One of the biggest fears that most Canadian mortgage holders will ever face is: missing mortgage payments and facing foreclosure in Canada. This worry has been especially prevalent over the last few years as the overnight interest rates (and thus mortgage rates) started to rise precipitously.
Obviously, no one wants to miss a mortgage payment or face the possibility of foreclosure on their home. Nonetheless, it helps to understand what exactly constitutes a missed payment and what you can do to avoid missing a payment.
How Many Mortgage Payments Can You Miss Before Foreclosure In Canada?
Foreclosure (sometimes called judicial foreclosure) is when your lender goes through a legal process to get the title on your home, which they can then sell to recoup their financial losses from your unpaid loan. While there are official laws governing the foreclosure process, there are no set rules about when foreclosure kicks in after you miss a mortgage payment.
Generally, every bank and financial institution has its own specific guidelines as to when to start foreclosure proceedings. However, there are some common guidelines that most lenders follow.
- The majority of lenders will give you a 15-day grace period after the mortgage due date before considering a payment officially missed.
- After 30 days, the missed payment is usually reported to credit bureaus, which can significantly impact your credit scores. You will then start to get notices of missed payments and be notified of potential consequences from your lender.
- Your lender will send notices at 30, 60, and 90 days past due demanding payment for the amount owing (and possible late payment fees).
- After three months have elapsed, your lender will likely begin initiating court proceedings for foreclosure especially if you don’t attempt to reach out to them to explain your payment issues or try to arrange a new payment plan.
It’s important to note that even if you resume making mortgage payments, your lender will still consider you to be in default until you have paid off your balance from your missed payment, including any late fees or penalties. This situation is known as “rolling late,” where each subsequent payment is considered late until the missed payment is made up.
What Happens If You Miss One Mortgage Payment In Canada?
While even one missed payment gives your lender the right to start foreclosure proceedings, it’s an expensive and lengthy procedure so most mortgage providers will give you a chance to get on track before they foreclose.
Most lenders will give you a 15-day grace period during which you can make the missed payment without severe penalties. Most lenders will, however, charge a late payment fee that can be anywhere from $25 to $50.
When Is A Mortgage Payment Considered Missed?
Most lenders will give mortgage holders a 15-day grace period after a payment is due before it’s considered in arrears. After 30 days of non-payment, mortgage providers will report the non-payment as missed to Canada’s credit bureaus. At this point, the missed payment will go on your credit file and may negatively impact your credit score.
Having a missed mortgage payment on your credit report can affect your general financial health and make it harder for you to get other loans and credit cards.
Will My Lender Foreclose My Home?
It’s up to each individual lender as to whether or not they will foreclose on your home once you’ve missed a payment. A lender is likely to start the foreclosure process if you miss three months’ worth of payments. The likelihood that your mortgage provider will foreclose on your property is higher if you’ve made no attempt to contact them and explain your situation or arrange a new payment plan.
Keep in mind that many lenders will be reluctant to use foreclosure as their first response to non-payment. Foreclosure proceedings involve the courts and lawyers and are thus expensive and can also take anywhere from six months to two years to reach a resolution. For this reason, many lenders will try to work with borrowers to find solutions before going straight to foreclosure.
What Happens If My Lender Decides To Foreclose My Home?
If you default on your mortgage, your lender generally has two options: foreclosure and power of sale.
Foreclosure (Or Judicial Foreclosure/Judicial Sale)
Foreclosure is a legal process that involves the court system and varies depending on where you live in Canada. The lender will apply to get title to the mortgaged property. It can be a very costly and time-consuming process that can take anywhere from six months up to two years.
Once the court issues a foreclosure order, the lender gets the title to your home, giving them the right to sell your property. Note that if the sale of the property does not cover the entire amount you owe, your lender could come after you for the remaining debt. British Columbia, Alberta, Saskatchewan, Manitoba, Quebec and Nova Scotia typically follow this procedure.
Power Of Sale
Power of sale is a faster process than a foreclosure that doesn’t involve the court system. The lender issues a notice of sale, giving the homeowner a short period (typically 35 days) to pay off their outstanding balance. If the homeowner is not able to pay off their balance, the lender can sell the property to recover the outstanding debt. Power of sale is more commonly used in Ontario, Newfoundland, New Brunswick and Prince Edward Island.
What Should You Do If You Think You’ll Miss A Mortgage Payment?
It can be incredibly stressful if you think you’re going to miss a payment on your mortgage. For that reason, it can be tempting to avoid the situation and ignore any notices your lender sends you telling you to “pay up or else.” But avoid that impulse! Ignoring the problem will not make it go away and will inevitably make a bad situation worse.
As soon as you realize you may have trouble making a payment, reach out to your lender. Many lenders are willing to work with borrowers to find a solution, such as a temporary payment deferral or a loan modification. The earlier you communicate, the more likely your mortgage provider will be willing to work with you to come to an equitable solution.
Missed Mortgage Payment Solutions
Keep in mind that it’s in your lender’s best interest to come to a solution other than foreclosure. Foreclosure can be a long and expensive process and most lenders would rather avoid it. So if you’re about to miss a payment or have missed a coupe payment, consider asking your lender for the following:
- Skipping a payment: Some mortgage providers may be willing to let you skip a payment, as long as you make up the amount owing on your next payment. In fact, some lenders have skip-a-payment or “hardship” programs designed to help borrowers experiencing financial difficulties.
- Mortgage deferral: A mortgage deferral is a temporary relief measure that allows you to delay your mortgage payments for a specific period, usually up to four months. Once the deferral period ends, you’ll owe more on your mortgage than before but it can help get you through a temporary financial tough time.
- New payment arrangement: Your lender might suggest a new payment arrangement to help with your mortgage payments, such as extending your amortization period (thus reducing the monthly payment amount) or going from a variable rate to a fixed rate.
Bottom Line
Coming face-to-face with the possibility of foreclosure can be incredibly stressful and frightening, making it tempting to just ignore the situation. However, it’s important to realize that you do have a bit of breathing room before your lender will move to foreclose on your home. Furthermore, if you’re having trouble making your mortgage payments the best thing to do is to reach out to your lender as they will likely be willing to offer you options to make payments more manageable.
