Missing a mortgage payment can happen to anyone. 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.
This guide covers everything you need to know about missing a payment. This includes what happens when you miss a payment, credit score implications, foreclosure insights, and how to be proactive if you think you’ll miss a payment.
Key Points: What You Need To Know
- A missed payment will likely incur late fees from your lender, usually $25-50.
- After 30 days, the missed payment will significantly impact your credit score.
- You generally won’t lose your home after just one missed payment, but several months of nonpayment could trigger foreclosure.
- Communicate with your lender before you miss a payment to discuss options.
What Happens If You Miss A Mortgage Payment?
Most lenders in Canada offer a 15-day grace period to settle a missed payment. During this window, you should pay immediately because there are more severe consequences after.
- Late Payment (0-15 days): Generally considered within the grace period. While penalties vary by lender, you’ll typically need to pay a $25 to $50 late fee upon missing your initial payment deadline. Your mortgage lender likely won’t report the late payment to a credit bureau.
- 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.
What Happens If You Miss A Mortgage Payment: Late Fees
If you miss your mortgage payment due date, most lenders will charge a late fee. This is outlined in your mortgage agreement, and fees are usually between $25-50. The sooner you make the late payment, the better to avoid additional late fees.
What Happens If You Miss A Mortgage Payment: Loan Goes Into Default
After 30 days of nonpayment, your mortgage is considered in default. This signals that you still need to uphold your end of the loan agreement. Default can seriously damage your credit score and eventually lead to foreclosure if payments continue to go unpaid.
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 the missed payment and get caught up. Discuss this with your lender.
Can A Missed Mortgage Payment Affect My Credit Score?
Since mortgage payments are reported to the credit bureaus, a missed payment can hurt your credit score. The exact impact depends on your credit history, but a 30-day late payment can have serious consequences.
This is because your payment history has a strong weighting in calculating your credit score. Equifax weighs payment history at around 35% of your credit score. However, the overall factor is calculated considering how late your payments are, the amount owed, and how often you miss payments.
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.
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. This section will walk you through the two types of foreclosure processes in Canada.
|Process||Foreclosure||Power of Sale|
|Duration||On average takes 6+ months.||Typically takes less time compared to foreclosure.|
|Jurisdictions||British Columbia, 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 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. While the foreclosure process varies, it’s practiced in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, and Nova Scotia.
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.
Overall, there is no set number dictating foreclosure. Generally, three to six months of continuous missed payments is the tipping point. The sooner you communicate with your lender, the lower the risk.
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.
Is There A Grace Period Before A Mortgage Payment Is Considered Missed Or Late?
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. For example, a late payment won’t significantly impact your credit score, but you may have late fees.
After 30 days, your payment is considered missed. A missed payment has more severe consequences, such as a hit to your credit score. Failing to make payments past this deadline will likely kickstart the foreclosure or power of sale process.
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 willing to work with you in some circumstances.
Inform Your Lender And Ask For Repayment Options
Contact your lender before you miss the payment to discuss hardship programs or repayment plans. This good faith effort makes them more likely to work with you without penalties.
Ask Your Lender For A Mortgage 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. This means that during a standard 25-year amortization period, TD would only let you skip four monthly payments.
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.
A single missed payment shouldn’t spur panic. With some planning and communication, you can avoid any negative consequences to your credit scores or a foreclosure. 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 miss a mortgage payment?
What happens if you can’t pay your mortgage in Canada?
Can I pay my mortgage late?
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