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What Happens if I Miss a Mortgage Payment?

by | May 16, 2024

Missed Mortgage Payment

What Happens if I Miss a Mortgage Payment?

That is a great question. Let’s dive into the details in today’s blog.

With the current high interest rates, homeowners generally, but especially with variable-rate mortgages are experiencing significant increases in their monthly payments. Last year, a survey revealed that 1 in 5 Canadians worry they won’t be able to make their mortgage or rent payments if Canada enters a recession. Breaking it down by generation, the groups most concerned are millennials (25%) and Gen X (27%).

Now, this year, mortgage payments being missed are up 135.2% compared to last year in Ontario and 62.2% in BC. The problem is becoming worse and we want to make sure you are proactive and get through the situation as well as possible.

Understanding the Consequences of a Missed Mortgage Payment

A missed mortgage payment can happen for various reasons, from financial constraints to simple forgetfulness. Here’s what you need to know if you find yourself in this situation.

Grace Period

Most Canadian lenders offer a 15-day grace period before a mortgage payment is officially considered missed. During this time, it’s important to make the payment to avoid further consequences.

Late Fees

Once the grace period passes, lenders typically impose a late fee, usually ranging from $25 to $50, as specified in your mortgage contract. Be cautious of “rolling late” payments. If you miss a payment and only make the next month’s payment, you’re still behind by one payment and could incur additional late fees.

Impact on Credit Score

After 30 days, a missed payment is reported to the credit bureaus. A single late payment might not significantly affect your credit score, but a series of late payments can severely damage it, especially if you’re overdue by a significant number of days.

Foreclosure Process

Extreme cases can happen and it is important for us to review a foreclosure. In the case that you no longer have control of your property based on multiple missed payments, your property can move into foreclosure. The foreclosure process varies by province:

  • Judicial Foreclosure (BC): Known as judicial sale or foreclosure, this lengthy process goes through the court system, potentially taking up to six months. The title of the house is transferred to the lender, who then retains all proceeds from the sale and in doing so pays off all secured debts owing on the property (mortgage and/or line(s) of credit) and the legal and selling costs of the foreclosure process.  If the property sells below market price and if the property has an insured mortgage one can be sued for any remaining balance owing.   
  • Power of Sale (Ontario, Newfoundland, New Brunswick, PEI): This process starts with a notice from the lender, giving you 35 days to catch up on payments. If you don’t rectify the situation, ownership transfers to the lender without court involvement, usually happening more quickly.

Steps to Take If You Miss a Payment

While it’s always best to make your mortgage payments on time, missing a single payment isn’t the end of the world. If you do miss a payment, take immediate steps to prevent further damage to your credit score and financial standing.

  1. Address the Missed Payment: Contact your lender right away to explain your situation and make arrangements to catch up on your payments. You do not want to move into default
  2. Monitor Your Credit Report: Keep an eye on your credit report to understand the impact of the missed payment. You are entitled to one free credit report annually from each of the major credit bureaus (Equifax, TransUnion).
  3. Pay Your Bills on Time: Consistently paying all your bills on time can help improve your credit score over time. Set up automatic payments or reminders to ensure you don’t miss future payments.
  4. Reduce Your Debt: Work on paying down other debts to lower your overall debt-to-income ratio, which positively influences your credit score.

Remember, while it’s crucial to prioritize your mortgage payments, missing one payment doesn’t mean you should lose sleep over it. By taking prompt action and maintaining good financial habits, you can repair any minor credit damage and continue to build a strong financial future.

Seeking Professional Advice

If you recognize that your financial situation won’t improve soon, consult with a lawyer or mortgage broker. They can offer advice and alternatives to foreclosure, such as selling your home before the situation worsens.

Conclusion

Missing a mortgage payment is a serious issue, but with proactive steps and a clear plan, you can navigate through it. Consistency in payments and open communication with your lender are key to avoiding additional fees and protecting your financial health.

If you have any questions about mortgage payments or need assistance with anything else, please don’t hesitate to reach out to us. We’re here to help!

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