total over the first 2 years delaying your payment 2 weeks. That's at 5%. if rates drop it would be even lower.

Does not seem worth the risk of messing up and getting a late fee or credit ding.

[corpgator]

I used to pay on the 1st until my mortgage company took out payment before a long holiday weekend when the 1st fell and before I had my monthly DD from my job. Luckily, I had enough in there to cover it, but I quickly switched to the 5th. I should have sued them since this is illegal and I'm on a VA loan, but I was going through a lot at that time and couldn't deal with yet another thing.

Based on this thread, I just pushed it back to the 14th.

[Byron the other]

There seems to be little gain by delaying payments by say, two weeks. That simply shifts equal payments by two weeks each, meaning that the only "interest gain" one would have from delaying the payments in this way is the amount of interest on the initial payment for two weeks. Not enough for me to bother calculating given the length of time I intend to keep the house. As always, I would be happy if someone can point out a hole in my logic.

Let's assume you earn interest in your savings bank account. The total additional time you're earning interest is 14 days (the delay per payment) x 12 payments, each year.

So savings is not just on the initial, it's on every single payment that's delayed.

Thanks for reminding me that I should never try to do math when I'm out for a run. You are absolutely correct that every month of payments on the 1st means another two weeks of lost interest on the payment amount. To pick a round numbers, a $1000 mortgage payment would mean $20 a year in my pocket if I delay payment and find a home for the money that earns 4%. If one also uses escrow for tax/insurance, the amount is even higher and will grow with time. At least here in CA an escrow account pays a minimum of 2% interest, which at times is higher than one can get in a simple savings account. My mortgage is a larger, "unround" number, but still not sure it's worth any worry that delays may incur.

[MrJones]

Let's assume you earn interest in your savings bank account. The total additional time you're earning interest is 14 days (the delay per payment) x 12 payments, each year.

So savings is not just on the initial, it's on every single payment that's delayed.

Thanks for reminding me that I should never try to do math when I'm out for a run. You are absolutely correct that every month of payments on the 1st means another two weeks of lost interest on the payment amount. To pick a round numbers, a $1000 mortgage payment would mean $20 a year in my pocket if I delay payment and find a home for the money that earns 4%. If one also uses escrow for tax/insurance, the amount is even higher and will grow with time. At least here in CA an escrow account pays a minimum of 2% interest, which at times is higher than one can get in a simple savings account. My mortgage is a larger, "unround" number, but still not sure it's worth any worry that delays may incur.

Agreed: in theory, one could minimize that risk by paying say, 12 days late instead of 14, but in practice, it's not a big enough amount to be clearly worth stressing over. And for most people, there's probably something else in life that's easier to optimize and save far more money on.

[MoreTaxes]

Does anyone pay their mortgage after the initial "due date", but before the end of the grace period, on a monthly basis?

My mortgage specifies when things are due, and they didn't put quotes around it from what I remember, so I made sure the payment was in on time. That's how I roll. YMMV.

[hedge_hog88]

The only reason I pay my mortgage after the DUE DATE (1ST) during the grace period (15th) is just so the auto-pull happens after my pay check gets DDed on the 1st. All of my billpay occurs between 1st and 15th. This way I can keep less fund in the account for the second half of the month.

For those that lecture OP about the so call due date, isn't reading the fine print a BH favorite past time? As long as there's no penalty (late fee or additional interest) what wrong with holding onto the cash for an extra week or two?
https://www.investopedia.com/terms/g/grace_period.asp

My question is WHY is there grace period, period? Is this due to the fact most people are paid biweekly and therefore not able to pay on the same day every month?

[exodusNH]

The only reason I pay my mortgage after the DUE DATE (1ST) during the grace period (15th) is just so the auto-pull happens after my pay check gets DDed on the 1st. All of my billpay occurs between 1st and 15th. This way I can keep less fund in the account for the second half of the month.

For those that lecture OP about the so call due date, isn't reading the fine print a BH favorite past time? As long as there's no penalty (late fee or additional interest) what wrong with holding onto the cash for an extra week or two?
https://www.investopedia.com/terms/g/grace_period.asp

My question is WHY is there grace period, period? Is this due to the fact most people are paid biweekly and therefore not able to pay on the same day every month?

I suspect most mortgages continue accruing interest during the grace period. Any extra interest earned in other accounts is likely negated by the extra mortgage interest.

The grace period likely exists to account for the interleaving of people's pay checks as well as postal and processing delays.

[Hyperchicken]

I suspect most mortgages continue accruing interest during the grace period. Any extra interest earned in other accounts is likely negated by the extra mortgage interest.

The grace period likely exists to account for the interleaving of people's pay checks as well as postal and processing delays.

That's not how it works. The interest stays the same.

[hedge_hog88]

I suspect most mortgages continue accruing interest during the grace period. Any extra interest earned in other accounts is likely negated by the extra mortgage interest.

Now you got me nervous and I have to go back and check my statements.

[MoreTaxes]

I suspect most mortgages continue accruing interest during the grace period. Any extra interest earned in other accounts is likely negated by the extra mortgage interest.

The grace period likely exists to account for the interleaving of people's pay checks as well as postal and processing delays.

That's not how it works. The interest stays the same.

Yes, several people above have made misstatements about this. Regardless of what day you pay, as long as you pay before the due date or within the grace period, the interest you pay each month is pre-determined and agrees 100% with the amounts you'd see in any amortization table you can generate in a spreadsheet or using an online calculator.

[Count of Notre Dame]

I suspect most mortgages continue accruing interest during the grace period. Any extra interest earned in other accounts is likely negated by the extra mortgage interest.

The grace period likely exists to account for the interleaving of people's pay checks as well as postal and processing delays.

That's not how it works. The interest stays the same.

Yes, several people above have made misstatements about this. Regardless of what day you pay, as long as you pay before the due date or within the grace period, the interest you pay each month is pre-determined and agrees 100% with the amounts you'd see in any amortization table you can generate in a spreadsheet or using an online calculator.

This is correct, at least for my Bank of America mortgage. I don't feel a moral obligation to pay on their suggested due date, just like I don't pay my property tax by the early fake deadline either.

[tonyclifton]

OP, what you described is how ThirdFederal works for mortgage payments. For me, the main advantage is that my mortgage is set to autopay and a portion of a paycheck is deposited into the ThirdFederal account. This grace period allows for factors like weekends and holidays that delay my check deposit. For ThirdFederal, as soon as enough money is in the account they take the withdrawal any time after the due day. I do not use this as a money optimizer or anything like that. Just some flexibility between when income arrives and the expense is due.

[InvisibleAerobar]

OP, what you described is how ThirdFederal works for mortgage payments. For me, the main advantage is that my mortgage is set to autopay and a portion of a paycheck is deposited into the ThirdFederal account. This grace period allows for factors like weekends and holidays that delay my check deposit. For ThirdFederal, as soon as enough money is in the account they take the withdrawal any time after the due day. I do not use this as a money optimizer or anything like that. Just some flexibility between when income arrives and the expense is due.

Does ThirdFederal have a grace period?

Also, how does ThirdFederal characterize the method by which interest accrues;specifically, does it expressly state that interest accrues daily (as opposed to monthly, which is the case for most mortgages)?