It is no secret that many Canadians are experiencing financial hardship these days and this can directly affect their ability to make their monthly mortgage payments. Whether it is due to Covid lockdowns, job loss, rising food and energy costs, or for other reasons, knowing what to do when you can’t make your mortgage payments is crucial for any homeowner. In this blog we discuss what usually happens when you can’t make your mortgage payments and what options are available for Canadians facing a mortgage crisis.
Your Mortgage Payments Go Into Arrears
According to the Canadian Bankers Association (CBA), missing three consecutive months of making your mortgage payments means that your mortgage has gone into arrears. While some lenders can be more lenient than others, in most cases, having your mortgage in arrears signals to the lender that you are breaching the contract signed between yourself and your financial institution, and this is not a good thing. As such, lenders usually do two of the following:
- The lender forecloses on your property: this usually involves the lender suing the homeowner for the possession of the property as a result of owing mortgage payments. Courts are involved and the lender can simply sell your property, unless you can come up with the money that you owe prior to the foreclosure finalization.
- The lender can apply the power of sale on your property, which means that the lender sells your home without taking possession of it. Power of sale is usually what lenders opt for since the courts are not involved and the process is short and less costly. In some cases, homeowners can receive money under power of sale when your sold home covers all of your debts owed to the lender and there is still money left over.
Figure Out What The Issue Is
Most homeowners don’t fall behind on their mortgage payments on purpose, but unforeseen circumstances in life can make this happen, with Covid serving as a perfect example of this. Maybe having accrued too much debt is the issue, or a recent job loss disrupted your cash flow and as a result you can’t make your monthly mortgage payments. Whatever the reason, knowing what the issue is can help you make steps to remedy your mortgage crisis. Perhaps your lender can consolidate your debt to bring down interest, or offer you a mortgage deferral option so that you can keep your home until you can get a new job.
Mortgage Deferral
A mortgage deferral in Canada allows homeowners to delay making their monthly mortgage payments, including principal, interest and property taxes, for up to six months. During this period, your interest will continue to accrue, but it will allow you to have a much needed immediate cash flow. Also, a mortgage deferral should not negatively impact your credit score as it is not supposed to be reported to credit bureaus. During the Covid pandemic, mortgage deferrals became popular with Candains, as more than half a million homeowners opted for this payment relief program offered by the big banks.
What is important for homeowners to understand is that a mortgage deferral option does not cancel or eliminate any amount that is owed on your mortgage. At the end of the six month period, your mortgage payments will be slightly higher as you resume paying off your mortgage plus the deferred amounts accrued. Sure, a mortgage deferral is not ideal as you will ultimately pay more for the life of your mortgage, but it can help you with immediate cash flow needs so that you don’t lose your house entirely.
It is always a good idea to contact your mortgage lender immediately if you are experiencing financial troubles so that you can keep your home and have peace of mind.
Contact us today to find out how we can meet your unique real estate needs and get you in touch with a mortgage specialist.
