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The Holidays and Your Mortgage

The Holidays and Your Mortgage
Have yourself a wonderful holiday season – but don’t do it at the expense of your mortgage.
By Kirk Haverkamp - MortgageLoan.com

Mortgage delinquencies and missed payments often spike after Christmas because people have spent so much on gifts and holiday indulgences that they don’t have enough left over to pay all their bills. It’s nearly always inadvertent – the little expenditures keep adding up until they suddenly realize they don’t have enough left over to make that big mortgage payment that’s due every month.

The trap that some people fall into is that they decide to skip or be late on just one mortgage payment. Yes, they’ll take a hit on their credit, they may figure, but maybe their credit is already dinged a bit, or perhaps with the mortgage in hand and a decent car in the garage, they figure they can afford to get marked down a bit. And a $35 late fee may seem like an ok price to pay for a little financial flexibility.

What these people don’t take into account is how difficult it can be to get your mortgage payments back on track once you start falling behind. Even worse, some assume that, as long as they make their next month’s payment on time, they’ll only have one late payment on their account. That’s not how it works.

What happens is, if you miss your January mortgage payment, that payment is still due until you make your next payment. So if you make your next payment in February, as scheduled, that is credited as your late January payment. If you don’t make another payment to cover your February obligation, your February payment is considered late and you get hit with another late fee, and ding to your credit.

This keeps happening every month until you bring your account current – so your “one-time exception” can end up costing you a ton of money, as well as doing some significant damage to your credit rating. You’re probably better off paying late fees and hefty interest rates on your credit card bills, if it comes down to needing to choose between the two, since you can at least cut off any additional spending on them and gradually eliminate the debt.

Better yet, don’t get into that position in the first place. There’s still time to take stuff back if you’ve overspent this year.

Another mistake that some people make, though it’s less common than it used to be, is tapping into their mortgage equity to get money for Christmas spending. This is particularly tempting when you have a Home Equity Line of Credit (HELOC) that makes borrowing modest amounts relatively easy. Others may look to a regular home equity loan to pay for a really big gift, like one of those luxury cars with the big bow on top like you see in the advertisements.
There is certain logic to borrowing against your home equity for certain debts – mainly because an interest payment on mortgage debt is tax-deductable. So if you’ve got a lot of equity in your home and you’re planning to pay off the new debt fairly quickly, it can make sense to use a home equity loan for a major purchase like a car, rather than taking out a conventional loan. But with interest rates as low as they are that argument loses much of its merit.

The broader problem is that it can get you into the habit of borrowing against your home equity, so that you’re always using your home as a piggy bank rather than paying off your mortgage. This can be a particular temptation for people who have their home about half paid off and are feeling flush.

The collapse of the housing bubble, when a lot of people got into trouble because they had borrowed too much against their home equity, was supposed to have cured people of such things, but it’s easy to fall back into bad habits once things start looking up again.

Gary Umholtz with RPM Mortgage can be reached at (707) 343-9510 or gumholtz@rpm-mtg.com for a no obligation consultation.