Question:

Can you tell me how to calculate late fees on my monthly mortgage payments?

Answer:

To calculate any late fee that you might incur on your monthly mortgage payments you need to have two things in front of you. These are:

  • Your amount of monthly payment
  • Your late payment terms
  • Your payment due date and grace period

You would obviously know your monthly payment and your late payment terms can be found in your mortgage agreement. The due date is usually the first of the month with a ten-day grace period, but it is possible that these conditions are different for you. Again, checking your mortgage agreement will help you answer this question.

Your mortgage agreement will tell how you are charged if you submit a late payment. Usually, it is only a percentage of the monthly payment and you can easily calculate it once you know what the percentage is.

Complications in Calculation of Late Fees

This seems easy enough, but difficulties arise when a late payment is not serviced for a number of months. That way more penalties may apply as per your late payment terms. This can also hurt your credit score pretty badly and cause higher interest rates to be charged to you in the future as you become a greater risk.

Let us take an example of this situation for clarification. Consider a loan with a monthly payment of $500, due on 1st of the month and a 4% late fee for first 2 months.

If for a month the payment is remitted late then that month the late fee would be:
4% x $500 = $20

Now, suppose next month a payment of $500 is submitted on time and the late payment terms specify that after two months of late payments another 2% penalty would apply.

In that case the total penalty would become:
$20 + 2%*$500 = $30

If you do not service the late payment for a month and submit regular payment on time it is still considered late, because your submitted payment would be considered short and failing to service a short payment results in a late payment fee.

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