You might be feeling stressed because you can’t pay your mortgage, or you might be worried because you’re about to miss a payment. You’re not alone. Most who end up in this situation never imagined they would be here.
Life can be unpredictable. Rising expenses, changes in income, unexpected health challenges, or family issues can derail even the best-laid plans. Missing a mortgage payment can be frightening and overwhelming, but it’s important to understand that missing a payment doesn’t mean you will lose your home right away.
In this blog, I’m going to walk you through what happens if you can’t pay your mortgage, what terms like “Delinquency” and “power of sale” mean, and what steps you can take to protect yourself or your loved ones.
What Happens When You Miss A Mortgage Payment?
Grace Period
I suggest going beyond a basic Google search or ChatGPT when researching this, because what you may find is that grace periods come without penalty, which isn’t true.
Most lenders offer up to 15 days, but you will be considered delinquent and charged a late fee. Always speak with a mortgage professional, as each lender’s process can differ. Many lenders offer payment plans, and the Financial Consumer Agency of Canada (FCAC) expects banks to assist individuals who may be struggling to pay their mortgages due to exceptional circumstances.
After 30 Days
Most lenders will attempt to contact you to request payment to keep your account in good standing. At this point, they will report your delinquency to the credit bureau, which can cause a significant hit to your credit score (up to 100 points). This credit hit can remain on your record for up to 6 years.
According to Shant Kaltakjian, Mortgage Broker at Dominion Lending Centres Mortgage Watch, “borrowers at all costs should try to avoid having a late payment on their mortgage.”
After 60 Days
Lender contact typically comes from legal or collections departments. You can expect to receive demand letters outlining the consequences of non-payment. It is essential to take action and communicate with the bank before this point.
At this point, banks will begin charging their legal fees to the outstanding balance, and these fees can add up quickly. Additionally, if you wait too long to act, the lender may no longer be willing to work with you, forcing you to seek alternative financing or sell your home under a power of sale or foreclosure (though foreclosure is rare in Ontario).
Thinking you may need to sell your house? Explore these other blog posts for more advice.
Worried About Not Paying Your Mortgage? Take Action!
Don’t let overwhelm, shame, or fear stop you from acting. The consequences can be dire. A few years ago, I received a call from a client seeking advice. He shared numerous bank notifications. The bank was in a position to sell his home under the power of sale within the week.
Reviewing the notifications, it became clear that if he allowed the house to be sold under power of sale, the bank fees would consume almost all of his remaining equity. The homeowner granted me written authorization to negotiate with the bank’s lawyer to reach a solution.
I negotiated a one-week extension to list the home. We were sold firm within a week. He walked away with his equity, which he used to secure a rental, and he put the remainder into retirement savings. The bank was also pleased, as they received their funds faster, and the mortgage was paid in full. Upon reflection, he wished he’d acted sooner and saved himself the months of stress.
I recently worked with another client in a similar situation. I connected him with a trusted mortgage broker I’ve used, Shant Kaltakjian, of Dominion Home Lending Centre, who secured financing from an alternative lender for his transaction. In this situation, we had enough time to formulate a plan and help him before he lost his home.
What is Power of Sale?
A power of sale is a provision in your mortgage contract that authorizes your lender to sell your property if you default on the loan. It’s a legal process governed by the province.
In a Power of Sale, the lender takes control of the property to sell it on the open market. It’s important to note that during a power of sale, the homeowner remains the owner of the property, and there is still time to act to keep it if you can secure alternative financing.
Power of Sale vs Foreclosure: What’s the Difference?
Power of Sale
- You own the home, and are entitled to the proceeds.
- Driven by the lender.
- Typically takes less than 6 months.
Foreclosure
- The lender owns the home and is entitled to the proceeds.
- Typically takes more than a year.
- Driven by court proceedings.
What if You Have No Equity Remaining In Your Home?
If you have a mortgage that is more than the value of your property, that’s known as negative equity. Before you proceed with selling your home, you need to know and understand all the numbers.
Costs you must consider: mortgage and any penalties, real estate fees, lawyer fees, and, if you have any liens against the property. You will need sufficient funds to cover closing costs to avoid breaching the contract with your buyer.
Step One: Talk to Your Lender
Your first step should be to speak with your lender to determine which loans or financing options are available to you to cover any shortfall. By doing this early, you and your lender may be able to identify a good solution.
If you aren’t able to work out a solution with your lender, you may need to investigate credit counselling to see what your options are.
Also, speak with a trusted realtor to get a market evaluation. This will help determine the amount of negative equity. Depending on the amount of negative equity, you may be able to secure a loan or line of credit to cover the shortfall, close the sale, and continue paying the balance.
Searching for more senior-focused real estate advice? Read these blog posts next!
- Condo vs. House – What’s Better For Seniors?
- When Should Seniors Sell Their Home?
- What Seniors Need to Know About Downsizing for Retirement
Special Considerations for Seniors
- Seniors may have fewer financing options due to their fixed income.
- Seniors may be more resistant to change.
- Accommodation concerns because of income or health, and mobility requirements may delay a decision to act.
- Get support. It’s always great to have someone in your corner. Having a go-to person helps with reducing stress and overwhelm.
Work with a Senior Real Estate Specialist
An SRES has the skill set and network that a regular realtor may not have. They can advocate for you, help you stay in control, and maintain dignity over your circumstances.
If you or a family member is concerned about financial peril with your home, an early, informed conversation can make all the difference. A plan today often prevents a crisis tomorrow. If you’d like to talk through what’s happening and explore your options for your next chapter, I’m here to help.
Think you may need to sell your house? I’m here to help! Reach out to 647.283.2127 or email stuart@stuartnodell.com to start a conversation.
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