Does a Late Mortgage Payment Harm the Chance to Refinance?

Mortage Rates

The interest rates available to a prospective lender depend on a variety of factors, perhaps the foremost of which is the lender's credit score. This credit score is derived using information about how successfully a borrower paid back his loans. If loans are paid back late or not at all, his credit score will decline. Borrowers with lower credit scores are at a higher risk of defaulting on a mortgage. That means they typically must pay higher interest rates.

Late Payments

A late mortgage payment will almost certainly cause a person's credit score to decline. The larger the size of the missed payment and the longer the payment remains delinquent, the steeper the credit score's decline. In addition, other delinquent debts will hurt a borrower's credit score. Any prospective lender who looks at a borrower's credit report will know that the borrower was late making a mortgage payment, because it will list the late payment.

Refinancing Rates

When a person seeks to refinance his mortgage, he will apply for home loans in the exact same way he did when he was seeking to take out a new mortgage. However, the primary difference is lenders will now look not just at his financial status and credit history, but his record paying back his current mortgage. The fact that he was late making a payment could hurt the borrower's chances of receiving favorable rates, even if his credit score is healthy.

Considerations

The exact effect of a late payment will depend on a number of factors, including the lateness of the payment and when the late payment occurred. Negative information such as late mortgage payments, can only stay on a credit report for a maximum of seven years. So, if the late payment occurred more than seven years ago, the lenders to whom the borrower applies for a new mortgage may not even know the late payment occurred.