What Happens If You Miss a Mortgage Payment

Interest rates are going up, and homeowners with variable-rate mortgages are facing higher monthly payments. Homeowners who are about to finish a fixed-rate mortgage might also have to deal with higher interest rates, which would increase their monthly payments. Along with rising living costs, this is why more Canadians may struggle to make their mortgage payments. If you can’t pay your mortgage this month, it’s important to take action quickly. 

Here’s what happens if you miss a mortgage payment.

You Pay Late Fees

In your mortgage contract, you will see the late fees for not making a mortgage payment on time. A lender may charge a fee anywhere from $25 to $50 for a missed payment.

You Have a 15-Day Grace Period

Most mortgage lenders provide a 15-day grace period. If you miss a mortgage payment but pay it within 15 days of the due date, it’s not classified as a ‘missed payment.’ Depending on the lender, they may even waive any late fees if you pay within the grace period. Things start to get serious after 30 days of non-payment, especially if you have not contacted your lender.

Your Credit Score Is Affected

After 30 days of non-payment on a mortgage, it will be reported and reflected on your credit score. Even if you end up paying off a missed payment, the fact that a payment was missed will remain on your credit report for the next seven years. From there, if you have a history of not making on-time payments, this can dramatically affect your credit score.

After 30 Days, The Mortgage Defaults

If you aren’t able to pay the mortgage payment in the 30 days after it is due, your mortgage becomes the default. This means you, as a homeowner, failed to uphold the agreed-upon terms defined in the mortgage contract. This is a very serious situation, potentially leading to home foreclosure and negatively impacting your credit score.

A Lender Can Foreclose on Your Home

 If you aren’t getting payments on time to your lender as per the mortgage contract terms, a lender is within their rights to take back the home and sell it to recoup any losses. This is foreclosure. Though the exact process varies by province, it is lengthy to get to foreclosure, often taking up to six months to get judicial permission.

Get Help from Credit Unions

Credit unions can be a good option for homeowners facing mortgage problems. Unlike traditional banks, credit unions are owned by their members. This means they often focus more on customer service and community support than profit-making. Many credit unions offer flexible lending options, competitive interest rates, and personalized service.

A credit union can provide helpful resources and support programs if you’re having trouble making your mortgage payments. They often work with struggling members to find solutions that can help avoid foreclosure. This might include changing loan terms, lowering payments temporarily, or creating other arrangements that fit your situation. 

Power of Sale Instead of Foreclosure

In Ontario, New Brunswick, Newfoundland, and PEI, these provinces use the ‘power of sale’ process rather than foreclosure. Power of sale gives a homeowner up to 35 days to get caught up on missed payments. If a homeowner does not get there within 35 days, a lender starts transferring ownership to them through ‘power of sale.’ This is significantly faster than a judicial foreclosure.

When Foreclosure Begins After a Missed Mortgage Payment

As stated, foreclosure is a time-consuming process. Lenders would rather avoid having to pursue foreclosure and only do so when necessary. After you stop making mortgage payments, a homeowner will likely get warnings at the 30-day, 60-day, and 90-day marks. If a homeowner doesn’t respond, the foreclosure process begins.

Mortgage Lenders Can Take Legal Action

After the initial 15-day grace period, a mortgage lender can pursue legal action against you if you have missed your mortgage payment. That said, it rarely happens. It isn’t in a lender’s interest to go through the trouble, though if missing mortgage payments becomes a pattern, this is something to remember.

If You Miss a Mortgage Payment, Contact Your Lender

The best thing you can do if you miss a mortgage payment is to reach out to your lender. They may devise an arrangement for you or make a deal that avoids these consequences and helps you get back on track with your monthly mortgage.

You Cannot Skip a Mortgage Payment

Some homeowners miss a mortgage and then resume paying a month later, thinking it will register as having “skipped” the prior month’s payment. That’s not how mortgage payments work. Until you’ve caught up, every payment you make is considered a late installment of the payment owed from the month prior. This means until you’re paid up, every payment is considered late. That’s going to hit your credit score in a really bad way. Avoid this by catching up as soon as possible.

If You Can No Longer Pay Your Mortgage

Financial situations change. Jobs are lost. Expenses increase. If something has happened and you can no longer afford your mortgage payments going forward, consult a lawyer or mortgage broker for options. Foreclosure and bankruptcy are extreme options. Selling your home may be recommended in some cases. Your mortgage lender may be able to adjust the existing mortgage, arrange a second mortgage, or offer another alternative.

Similar Posts:

• How to Get a Loan: A Brief Guide to Taking out a Loan
• A Beginner’s Guide on How To Improve Your Credit Score
• Essential Tips to Help You Choose the Right Home Loan
• 4 Ways to Keep Your Credit Score Healthy
• Mastering Mortgage Mastery: Unveiling the Dollars and Sense Secrets for Effective Home Loan Payments