Late Charge
Definition and meaning of Late Charge in real estate.
A late-charge is a penalty fee assessed by a mortgage lender or creditor when a borrower fails to make their monthly payment within the grace period. This fee is designed to encourage on-time payments and cover the administrative costs of processing late accounts.
In more detail
The terms of a late charge, including the fee amount and the exact length of the grace period, are detailed in the borrower's promissory note. Most residential mortgages feature a grace period, typically running until the fifteenth day of the month. If the payment is not received by the end of this period, the lender adds the fee to the outstanding balance.
Accumulating late charges can make it difficult for borrowers to catch up on their payments and may lead to default. Additionally, payments that are over thirty days late are reported to credit bureaus, which can severely damage the borrower's credit score.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Typical grace period | Typically ten to fifteen days |
| Typical fee amount | Varies, often four to five percent of the payment |
| Governing document | Promissory note |
Because the homeowner forgot to mail their mortgage payment until the twentieth of the month, the bank charged them a late-charge equal to a percentage of their monthly principal and interest payment.
Frequently asked questions
Will a late charge hurt my credit score?
A late charge itself does not affect your credit score, but if your payment is more than thirty days late, the lender will report the delinquency to credit bureaus, causing your score to drop.
Can I get a late charge waived?
Lenders may waive a late charge as a one-time courtesy if you have a history of on-time payments and contact them immediately to explain the situation.