Dealing with missed mortgage payments can be really stressful. Addressing missed mortgage payments in Canada quickly and finding the right solutions can help you get back on track. Here’s a simple guide to understanding and dealing with missed mortgage payments in Canada.
Understanding Mortgage Default Rates in Canada
As of the end of Q1 2024, Equifax reports that mortgages over 90 days past due have exceeded $1 billion in Ontario. Toronto, in particular, has seen a 50% increase in delinquency rates quarter over quarter. Despite these alarming figures, many delinquent mortgages do not progress to Power of Sale. Much depends on how a borrower manages the situation. Let’s explore the life cycle of mortgage enforcement.
What Happens When You Miss a Mortgage Payment?
When you miss a mortgage payment, it’s important to act quickly to avoid serious consequences. Here’s what you can expect:
Immediately After the 1st Payment is Missed
When you miss a mortgage payment, lenders usually give you a grace period of about 15 days before they start taking action. During this time, you might get:
- Emails and Follow-up Calls from the lender about Non-Sufficient Funds (NSF) or bounced payments.
- Demand Letters from the lender’s law firm requesting payment remediation.
At this stage, most lenders will charge an NSF fee, and if a Demand Letter is sent, legal fees may also be incurred. This is a good time to look at your cash flow situation and think about refinancing options if you have enough equity in your property.
15 Days After the 1st Payment is Missed
If you still haven’t paid after 15 days, the lender might start legal actions. You could get a Statement of Claim or Notice of Sale. This is when many people start to panic, worried about their home being sold. However, you usually have at least another 30 days to fix the situation. The severity and speed of legal action depend on several factors:
- First-Time vs. Repeated Late Payments: If this is your first missed payment, many lenders will work with you to create a payment plan. But if you’ve missed payments before, they’re more likely to take legal action.
- Bank Lenders vs. Private Lenders: Private lenders tend to act faster than banks. Banks might wait 60 days before starting legal actions, while private lenders might act sooner.
- Court Processing Time: It can take anywhere from 45 days to 6 months for the courts to process claims, depending on how busy they are.
During this time, it’s crucial to communicate proactively with your lender to explore temporary hardship programs or payment arrangements while seeking refinance options.
Can a Missed Mortgage Payment Affect My Credit Score?
Since mortgage payments are reported to the credit bureaus, a missed payment can hurt your credit score. The exact impact depends on your credit history, but a 30-day late payment can have serious consequences.
This is because your payment history has a strong weighting in calculating your credit score. Equifax weighs payment history at around 35% of your credit score. However, the overall factor is calculated considering how late your payments are, the amount owed, and how often you miss payments.
This means a one-off missed payment settled immediately won’t drop your score as significantly as a history of missed payments. Lenders in Canada generally don’t report a payment until it’s 30 days late. However, once reported, it can remain on your credit score for up to seven years.
Learn how you can boost your credit score fast: Five Steps to Boost Your Credit Score Fast
Will I Lose My Home If I Miss a Mortgage Payment?
Losing your home from a single missed payment is very rare. Most lenders will work with you to get caught up before initiating foreclosure, given that it’s an expensive legal process. Depending on your province, the process could take up to six months.
However, provinces with a power of sale process can foreclose your home within 35 days after sending a notice.
Here’s a comparison of the two types of foreclosure processes in Canada:
Key Factors to Consider When Refinancing a Mortgage in Arrears
Refinancing a mortgage in default involves lower loan-to-value (LTV) ratios and other considerations:
- LTV Less Than 65%: If LTV is below 65%, lenders may include a 6-12 month interest reserve in the loan to alleviate the interest burden and assure repayment.
- Exit Plan: Establishing a 12-24 month exit plan is crucial. This could involve saving, selling the property when market conditions are favorable, or finding additional income sources.
- LTV More Than 80%: Securing a rescue mortgage at 80% LTV or higher is challenging if the existing loan is in default.
When Is It Too Late?
Recognizing when it’s too late is essential:
- After Lender Takes Possession: Once a court order is issued and the borrower is evicted, it’s usually the “point of no return.”
- No Equity in the Property: If the LTV is too high, it may not be feasible to secure a refinance. Obtaining an up-front appraisal can confirm the equity before investing time and energy.
Tips for Borrowers Facing Mortgage Default
Mortgage defaults are expected to rise with over 75% of outstanding mortgages renewing by 2026. Here are some tips:
- Have realistic expectations: Equity is important in determining mortgage solutions
- Seek help from family members: Family members with significant equity can often assist in refinancing.
- Be transparent with your lender: Disclose the default status upfront to get accurate responses and proper solutions.
- Consult experts: If unsure, consult with an experienced mortgage broker like Effortless Mortgage to determine the best course of action.
Useful Resources
- Tangerine: You Missed a Mortgage Payment. Now What? – Find out what to do if you miss a mortgage payment and how to communicate with your lender.
- RBC Thought Leadership: More Canadians to fall behind on debt payments—but most will manage
- Global News: Ontario, B.C. mortgage-holders increasingly missed payments in Q4, Equifax says.
Working with Effortless Mortgage
Your proactive involvement can significantly impact your financial well-being. By understanding the intricacies of mortgage enforcement and providing timely solutions, you can navigate through challenging times and build a stronger, long-lasting financial foundation.
Effortless Mortgage collaborates with over 60 B lenders and private mortgage lenders, offering a wide range of options to suit different financial needs. Here’s why working with a broker like Effortless Mortgage is advantageous:
- Expertise: We have the expertise to navigate the complexities of B lender mortgages.
- Access to Lenders: With a vast network of lenders, they can match you with the right lender for your specific situation.
- Personalized Service: They provide personalized service, ensuring that your mortgage fits your financial goals and circumstances.
