Mortgage payments in arrears: what you should do

Posted on 27 November 2021

Written by Gillian Goldblatt

The pandemic has not done a lot to help Canadians over the past couple of years – in fact, many individuals have lost out on income and become unemployed. Mortgage lenders acted quickly initially, allowing homeowners to defer their payments to avoid having mortgage payments in arrears. This proved to be a welcome payment holiday for many Canadians who were unable to work. This payment holiday, however, inevitably ended by early 2021. As a result, many homeowners have been struggling to keep up, resulting in mortgage payments in arrears. This in turn can lead to taking out additional credit in order to pay for mortgages, which can have further consequences. Coupled with rising property prices in Ontario and beyond, it is no wonder so many Canadians are ending up with mortgage payments in arrears. In this article, we explain what action you should take if you have mortgage payments in arrears.

What does it mean to have mortgage payments in arrears?

When you fall behind on your scheduled mortgage debt payments by missing them, you go into mortgage arrears. This is when you still owe money for the mortgage payments, but it becomes more difficult to keep up with them and new payments become owed. In Canada, most lenders will consider you to have mortgage payments in arrears if you miss three payments or more. In this scenario, your lender has two options – power of sale and foreclosure:

  • Power of sale – your lender can evict you from your property if you are in default, and sell your property. Once the sale has gone through, you are owed any money left over once your mortgage has been paid.
  • Foreclosure – your lender takes on the title of your property. If this happens, they are then the owner and are entitled to keep any profits from the sale of your former property. Foreclosure does take much longer than power of sale, so it is usually a last resort for lenders.

If you owe condo fees or realty taxes, your lender may pay them off in your behalf and then add the payments to your mortgage principal balance. Of course, your lender’s favourite option is for you to repay your mortgage. In most instances, it is possible to work with your lender to find a compromise to work to pay off your mortgage payments as quickly as possible.

How long can mortgage payments be in arrears?

Generally speaking, a lender technically only needs to wait just 15 days after a missed mortgage payment to kick off the power of sale process. During this period of time, you have an opportunity to pay any missing payments you owe. Despite these technicalities, lenders will not usually begin the foreclosure process until around 3-6 months of missed mortgage payments. If you are struggling to make your payments, it is important to communicate with your lender as soon as you can so that they are aware and do not automatically take action.

How do you deal with mortgage payments in arrears?

There are a number of ways to handle mortgage payments in arrears, but you need to act quickly. Acting as soon as you can should prevent further consequences. It is a good idea to reach out to a reputable Licensed Insolvency Trustee. Also known as bankruptcy trustees, they are the only professionals in Canada legally able to file all forms of debt relief. They are well placed, therefore, to help you no matter what your circumstances are. While secured debts – including mortgages and cars – cannot be cleared, a trustee can offer credit counselling and help you to clear other debts that may free up your ability to make your mortgage payments. There are three main ways to deal with mortgage payments in arrears:

Refinance your mortgage

It is worth seeing if other lenders are willing to refinance or modify your current mortgage. In the best case, this could be with a longer term or with a lower interest rate to make your repayments more affordable. Before you make any new agreement, you really need to know if you will be able to make these repayments, as you do not want to be in the same situation twice. High-risk lenders may charge you a higher rate, so this may not work for everyone.

Sell your property

One advantage of the rising property market may be that if your home is worth more than your mortgage, you could sell. This could even mean you no longer need a mortgage and you could have money left over for another property. Do not forget the costs of moving to another property. There are real estate agent fees and land transfer taxes to bear in mind with any purchase. You can only sell if your lender has not foreclosed or completed power of sale already.

File a consumer proposal

A consumer proposal may be a great way for you to restructure your debt. Consumer proposals can reduce your debt by up to 80% for any debts like credit card debt, payday loans, tax debt, and so on. Having your unsecured debts handled can make paying off your secured debt including your mortgage much easier. You will need a Licensed Insolvency Trustee to file a consumer proposal. At Spergel, our consumer proposal applications have a 99% acceptance rate.

Should you take out credit to keep up with your mortgage payments?

It is natural to want to prioritize your mortgage payments over other debts in order to keep your home. One thing to be aware of is taking out other types of credit in order to keep up with your mortgage payments. You should note that you will still need to pay back this additional credit. In fact, this can escalate and make your debts more unmanageable, making your mortgage payments even more difficult to repay. This can also make it difficult to refinance your mortgage, as additional debt will impact your credit report. Before you consider taking out additional credit, you should speak to a reputable Licensed Insolvency Trustee. Book a free consultation with Spergel – we have been helping Canadians become debt free for over thirty years, and we are here to help you too.

If you have mortgage payments in arrears, you should try to control the situation before your lender takes action. Speak to a Licensed Insolvency Trustee as soon as you can to help with your unique financial circumstances. Book a free consultation with Spergel today – we will recommend the best way of handling mortgage payments in arrears and beginning a fresh financial future.


Gillian Goldblatt

Gillian Goldblatt is a Chartered Professional Accountant and Insolvency and Restructuring Professional. She is also an award-winning LIT (Licensed Insolvency Trustee) and Vice-Chair of the Ontario Association of Insolvency & Restructuring Practitioners Board. As Spergel's resident expert on debt consolidation and financial literacy, you can find Gillian being interviewed regularly on popular Canadian news programs when she's not at the office helping individuals and businesses get back on track.

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