Most Canadians dream of owning a home. A place they can settle into and call their own. But what happens when you find yourself struggling with mortgage payments? This situation can cause significant stress and anxiety, especially considering how it could impact your credit and financial future.
It is important to remember that you are not alone. There are options available to help you through this challenging time. This article explores practical steps you can take if you cannot make your mortgage payments. So, whether you are a young or seasoned homeowner, this guide will provide helpful insights and actionable advice to help you regain control of your finances and protect your investment.
Prioritizing your bills
If you are having difficulties paying your mortgage, you must prioritize your bills to minimize any negative impacts on your health, safety, finances, and credit. Some steps to help you do this effectively include the following:
- List expenses: List all your monthly expenses, including housing, utilities, debt payments, and other essential costs. This will help you understand your financial position and where to cut back or negotiate new terms (Equifax, n.d.).
- Prioritize necessities: Your health and safety should be your top priority. Focus on covering basic living needs first, such as food, shelter, transportation, heat, and water.
- Communicate: Inform creditors of your financial difficulties and discuss possible solutions such as payment deferrals, reduced interest rates, or extended payment plans.
- Budget and track: Develop a budget reflecting your new financial realities and track your progress.
- Seek assistance: Explore resources such as government programs, non-profit organizations, and financial counselling services. All of these can help you manage your financial situation.
Impact of missed mortgage payments on your credit score
Missing mortgage payments can seriously affect your credit score. If your payment is late by thirty days or more, your lender will likely automatically report the late payment to the credit bureaus. Negative information, such as late payments, can stay on your credit report for up to six years (Financial Consumer Agency of Canada, 2023).
Negative information lowers your credit score, making it more difficult for you to obtain credit in the future. Lenders will consider you a high-risk borrower. This designation can result in higher interest rates, strict terms, or credit being denied completely.
To better understand the impact of missed mortgage payments, consider the following points:
- The longer the payment is overdue, the heavier the negative effect on your credit score.
- Even after you make up the missed payment, once it has been reported to the credit bureaus, a late payment stays on your credit report for up to six years.
- If you already have a poor credit score, a late or missed payment could have an even more negative impact on your credit score.
Communicating with your mortgage lender
If you are struggling to make your mortgage payments, communicating with your lender as quickly as possible is critical. Be transparent and proactive about your situation. You can work with your lender to find a solution that benefits both parties. Here are some tips on how to effectively communicate with your lender.
Be honest and open
Explain your financial situation and why you can’t make your mortgage payments. Whether the issue is temporary or permanent, providing accurate, detailed information will help your lender understand your circumstances and offer appropriate assistance.
Gather all your financial documents in advance. You should include all relevant financial documents, such as bank statements, pay stubs, and monthly bills and expenses (Financial Consumer Agency of Canada, 2022). This information will assist your lender when they assess your financial situation to find the best course of action.
Take the time to discuss your available options and the potential consequences of each (Financial Consumer Agency of Canada, 2023). Ensure you understand the terms and conditions of any proposed solutions before deciding on the right path forward.
Maintain solid communication
Stay in touch with your lender throughout the process. Keep them updated on your financial situation and respond promptly to their inquiries. Lenders get very nervous when you drop contact with them, especially when they are trying to help you.
Get professional advice
Consult a financial advisor if you are nervous about your options. These professionals can provide valuable guidance and help you navigate the mortgage relief process.
Mortgage payment deferrals
Mortgage deferral eligibility depends on your lender and your specific financial situation. Generally, your mortgage must be up-to-date with no current delinquencies or arrears.
A mortgage payment deferral is a valuable option for homeowners facing financial difficulties (Canada Mortgage and Housing Corporation, 2020). A deferral agreement between you and your financial institution allows you to delay your mortgage payments for a defined period. After the deferral period, you resume making your mortgage payment, and you will also need to repay the deferred payments (Financial Consumer Agency of Canada, 2022).
Benefits of mortgage payment deferrals
Mortgage deferrals can help you in several ways:
- They provide temporary relief during financial hardship.
- You can focus on other immediate financial needs, such as essential living expenses.
- You can prevent damage to your credit score due to missed payments.
Eligibility and application process
Mortgage deferral eligibility depends on your lender and your specific financial situation. Generally, your mortgage must be up-to-date with no current delinquencies or arrears. To apply, you should contact your lender as soon as possible and inform them about your financial situation and why you cannot make your mortgage payments.
You must understand that interest will continue to accrue during the deferral period. Your mortgage balance will increase, and you will end up paying more interest over the life of your mortgage. Once the deferral period ends, your mortgage payments will likely be slightly higher to account for the increased balance (Scotiabank, n.d.).
Types of payment arrangements
When facing difficulties with your mortgage payments, exploring various payment arrangements that may be available to you is essential. These payment arrangements may include the following:
- Extending amortization: By extending your mortgage’s amortization period, you can lower your monthly payments by spreading them over a longer period. However, this arrangement will also result in a higher overall interest cost over the mortgage’s lifespan. To do this, you may need to refinance your mortgage.
- Special payments: These payments can generally be negotiated with your lender as a temporary modification to your payment terms. These arrangements may include the following:
- Repayment plans: This type of plan takes the past-due amount and splits it up over a few months in addition to your regular monthly payment amount.
- Modifications: A loan modification revises the terms of your existing mortgage. Modifications may include lowering your interest rate or extending the loan term, making payments more manageable.
- Forbearance: Mortgage forbearance is an agreement with your lender that allows you to pause or reduce your mortgage payments for a specified period. Interest will still accrue during the forbearance period, and you must repay the missed or reduced payments in the future.
Contacting mortgage insurance providers
If you have mortgage default insurance, you may receive assistance from your insurance provider. These are three default insurance providers in Canada: Sagen (previously Genworth Canada), Canada Guaranty, and the Canada Mortgage and Housing Corporation (CMHC) (Canadian Mortgage Professionals Inc., n.d.). Contacting your insurance providers can help you explore possible assistance tailored to your circumstances.
Facing difficulties with mortgage payments can be stressful and incredibly challenging. However, by being proactive and exploring your options, you can find solutions that best suit your situation.
Remember to communicate with your lender clearly and often. Understand the different payment arrangements available, such as payment deferrals, extending the mortgage amortization period, and forbearance. Do not forget to contact your mortgage insurance provider for potential solutions.
You can regain control of your finances, protect your credit score, and safeguard your investment in your home. You are not alone in this journey; numerous options and support systems are available to help you navigate these trying times.