Missing a mortgage payment can happen to anyone, but it can trigger a chain reaction that affects your credit, finances, and even your home. But while stressful, it doesn’t have to spell disaster for your finances. Being proactive and understanding the potential consequences can help you get back on track.
Here’s what happens when that due date comes and goes, and what you can do to avoid missing mortgage payments.
Key Points: What You Need To Know
- A missed payment typically comes with late fees from the lender, which can be anywhere from $25 to $50 on average, as well as NSF fees.
- After 30 days, a missed mortgage payment can negatively affect your credit score.
- Generally, you won’t lose your home after one missed mortgage payment, but several months of nonpayment could trigger foreclosure or power of sale, depending on the province.
- Communicate with your lender before you miss a payment to discuss options.
What Happens If You Miss A Mortgage Payment?
The consequences of a missed mortgage payment depend on timing:
- Late Payment (0-15 days): Lenders often allow a grace period of up to 15 days, during which time your mortgage lender likely won’t report the late payment to the credit bureaus. While penalties vary by lender, you’ll typically need to pay a $25 to $50 late fee upon missing your initial payment deadline.
- Missed Payment (30+ days): Your mortgage is considered missed after 30 days of nonpayment. Your lender will report this to credit bureaus, and your score will likely be damaged. Failing to make payments can lead to foreclosure.
| Avoid The “Rolling Late” Effect The rolling late effect happens when you miss one payment but resume the following month. In this case, your payment is one month late. Each subsequent payment is also considered late, as you need to catch up on schedule. This escalates late fees each subsequent month, also known as a “rolling late.” To stop this cycle, you need to make up for the missed payment and get caught up. Discuss this with your lender. |
Can A Missed Mortgage Payment Affect My Credit Score?
Yes, a missed payment can hurt your credit score. The exact impact depends on how late and how many you missed. This means a one-off missed payment settled immediately won’t drop your score as significantly as a history of missed payments.
Lenders in Canada generally don’t report a payment until it’s 30 days late. However, once reported, it can remain on your credit score for up to seven years.
Is There A Grace Period Before A Mortgage Payment Is Considered Missed Or Late?
As noted earlier, most lenders allow a 15-day grace period after your due date before payment is officially missed. Paying within 15 days typically means your payment is late. During this stage, there are fewer penalties.
Will I Lose My Home If I Miss A Mortgage Payment?
Losing your home from a single missed payment is very rare. Most lenders will work with you to get caught up before initiating foreclosure, given that it’s an expensive legal process. Depending on your province, the process could take up to six months.
However, provinces with a power of sale process can foreclose your home within 35 days after sending a notice.
Foreclosure Vs Power Of Sale
If you default on your mortgage, lenders may use the foreclosure or power of sale process to recover the money owed. Both methods are used to transfer the title of the property to the lender. However, they differ in procedure and timeline.
| Process | Foreclosure | Power of Sale |
| Duration | Takes on average 6+ months. | Typically takes less time compared to foreclosure. |
| Jurisdictions | BC, Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotia | Ontario, Newfoundland, New Brunswick, PEI |
| Notices | Lenders send notices at 30, 60, and 90 days past due before proceeding. | Lender sends a notice with a 35-day window to catch up. |
| Credit Score Impact | Yes | Yes |
Foreclosure
Foreclosure processes vary by province, but on average, take 6+ months. The lengthy process involves the court system, which can transfer the property title to your lender.
Lenders will send notices at 30, 60, and 90 days past due before proceeding. Their goal is to avoid foreclosure since there are high legal fees. However, if the process escalates, your lender will file a “Statement of Claim”. After receiving this document, you have 20 days to file a “Statement of Defense” or “Demand for Notice.”
Failing to respond indicates to the court that you will not fight the foreclosure process. The court will finally issue a “Redemption Order,” which gives you a final shot to make amends.
However, if the court believes you can’t make payments, they will issue an “Order of Foreclosure” or an “Order of Sale”. The former transfers your property to the lender, whereas the latter sells your home under the court’s control.
Learn more: Home Foreclosures: How Does It Work In Canada?
Power Of Sale
Instead of foreclosure, Ontario, Newfoundland, New Brunswick, and PEI generally use the power of sale process. As the name suggests, this gives the lender the power to sell your property.
If your property is sold through power of sale, you’ll receive any leftover money. On the contrary, you can owe money if the amount doesn’t cover the mortgage, late fees, and more.
Compared to foreclosure, the power of sale process typically takes less time and is less expensive for lenders. Your lender sends a notice with a 35-day window to catch up on missed payments. Note that this includes all payments in arrears.
The process stops if you make a payment before the deadline. Remember that your credit score will decrease, and you must pay associated fees.
If you don’t pay within that period, the lender can proceed with the power of sale. The next step is a 20-day period to file a “Statement of Defence,” which can reduce your risk of getting kicked out. In the worst case, the lender can sell your home using a real estate agent.
Learn more: What Is A Power Of Sale For A Mortgage?
What Can You Do If You Think You’re Going To Miss A Mortgage Payment?
Being proactive and communicating with your lender in advance is the best way to avoid more serious consequences of missing a payment. Lenders want to avoid the foreclosure process too, and are often willing to work with you in some circumstances.
Here are a few options to consider:
Inform Your Lender And Ask For Repayment Options
Contact your lender before you miss a payment to discuss hardship programs or repayment plans. This good-faith effort makes them more likely to work with you without penalties.
Ask For A Payment Deferral Or A Skip-A-Payment
Depending on your circumstances, the lender may allow you to defer one or more months of payments. This gives you time to get back on track. Or they may let you skip a payment entirely. However, this option can only be used a handful of times.
For example, TD’s payment pause allows you to skip a monthly payment. However, you can only request it once per calendar year or four times per amortization period.
Refinance Your Mortgage
If you’re struggling to make monthly payments and don’t expect your financial situation to improve shortly, you can turn to refinancing. This option can decrease your monthly payments but comes with other downsides.
When you refinance your mortgage, you replace your existing mortgage with a new one. Ideally, you refinance to a lower interest rate. However, in most cases, you’ll need to extend your amortization to reduce your monthly payment.
The downside is that increasing your amortization also increases your lifetime interest paid. Refinancing also has high fees, and many don’t like the potential of spending more years making mortgage payments. Further, if you lost your job, refinancing isn’t going to work, as you need to provide proof of income.
Learn more: How To Refinance A Mortgage
Early Warning Signs You Might Miss a Payment
There are often clear warning signs that you’re at risk of missing a mortgage payment, including the following:
- Sudden Drop In Income: Whether due to job loss, reduced hours, or inconsistent freelance work, a significant decrease in income can tighten your monthly budget and make it more difficult to juggle which bills to pay first.
- Relying On Credit Cards Or Payday Loans: If you’re depending on high-cost credit products to cover everyday expenses, this can quickly spiral into unmanageable debt.
- Falling Behind On Other Bills: Utilities, car payments, or insurance bills need to be paid on time every month. But if you’re struggling to cover these payments, this is often a sign of impending mortgage trouble.
- Skipping Savings Contributions: Dipping into emergency funds and skipping savings deposits just to stay afloat could mean it’s time to reassess your situation before things get out of hand.
How To Minimize The Risk Of Missing A Mortgage Payment
Consider the following strategies to help you stay ahead of mortgage payments:
Make Bi-Weekly Payments
Instead of making one large payment each month, you can make half the payment every two weeks. This may align better with your pay schedules and spreads the cost more evenly. Over time, this method can also help you pay off your mortgage faster, since you end up making one extra full payment directly towards the principal every year, reducing interest and shortening the loan term.
Set Up Automatic Payments From Multiple Bank Accounts
Automating your mortgage payments can help you avoid missing a due date, which can reduce the risk of late fees or damage to your credit. If you have several bank accounts, setting up automatic transfers from more than one account can add more flexibility. In this way, if one account runs low, the other can help cover the shortfall.
Build A Mortgage Payment Emergency Fund
An emergency fund dedicated to your mortgage can provide a buffer against big expenses. Try to save enough to cover 3 to 6 months of payments. Ideally, this fund should be separate from your general savings and easily accessible in case of job loss, illness, or unexpected expenses.
How To Rebuild Your Credit Score After A Missed Payment
Rebuilding your credit score after a missed mortgage payment takes time, but it’s doable with consistent effort. Here are a few tips to help you repair your credit score if it’s been damaged due to missed mortgage payments:
- Bring Your Account Up-To-Date On Payments: The first thing you should do is bring your account up to date as soon as possible. The longer a mortgage payment remains overdue, the more damage it does to your credit score. Reach out to your lender to discuss repayment options or hardship programs that can help you catch up.
- Check Your Credit Report: Pull your credit report to ensure accuracy of all information on file. You can get a free report from the credit bureaus, big banks, and online resources like CompareHub. Review your report to check for errors and dispute any incorrect information.
Bottom Line
Even one missed mortgage payment can have a significant impact on your finances and credit. That said, with some planning and communication, you can avoid any negative consequences to your credit scores or property repossession. Reach out to your lender at the first sign of trouble to protect your finances and home.
Missed Mortgage Payments FAQs
How many missed payments can lead to a foreclosure?
Will I still owe my bank money if they foreclose my home?
How long does a missed mortgage payment stay on my credit report?
What happens if you can’t pay your mortgage in Canada?
Can I pay my mortgage late?
Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.
