Staying behind on mortgage payments can be hectic specially when your home is your biggest financial asset. Whether the issue is caused by job loss or another financial set back, not able to pay a mortgage payment should be treated as a problem that requires instant attention.
The good news is that one missed payment does not automatically imply that you will have to let go of your home. However constantly missing payments can result in mortgage arrears and damage to your credit profile along with legal action and finally the forced sale of the property.
Getting to know what happens when you fall behind and understanding what choices may be available for you can help you take important steps before the situation becomes more serious.
What Is Mortgage Default in Canada?
Mortgage default generally occurs when you fail to meet the obligations outlined in your mortgage agreement, such as making scheduled payments. The Financial Consumer Agency of Canada (FCAC) explains that a missed regular payment can constitute mortgage default and give the lender legal rights to recover the money owed.
Mortgage delinquency can develop in stages. Early missed payments may be referred to as delinquencies, while mortgage arrears commonly describe a borrower who is significantly behind. CMHC notes that mortgage arrears are generally associated with being 90 or more days behind on payments, although lenders may have their own reporting and collection practices.
The exact process depends on your mortgage contract, lender, province or territory, and individual circumstances.
What Happens After You Miss a Mortgage Payment?
The consequences generally become more serious the longer the payment remains unpaid.
1. You may receive contact from your lender
If you miss a payment, your lender may contact you by phone, email, letter, or through your online account. The lender may ask when you expect to make the payment and discuss why it was missed.
This is an important opportunity to communicate. If you already know that you cannot afford the next payment, do not wait until several payments have been missed before contacting your lender.
For federally regulated financial institutions, FCAC expects lenders to proactively contact borrowers who show signs of mortgage payment difficulty and provide information about appropriate relief measures.
2. Additional amounts may accumulate
A missed payment does not simply disappear. Depending on your mortgage agreement and the arrangement you make with your lender, unpaid amounts may accumulate and interest or other applicable charges may increase the amount you owe.
Some lenders may offer capitalization, allowing missed payments and certain other outstanding amounts to be added to the mortgage principal. This can make the mortgage balance larger and may increase future payments or the overall interest cost.
3. Your credit may be affected
Mortgage payment history can appear on your credit report. Late or missed payments can negatively affect your credit score and may make it more difficult or expensive to obtain credit in the future.
The impact can extend beyond your mortgage. Lenders may consider your credit history when you apply for another mortgage, personal loan, credit card, or other form of financing.
Canada's Financial Consumer Agency notes that negative information such as late or missed loan payments may remain on a credit report for a significant period, depending on the type of information and the applicable credit bureau's rules.
Importantly, if your lender formally agrees that you can miss payments as part of an approved mortgage relief arrangement, FCAC says the bank is expected not to report those agreed-upon missed payments to credit bureaus.
Can the Bank Take Your House?
Potentially, yes but this is generally not the immediate result of one missed payment.
If you continue to default and cannot reach an acceptable arrangement with your lender, the lender may eventually pursue legal remedies to recover the debt. Depending on the province or territory and the circumstances, this can involve processes such as foreclosure or a power of sale.
FCAC states that mortgage default can eventually lead to the forced sale of your home.
The exact procedure varies across Canada. For that reason, homeowners facing serious arrears should consider obtaining legal or professional financial advice rather than assuming that the process works the same way everywhere.
What Mortgage Relief Options May Be Available?
If you are struggling to make payments, your lender such as EverLend may have several options.
Mortgage payment deferral
A payment deferral allows you to delay mortgage payments for an agreed period. It is not debt forgiveness. The deferred principal, interest, and other applicable amounts generally need to be recovered later. This can result in higher payments, a longer amortization period, or greater total interest costs.
Extending the amortization period
Your lender may allow you to extend the period over which the mortgage is repaid. This can reduce your required payment, but you may pay substantially more interest over the life of the mortgage.
FCAC specifically cautions that extending amortization can add thousands or even tens of thousands of dollars to the overall cost of a mortgage.
Special payment arrangements
A lender may agree to a temporary reduction or modified payment schedule. The missed amount may then be recovered over a period that fits your financial circumstances.
Capitalizing missed payments
Under a capitalization arrangement, certain unpaid amounts can be added to the mortgage principal. While this may help resolve immediate arrears, it increases the amount on which interest may be charged.
Selling the property
If maintaining the mortgage is no longer financially realistic, selling the home voluntarily may sometimes be preferable to allowing the lender to pursue enforcement. FCAC recognizes selling a home as a possible option in cases of severe financial difficulty.
A voluntary sale can potentially give you greater control over timing and the selling process, although the financial consequences depend on the mortgage balance, property value, penalties, selling costs, and other debts.
What Should You Do If You Know You Cannot Make Your Next Payment?
The most important step is to contact your lender before the payment is missed.
Prepare a realistic picture of your finances, including your income, mortgage payment, other debts, essential expenses, savings, and any expected changes in income.
Ask your lender:
· What relief options are available?
· Will a missed payment be reported to the credit bureaus?
· What will the proposed arrangement cost in total?
· Will the amortization period change?
· Will the interest rate change?
· How will deferred or missed amounts be repaid?
· Are there fees or penalties?
· What happens if your financial difficulty continues?
Do not agree to a solution simply because it produces a lower monthly payment. A lower payment can sometimes result in substantially higher costs over the long term.
Frequently Asked Questions
1. What happens if I miss one mortgage payment in Canada?
Your lender may contact you about the missed payment, and your mortgage account can become past due. Depending on the lender's policies and the circumstances, the missed payment may also affect your credit report. One missed payment does not automatically mean that your home will be taken.
2. How many mortgage payments can I miss before foreclosure in Canada?
There is no single nationwide number that applies to every borrower. The consequences depend on your mortgage agreement, lender, province or territory, and the circumstances of the default. You should contact your lender as soon as you know you are having difficulty rather than waiting for a particular number of missed payments.
3. Does missing a mortgage payment hurt your credit score?
It can. Mortgage payment history may be reported to credit bureaus, and late or missed payments can negatively affect your credit score.
4. Can I get a mortgage payment deferral if I am already behind?
Possibly. Eligibility depends on your lender, mortgage, financial circumstances, and the relief programs available. Contact your financial institution immediately to discuss your situation. FCAC expects federally regulated financial institutions to work with borrowers experiencing financial difficulty and consider appropriate relief measures.
5. Will a mortgage deferral increase my mortgage balance?
It can. Deferred amounts generally have to be recovered later, and interest may continue to accumulate. As a result, your future payments, amortization period, or total mortgage cost may increase.
6. Can the bank force me to sell my home?
If you remain in mortgage default and cannot resolve the arrears, the lender may eventually use legal remedies to recover the debt, potentially resulting in a forced sale. The procedure varies by province or territory.
7. Should I use a credit card or line of credit to make my mortgage payment?
Using other borrowing to cover a mortgage payment may provide temporary relief but can create a larger debt problem, particularly if the new borrowing carries a high interest rate. The Bank of Canada found that households that eventually miss mortgage payments often increase their use of credit cards and lines of credit beforehand.
Final Thoughts
Falling behind on mortgage payments in Canada is serious, but taking action early can make a major difference. A missed payment can lead to additional costs and credit consequences, while prolonged default can eventually put your home at risk.
If you are struggling financially, do not ignore calls or letters from your lender. Contact the lender, explain your circumstances, ask about mortgage relief options, and carefully compare the long-term cost of each solution.
Most importantly, remember that a temporary financial setback does not necessarily have to become a permanent housing crisis. The earlier you address the problem, the more opportunity you may have to negotiate a workable solution.