Struggling To Pay Your Mortgage? Read This - Part One
Monday, November 11, 2024


After almost 2 years of interest rate hikes, it’s no surprise that some people are struggling to make their mortgage payments. Whether you’ve got a variable-rate mortgage that has been steadily increasing or you’ve just renewed your mortgage at a higher rate, read on for our best advice to help keep you in your home.
What Happens If I Don’t Make My Mortgage Payments?
If you don’t make your mortgage payments on time, your bank can (and will) take steps to recover the money they are owed. You may be surprised at how fast they start the collections process, and while it may be tempting to ignore your lender’s phone calls and letters, it’s important to understand that they have the legal right to force you to sell your home (either through a power of sale or foreclosure). Defaulting on a mortgage is serious – and the consequences are greater than late fees and penalties. If your mortgage is coming up for renewal and you’ve missed multiple payments, your lender may choose not to renew your mortgage. That means you’ll have to requalify for a mortgage under the current stress test rules and may struggle to find a lender willing to give you financing. If you are successful in finding a new lender, expect to pay much higher interest than the going rate; if you aren’t successful, you’ll likely need to sell your home. Don’t wait until the last minute to talk to your lender about an upcoming mortgage renewal.
The Worst Thing You Can Do If You’re Struggling to Pay Your Mortgage
Your bank wants to work with you – not against you. If you’re struggling to make a mortgage payment, it’s critical that you talk to your lender BEFORE you miss a payment. They’ll explore ways to help – from reducing the amount of your payment to restructuring your debt to extending your amortization.
The most risky thing you can do is not make any payment – even a partial payment shows your lender that you’re taking your mortgage commitment seriously. Immediate Strategies to Consider:
• If your mortgage allows you to skip a payment without penalty, consider taking advantage of it. Most traditional lenders allow you to skip up to two payments a year, provided your mortgage is in good standing. While the interest will continue to accrue and it will cost you more in the long term, it can be a quick fix to a temporary money problem. Talk to your lender or read the fine print in your mortgage documents to see if this applies to you.
• If you’ve made extra payments on your mortgage in the past, you may be able to waive the equivalent amount of monthly payments. Many traditional mortgage products allow you to double up your payment each month and offer the option of a 10% paydown once a year. So if you’ve been paying an extra $200 a month on your mortgage for the last 2 years, you can likely skip $4,800 of payments. It’ll erase the interest savings of the pre-payments, but it does provide flexibility. Talk to your lender.
The Next Worst Things You Can Do
Never skip a payment or be late on your:
• Property taxes
• Income taxes and HST
• Home and car insurance
The CRA are quick to garnish your income if you’re late – meaning they go directly to your employer for payment, bypassing you entirely. In Ontario, they can garnishee up to 50% of your income. IMPORTANT: If you’ve been garnished, you probably won’t qualify for a mortgage at renewal time and may be forced to sell your home. It’s also important to always pay your home and car insurance on time. If you’re already under financial stress, the last thing you need is to find out you don’t have insurance in the event of an accident, break-in or fire.
Experts have been warning us for years now that Canadians are carrying too much debt – in fact, according to Equifax, Canadians owed $107 billion on their credit cards in Q2 2023 (yep, that’s an all-time high). That works out to non-mortgage debt of $21,131 per Canadian credit consumer. In Toronto, the average consumer was carrying $20,067 of non-mortgage debt. Source: Equifax Canada, Q2, 2023 Unless your cash crunch is temporary and will only last a few weeks, it’s critical to get real about your debt and expenses.
1. Make a list of all the debts you owe and your monthly payments. Include credit cards, credit line minimum payments, car loans and consumer loans.
Add it up.
2. List all your non-negotiable monthly expenses – utilities, insurance, property taxes, transportation and groceries. Add them up.
3. How do your monthly debt and expense obligations compare to your monthly after-tax income?
Did you find this helpful but want to learn more? Stay tuned for next week where we do a deeper dive on how to stay afloat with mortgage payments.
This is such an important topic, especially right now with so many homeowners struggling to stay afloat after mortgage rates shot up over the past couple years. Even though we’ve seen the Bank of Canada drop its benchmark rate by 125 basis points (1.25%) since June 5th, interest rates are still high for those homeowners who were used to historic low mortgage rates before the market cooled in 2022. If you’re in this boat and need to talk to someone about how to keep your home, or need advice on whether you should consider selling, please call me at 905-683-7800. I have over 30 years of experience dealing with this exact scenario and have probably seen it all. I’m here to help!
Thanks For Reading Today’s BLOG!
Brian Kondo
Sales Representative / Team Leader
The Brian Kondo Real Estate Team
Re/Max Hallmark First Group Realty Ltd.
905-683-7800 office
905-426-7484 direct
brian@briankondo.com
www.BrianKondo.com
www.BrianKondoTeam.com
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