Mortgage Payments Skipped in Good Times, Too

Not too long ago, conventional wisdom seemed as bankable as fact: Americans pay their mortgages. In the midst of a financial crisis triggered by too many Americans failing to pay their mortgages, we know that is no longer true.

But was it ever? A new study released by Equifax, the consumer credit rating agency, finds that even in good economic times, Americans were less diligent about paying their mortgages than was commonly believed. Researchers studied thousands of consumers who received mortgages in 2002 and 2005. They found that among people who missed two mortgage payments over a two-year period, 26 percent never missed a credit card payment, and 59 percent kept a spotless record of car loan payments.

“It’s been sort of folklore in the industry that people always pay their mortgage or auto loan first,” Myra Hart, a senior vice president at Equifax, told The New York Times. And it’s not just the unsophisticated or the poor who fall behind. The people who let their mortgages slip before their car loans tended to have higher credit scores than other borrowers, Hart told the Times.

Skipping a mortgage payment to pay other bills makes some sense in the short run. People depend on their credit cards to continue buying food and other necessary expenses, Hart said, and they need their car to get to work. The foreclosure process takes a long time, so missing a mortgage payment won’t cause immediate pain. But in the long run, skipping a mortgage payment can wreak far more havoc on a consumer’s credit rating than a late credit card bill, Jeanne Kelly, president of the Kelly Group credit counseling service, told the Times.

Of course, missing any credit payments is a bad idea.
“(A)ny 30-day late payment has a dramatic effect on your score,” Kelly said. “It can drop you up to 100 points.”

If your finances are so tight that you’re considering whether to stop paying your credit card, car loan or mortgage, consider these factors:

• Can you sell your car and get something smaller and cheaper? Resale values on trucks and SUVs are falling, so maybe not. But if you drive a BMW sedan, consider trading it in for a Chevy.
• Do you have expenses you can avoid to bring down your credit card bill? Maybe shop at a discount grocery store, have your friend cut your hair and do your nails at home.
• Missing a mortgage payment may save you a few hundred dollars now, but cost you thousands in future years because banks will charge you more to borrow money––definitely something you want to avoid.

Comments

[Credit-Helper]

I agree that it is never a good idea to miss a credit payment of any kind, but the temptation is definitely real since the amount of a mortgage payment is generally much higher than for a car payment and the effects are so far off.

If you aren't planning on selling, refinancing, or buying a new home for the next few years it is clear why someone might risk a hit on their credit to save some money in the short run.

[Jim]

I'm amazed that people don't grasp the priority behind basic needs. Food comes first, it's a basic thing required to survive. Shelter or your house payment should be the next most important priority. Making sure the lights and heat still work is important too. The car is the next most important thing on the list. Making sure you can keep yourself alive, safe, and mobile is far more important than what missing a credit card payment will do to your life. Credit card companies cannot take anything from you unlike a secured loan for a house or vehicle. It's beyond me why anyone keeps their credit cards current before any of the basics are met.