So What Happens if I Miss a Mortgage Payment?
That is a great question. Let’s examine that in today’s blog.
Since interest rates have been on the rise, home owners that own a variable rate have been susceptible to jarring monthly payment increases. A recent survey found that 1 in 5 Canadians say they are concerned they will not be able to make mortgage or rent payments if Canada enters a recession. When breaking it down by generation, the two highest groups of concern are millennials, at about 25% of people concerned, and Gen X, at about 27% of people concerned.
A missed mortgage payment can happen. It could happen because of financial restraints, but it could also happen because you forgot.
Grace Period
Most Canadian lenders will give you a 15-day grace period before your mortgage payment is considered to be missed.
While mortgage lenders can take legal action after the 15-day grace period, that rarely happens. What is more likely are the things below:
Late Fees
On your mortgage contract, there should be a charge that implies that you are late on your mortgage payment. This charge can usually be applied immediately and tends to range from $25-50.
Watch out for rolling late. If you missed your payment, and went ahead and made the payment the next month, you are still one payment behind and can be charged a late fee every time.
Credit Score
After 30 days, your missed payment will be reported to the credit bureaus. If you only have one late payment, it should not affect you too much in the long run, but a series of late payments can have detrimental effects, especially if you are overdue by a significant amount of days.
Go Into Default
Assuming you pay off your late payment within a quick period of time, you will not have to worry about this.
If you have not made the payment for your monthly mortgage statement by 30 days after the due date, your mortgage will go into default. This will hurt your credit score and can lead to foreclosure.
How Does Foreclosure Work?
In BC, it is known as a judicial sale or judicial foreclosure. It can be a lengthy process that goes through the court system over the course of up to six months, and results in the title of the house being transferred to the lender, who then keeps all the proceeds from the sale.
A few provinces (Ontario, Newfoundland, New Brunswick and PEI) do a “Power of Sale.” Power of sales begins with a notice sent by the lender that gives you 35 days to catch up on missed payments. If you get back on track, the process stops, but you will be on the hook for associated fees. If you do not correct your situation in 35 days, the transfer of ownership to the lender through power of sale begins. It does not go through the court systems and usually happens significantly faster.
After 30 days you will likely receive the first letter from your bank. Normally, after 90 days of missed payments, the final letter will advise you that foreclosure proceedings will begin. It is a lengthy and expensive process, so paying it off is in the best interest of you and the lender.
Tips To Help
Be Proactive
If you think you are going to miss a payment, contact your lender right away. They are more likely to strike a deal with you and lessen the consequences of a missed payment if you let them know beforehand rather than waiting until after you miss the payment.
Understand your Limits
In times like today, when recession fears are around everyone, people may feel more inclined to hold onto their money instead of spend. That can be a good way to have extra savings for emergencies; yes, missing a mortgage payment can be considered an emergency if you want it to be.
If you are tight financially, maybe put a plan into action for your next few months. Spend less money on things such as eating out and fun shopping, and focus your attention on picking up an extra shift or two. It happens to everyone where we must make a sacrifice, but trust us, if you stick with that plan, you will be better for it.
Conclusion
Late mortgage payments are not something you want to make a habit of. Mistakes happen and financial restraints change over time, but as long as you are consistent and stay within the scope of your contact, you will not have to worry about extra fees.
If you realize you will not be able to afford your mortgage, and that will not change in the near future, you may want to consult a lawyer or mortgage broker for advice. Foreclosure and bankruptcy are worst case scenarios, and selling may just be the best option for you.
Please reach out to us if you have any questions about mortgage payments, or anything at all that we can help you with!