Struggling with Mortgage Payments? Here’s What You Can Do
It can be a scary feeling if you’re struggling financially and are worried about making ends meet. You most likely had no problem making your mortgage payments when you bought your home. But with rising interest rates and the rapidly increasing cost of living, many Canadian homeowners are now worried about paying their mortgage. It’s important to know that you have options and help is available. Here’s what you can do if you’re having trouble paying your mortgage.
What Happens if I Miss a Mortgage Payment?
If you’re going to miss a mortgage payment, the first thing you should do is contact your lender to discuss the situation. Most lenders in Canada will allow you a 15-day grace period to make the payment. If you don’t make arrangements, your lender will likely contact you and there could be a late fee. Your mortgage payment will officially be considered missed 30 days after the due date. Your lender could report this to credit bureaus, and your score may be impacted.
What is Defaulting on a Mortgage?
Your mortgage agreement is a contract that outlines the terms and obligations of your mortgage. A mortgage default means that you failed to meet one or more of the obligations established in your mortgage contract. The details can vary by lender, but most mortgages are considered in default if you miss three payments. Although there are a number of other ways to default on a mortgage. These can include:
- failing to have adequate insurance on your property
- failing to pay your property taxes
- taking out another mortgage on the property
- failing to keep the premises in a reasonable state of repair, and
- selling the property without the bank’s approval.
What are My Options if I Can’t Pay My Mortgage?
The Financial Consumer Agency of Canada (FCAC) is responsible for protecting the financial rights and interests of Canadians. FCAC expects banks and financial institutions to help individuals who may be struggling to pay their mortgages due to exceptional circumstances. If you have an existing residential mortgage on your principal residence and are unable to make your regular payments, you are eligible for support. Some options that may be available if you are having trouble paying your mortgage include:
- Short-term mortgage payment deferral
- Make reduced payments
- Extend the original repayment period (amortization)
- Credit insurance claim
What is a Mortgage Payment Deferral?
A mortgage payment deferral is a temporary measure that allows you to repay missed payments at a later date, plus any interest accrued. This agreement is for a specific period of time, usually up to 4 months. At the end of the deferral period, you must resume making your mortgage payments.
But be aware that deferring your mortgage payments could end up costing you thousands of dollars over the life of your mortgage. Because of the extra time and interest added, you’ll owe more money on your mortgage than before the deferral period.
Reduced Mortgage Payment Options
A forbearance plan allows you to make reduced payments for a set amount of time. This is another option to consider if you are dealing with a temporary setback. Your financial institution will arrange to recover your late payments over the shortest possible time frame you are able to accommodate.
You may also arrange to pay only the interest portion of your mortgage payments. With this option, you defer paying the principal. Your financial institution may allow you to defer your mortgage principal payments up to a maximum of $10,000. They will then require that you repay the deferred principal payments over a set amount of time, usually within 2 years.
Should I Refinance My Mortgage?
When you refinance your mortgage, you replace your existing mortgage with a new one. In order to reduce your monthly payments, you’ll need to extend your amortization period. This means you extend the length of your mortgage and as a result, the amount of interest you pay will also increase. This can add up to thousands or tens of thousands of dollars over the years. Refinancing can also have high fees, so you should discuss your options with your lender before going this route.
Can Mortgage Insurance Help?
Optional mortgage insurance can be obtained when you take out or renew a mortgage. This can include life, illness and/or disability insurance that can help cover mortgage payments if you lose your job, become critically ill, injured, or disabled, or suffer loss of life. There are almost always limits on the coverage that optional mortgage insurance provides. Always read your policy carefully and ask questions before purchasing these products.
It’s important to note that these optional products are different from mortgage loan insurance that you are required to purchase if your down payment on your home is less than 20%.
If you’re having trouble paying your mortgage, you’re not alone. But it’s important to take action quickly. Get in touch with your lender or mortgage broker as soon as you realize you may need help. Your lender is trained to help you deal with temporary financial hardships and get you back on the right track.