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Stopping mortgage payment. What are the consequences?

What happens if I stop making mortgage payments to my bank?

Unfortunately, the largest part of a household budget is usually the monthly property fees (mainly repaying capital and paying the interest on the mortgage). And these usually have the least flexible terms. A late payment on an electricity or cellphone bill may be manageable, but not being able to pay the mortgage can have serious financial consequences and cause enormous personal stress.

First, let’s look at what happens if you’re a little late (further below, we’ll talk about what happens if non-payments stack up). Then, we’ll look at how a second mortgage, from a private lender, can help save the day by saving your property!

Is skipping a mortgage payment serious? 

As a general rule, missing one monthly mortgage payment is not the end of the world. And remember that panic can lead to bad financial decisions. If you anticipate not being able to make a mortgage payment next month, don’t worry that bailiffs will show up at your door in two weeks to seize your home and expropriate you on the spot.

Most major Canadian financial institutions entitle borrowers to miss at least one monthly payment per year. So it’s best to get ahead of the problem and contact your mortgage lender as soon as possible to find out what options are available to you under the terms of your loan. If your financial worries are very temporary, you’ll face a few consequences, but nothing to lose sleep over.

What’s the impact on my credit file of missing a mortgage payment?

If you don’t inform your mortgage lender of the situation, an advisor will contact you in the days after the payment due date. The worse thing to do at this stage is to stick your head in the sand and not take the calls. Bank and credit union policies vary, but in general, a payment delay of 31 to 59 days will lead to a 2 rating. (Note that a rating of 1 means everything is in order). If the non-payment goes on 60 to 89 days, a rating of 3 will be recorded in your file. As soon as the rating on any type of account changes from 1, your overall credit rating will go down. Accumulating bad ratings can quickly make it more difficult for you to get financing from the large banks or even access some services. 

What are the financial outcomes of skipping a mortgage payment?

Even if your creditor allows you to skip a payment without serious consequences, it’s still not advisable because you’ll ultimately end up paying more interest. By missing a payment, you not only lose an opportunity to reduce your capital, but the unpaid interest will now accrue interest too.

If the situation recurs a few times during your loan period, these interest fees could add up significantly and lengthen your repayment period. Plus, most financial institutions charge $50 to $350 per payment returned for insufficient funds (i.e., “NSF”). These fees may be higher if your lender serves a higher-risk clientele. This includes, for instance, alternative or sub-prime mortgage lenders (also known as B lenders) and private lenders.

What happens if I totally stop paying my mortgage?

If you don’t make your mortgage payments for several months, your bank or credit union will first send you a “Préavis d’exercice d’un droit hypothécaire” / “Notice of exercise of a right of mortgage.” It advises you of your failure to meet your obligations and informs you of the actions the creditor plans to take if the situation is not resolved. You are given 60 days to take action and correct the non-payments mentioned in the notice. At this stage, your options are limited: you can quickly resume making your regular payments or give the property up to the lender for resale. 

But be careful: The sale of your home under judicial order by the creditor does not necessarily mean you’ll be released from the debt. If the home sells for less than your mortgage balance, the difference will become a debt to you. This scenario often happens to buyers who purchased their property with a low down payment.

Another option is for the lender to take the mortgaged property in payment. In this case, the bank takes possession of your home as full payment of the debt. In this situation, you will be released from the debt regardless of how much the property sells for. But this is far from ideal when your mortgage debt is much smaller than the value of the home because you then lose all your equity on the property.

In either case, a judge must make a ruling for the mortgage lender to take the property in payment or to sell it under judicial order. It can take a few weeks to a few months to obtain a ruling, depending on the courthouse where the case is handled.

What solutions are available if I can’t pay my mortgage?

When you foresee being unable to make mortgage payments for several months, selling the property is an emergency exit to consider before things get out of hand. In a seller’s market, resigning yourself to renting temporarily may be the option to take.

But, leaving a house and tackling the rental market is no picnic. Moving not only costs a significant amount of money, it can also impact our self-identity.

A private lender can give you a real leg up if you want to keep your home during a financially difficult period. By getting a second mortgage from a private lender, you’ll be able to get your head above water and catch your breath by securing the cash you need to resolve the situation with your first mortgage creditor.

Because Victoria Financial only requires payment of the interest every month, you’ll have time to get back on your feet without being overburdened by your fixed expenditures. You only have to repay the capital at the end of the loan period. You can even decide to pay off the interest in advance for the whole period, which would take additional monthly payments off your hands.

At Victoria Financial, our personal service makes it possible to get financing that sees beyond your financially tight period. Here are the major criteria to qualify for a second mortgage:

  • The property is a single-family home, a condo, a commercial or income building, or a lot.
  • The property is located in a serviced urban area.
  • The financing amount is 75% or less of the property value.
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