With a steadily increasing cost of living in Canada paired with rising interest rates, it is easier than ever to have a missed mortgage payment. You may be worried about the consequences of having one. Does it, for instance, put you at risk of losing your home? While a single missed mortgage payment is unlikely to mean you would lose your house, it is important to act quickly to maintain control. While mortgage payments happen for a number of reasons, the sooner the situation is addressed, the better. In this article, we share the consequences of a missed mortgage payment, and how you can manage the situation moving forward.
What happens if you have a missed mortgage payment?
Although mortgage lenders are technically able to pursue legal action following the 15-day grace period for making your mortgage payment, very rarely do they do so. Typically, the following process will take place when you have a missed mortgage payment:
- You will be charged late fees. Your mortgage contract will define any late charges you may incur in line with your mortgage. Late fees usually range from around $25 to $50, and can be incurred as soon as the mortgage payment is missed.
- Your credit score may be impacted. 30 days after your missed mortgage payment, it will be reported to the credit bureaus. In Canada, there are two primary credit bureaus – Equifax and TransUnion. Each credit bureau has its own way of calculating your credit score, but your payment history is an important factor. The more your payment is overdue, the more negative the impact on your credit score. Once a missed mortgage payment has been reported to the credit bureaus, it will remain on your credit report for up to seven years.
- You may go into default. If your payment has not been made by 30 days after your due date, your mortgage will go into default. This can have serious consequences, including a negative impact on your credit score, and even foreclosure in some cases.
- You could lose your home. As a mortgage is a secured debt, your home is used as collateral. When payments are not made in line with the mortgage contract, the home can legally be repossessed so that the lender can sell it to recoup their lost payments. This process is known as foreclosure, and is slightly different depending on your province of residence. Foreclosure often takes a long time, and the proceeds of the sale go directly to the lender. Power of sale, on the other hand, is a slightly different process. In a power of sale, you are issued a notice by the lender to allow you up to 35 days to make your missed mortgage payment. If you can catch up, the process ends here aside from any late fees and an impact on your credit score. If you cannot make your missed payment, transfer of ownership to your lender begins and power of sale begins. The process of power of sale is much quicker than foreclosure.
How long before a payment becomes a missed mortgage payment?
In Canada, most lenders will allow you a 15 day grace period in order to make your missed mortgage payment. After this time period, your mortgage payment is officially considered missed. Usually, you will only incur late fees after this grace period. If your payment has still not been made after 30 days since the date it was owed, your lender will report the missed mortgage payment to the credit bureaus. This is when you will begin to face consequences for missing your payment. If you miss a mortgage payment one month, and continue to pay the following month, you are not regarded as back on track. The next month’s payment would be considered a late payment of the one you missed. Unless you are to make two payments to make up for the one you missed, you may find yourself in a ‘rolling late’ situation. This means that every payment you make after the one you missed is considered to be a late payment. You will be charged late fees each month, and it can have a negative impact on your credit score. In order to avoid a rolling late scenario, you should try to get back on track and make your missed payment as soon as you can. Contacting your lender immediately can often help.
How many mortgage payments can you miss before foreclosure?
The process of foreclosure in Canada is lengthy and expensive. For this reason, it is very unlikely for any lender to begin this process when a single mortgage payment is missed. When you stop making your mortgage payments and your mortgage is in arrears, you can expect to receive letters from your lender after 30, 60, and 90 days. If you fail to respond to these letters, the process of foreclosure (or power of sale) will likely begin. When a borrower fails to make their mortgage commitments in line with their contract, they will be considered in default. At this point, the lender is able to act to sell the property. You could continue to live in the property without making your payments for a period of time while your lender takes the actions needed to sell the property. This also means that you will have no input in the proceedings so they can move ahead without your consent. It also means you could get very little notice if the property is sold, and you may need to leave your home earlier than you hoped. For these reasons, it is best to work with your lender to come to an agreement where possible.
What to do if you think you will miss a mortgage payment
With increasing prices and a rising cost of living, it is increasingly likely many Canadians will miss a mortgage payment in the coming months. If you find yourself in this scenario, the best thing you can do is to be proactive. If you think you will miss a mortgage payment, get in touch with your lender right away. They are more likely to help you and will be less severe on the consequences if you let them know in advance, instead of waiting until you have missed the payment. After you have done this, you should look to make a payment as soon as you can. Your lender may allow you to make a late payment, or they could even work with you to create a repayment plan. They could consider a longer amortization period to give you lower monthly payments, or may help you explore refinancing or a second mortgage. If you have had a significant shift in your finances and are concerned you will not be able to afford your mortgage, you should consult a mortgage broker or a Licensed Insolvency Trustee for advice. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. They will work with you to review your financial circumstances and understand why you are struggling to make your mortgage payments. If required, a form of debt relief may help you to free up your funds to enable you to make your mortgage payments on time and to keep your home. Consumer proposals can reduce your debt by up to 80%, while allowing you to keep your assets. Both foreclosure and bankruptcy are last resort options, so if you feel foreclosure may be coming, it might be best to sell the property instead.
If you are worried about a missed mortgage payment, book a free consultation with Spergel. Our experienced Licensed Insolvency Trustees will review your financial circumstances and advise you on a form of debt relief that will free up your funds to enable you to make your mortgage payments on time each month. We have helped over 100,000 Canadians become debt free. Reach out today – you owe it to yourself.