Owning your own home is an important milestone for many Canadians. Yet with great privilege comes great responsibility. Taking on your first – or subsequent – mortgage is no mean feat. While a mortgage allows you to buy your own property by borrowing the required funds from a lender, it does mean making regular payments over an agreed period of time. Sometimes, life can throw us a curveball, be it job loss or financial hardship. Equally, homeowners with a variable rate mortgage may find hefty mortgage payment increases. In these circ*mstances, you might be wondering ‘what happens if you can’t pay your mortgage in Canada?’ In a recent survey carried out by the Angus Reid Institute, it was uncovered that 30% of Canadians are finding their mortgages challenging, rising to 51% for those on variable rates. If you are finding it challenging to make your monthly payments on time, we explain what happens if you can’t pay your mortgage in Canada, and the support resources available to you.
What is happening with the housing market in Canada?
It is not news to anyone that the Canadian housing market has seen its fair share of fluctuations in recent years. Not only have rental prices been unaffordable for many, especially in cities like Toronto and Vancouver, but mortgages have proved challenging too. Factors like multiple interest rate hikes, economic challenges for the country, and housing price increases have made it difficult for many homeowners to manage their mortgage payments. Thankfully, lenders and financial institutions are probably more understanding and aware of these challenges than they have ever been.
What happens if you can’t pay your mortgage in Canada?
While a missed mortgage payment does not necessarily mean you will lose your home, quick action is required to keep the situation under control. If you continue to miss your mortgage payments without communicating or working with your lender, they could begin the foreclosure process. Foreclosure is a legal process that allows the lender to regain possession over your property and to sell it in order to recover the debt that is owed to them. Foreclosure can have major consequences – you can face negative impacts to your credit score, incur legal costs, and ultimately lose your home unwillingly. It happens when mortgage payments are not made, or whenever the agreements of the mortgage are not met. The homeowner gives up all their rights to the property, often including equity where applicable. Lenders are often hesitant to begin this process as it can be costly and timely. Instead, they will try to work with you on a repayment arrangement where possible. While missed mortgage payments can happen, there is typically a 15 day grace period. Although lenders are permitted to take legal action after the 15 day grace period, this is rare. The following sequence of events will usually occur:
- You will pay late fees. These will be indicated in the terms related to your mortgage when you took it on. These fees will usually vary from between $25-50, and will be charged as soon as the payment has been missed.
- Your credit score will be impacted. Your score is likely to drop – after 30 days, your missed payment will be reported to Canada’s two primary credit bureaus, Equifax and TransUnion. The more overdue your mortgage payment is, the greater the impact on your credit score. Late payments will remain on your credit report for up to seven years.
- You might default. If your missed payment goes past the 30 day point, your mortgage will go into default. This will have a greater impact on your credit score, and can lead to foreclosure.
- You could lose your home. Mortgages are secured loans, which means your home serves as the collateral for your loan. When lenders do not receive their payments as agreed in the mortgage contract, they are legally able to reclaim the property and sell it to recoup their loss. This is known as foreclosure.
- Foreclosure – contrary to popular belief, foreclosure does not actually take place in every province. In Alberta, British Columbia, Manitoba, Nova Scotia, Quebec, and Saskatchewan, judicial sale (or foreclosure will occur). It’s a long process that goes through the court which usually results in the title of the property being transferred to the lender, who can keep all proceeds from the sale.
- Power of sale – in Newfoundland, New Brunswick, Ontario, and Prince Edward Island, the power of sale process is used instead of foreclosure. The power of sale process usually starts with the lender sending a notice that gives the homeowner 35 days to get current on any missed payments. Provided you get back on track, the process will stop aside from relevant fees and an impact on your credit score. Otherwise, the transfer of ownership to the lender via power of sale will begin. Power of sale does not need to go through the court, and as a result it is a much faster process than foreclosure.
What should you do if you can’t pay your mortgage in Canada?
If you find yourself in a scenario where paying your mortgage is proving difficult, the first thing to do is not panic! Although it might seem like the first thing you want to do, there is likely a very simple solution to your circ*mstances. In fact, no matter how bad you feel your financial situation may be, there is always a way out of it. At Spergel, our experienced Licensed Insolvency Trustees have been helping Canadians gain debt relief for over thirty years, and it is likely we have seen circ*mstances similar to yours. There are a few steps we recommend taking if you are struggling to pay your mortgage:
Speak to your lender
First and foremost, your lender is going to be the one who might be able to help you initially. As soon as you think you might not be able to pay your mortgage, you should contact your lender immediately. Lenders and financial institutions in Canada are generally open to helping homeowners facing financial hardship; especially if they think they can work on a plan to gain repayment as quickly as you can feasibly make it. They could offer a variety of solutions, for instance:
- Temporary mortgage payment deferral (or a mortgage payment holiday) – this allows you to defer mortgage payments for a fixed period of time. Payment deferrals have the intention of giving you some time to get on top of your finances once again.
- Reduced interest rates – if you are facing a financial crisis which you can support with evidence, your lender may agree to negotiate a temporary reduction in your interest rate to temporarily reduce your overall payments and take off some of the pressure.
- Loan modification – if you require longer term support, your lender may be willing to modify the terms of your mortgage to either extend your mortgage term, or add any missed payments you might make to the end of the mortgage.
- Refinancing – in some instances, your lender may help you to refinance your mortgage. This could result in a lower interest rate or a longer repayment term to reduce your monthly payments in order to make your monthly payments more manageable.
Seek out Government Assistance
The Canadian Government has a number of programs in place to help homeowners who might be struggling to make their mortgage payments. An example of this was the Canada Emergency Response Benefit (CERB). CERB was designed to offer financial support to individuals who had reduced income during the global pandemic. Although CERB is no longer available, the Government offers other programs and initiatives for support. You can use the Government’s Benefits Finder to see what support you might be eligible for.
Consider selling or downsizing your home
If you are finding it difficult to make your mortgage payments on time and do not see that your finances will improve in the future, you might wish to consider selling your home or downsizing to a more affordable property. Selling your home can help you to pay off your existing mortgage, and relieve you of having to make future mortgage payments. Although nobody wants to lose their home, it can help you to avoid consequences like foreclosure, and can help you to regain control over your finances.
Speak to a Licensed Insolvency Trustee
If your finances feel squeezed across the board, you might want to look at your debt relief options. By substantially reducing or completely eliminating your unsecured debts, you could find your finances in a much better place. This in turn could mean your mortgage payments are much easier to make each month. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. At Spergel, our Licensed Insolvency Trustees treat every individual with compassion and understanding. We will review your financial circ*mstances, and walk you through your options for debt relief, from debt restructuring to consumer proposals and bankruptcy.
How late is a mortgage payment before it is considered missed?
Most lenders in Canada will allow a 15 day grace period before your mortgage payment is officially considered missed. Only once the 15 days have passed is it late, and you likely will not owe late fees until after this period. Should you miss your payment for 30 days after the due date, your lender will report the missed payment to the credit bureaus, and the consequences of a missed payment begin to kick in.
How many mortgage payments can you miss before foreclosure in Canada?
Foreclosure is a lengthy and costly process. For this reason, lenders will not rush to initiate the process and it is not usually triggered as soon as you miss a payment. When you miss payments, you will probably receive notices from your lender after 1 month, 2 months, and 3 months. If your lender still does not receive a response after 3 months, they will likely begin the foreclosure process. That said, it can happen sooner. If you live near a Supreme Court registry, your lender will need to begin proceedings there, and you will receive a document called a petition for foreclosure.
Can I walk away from my mortgage in Canada?
Lenders in Canada must allow homeowners some time to try and tackle any mortgage payments they are struggling to make, instead of simply allowing them to walk away from their mortgage. Any mortgage shortfalls become unsecured debts once the sale of a property has been finalized. Learn more about what to do if you are considering walking away from your mortgage.
What is the average mortgage debt in Canada?
According to TransUnion’s Q1 2023 Credit Industry Insights report, the average amount of mortgage debt owed by Canadians is a staggering $349,178. Considering the benchmark price of a house in Canada is $717,000, it is likely that the average mortgage debt is only going to increase in the future.
Still worried about what happens when you can’t pay your mortgage in Canada? At Spergel, we understand it can be a daunting experience. That is why we are on hand to help explain your options and offer support during challenging times. Book a free consultation with one of our experienced Licensed Insolvency Trustees to get started on your journey to a pathway to debt freedom today.
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