Homeowners having variable-rate mortgages (or fixed-rate mortgages reaching the end of their terms) could experience abrupt monthly payment increases as a result of rising interest rates.
One in five Canadians (20%) express concern about not being able to pay mortgage or rent payments if Canada reaches a recession, in a September 2022 NerdWallet survey conducted digitally by The Harris Poll among 1,116 Canadians, even though the mortgage stress test is a safeguard against such scenarios.
The fear of not being able to pay mortgage or rent payments if Canada faces a recession affects Canadians of all ages, with 25% of Millenials (ages 26 to 41), 27% of Gen X (ages 42 to 57), and 14% of Baby Boomers (ages 58 to 76) stating they’d be concerned about it.
Missed mortgage payments can occur, whether on purpose or because you are unable to raise the funds. Whatever the cause, the sooner you take care of the problem, the better.
What occurs if a mortgage payment is missed?
Even though mortgage lenders have a 15-day grace period during which they can file a lawsuit, this rarely happens. Instead, the series of happenings usually proceeds through the next few steps.
You’ll pay late fees
The terms and late fees that apply to your mortgage are stated in your mortgage contract. Fees can be incurred as soon as the payment is late and typically range from $25 to $50.
Your credit score might drop
Your missing payment will really be reported to credit bureaus after 30 days. Your credit score is calculated differently by each credit reporting agency (Equifax and TransUnion), but a history of timely payments (or lack thereof) is a significant factor. Your credit score will suffer the more severely your payment is past due.
Once recorded to the bureaus, late payment remains on your credit report for a maximum of seven years, even after you compensate for the missed payment.
You might go into default
Your mortgage will into default if you haven’t made a payment 30 days after the due date. This is a serious scenario that could result in foreclosure and severely damage your credit.
You could lose your house
A mortgage is a loan for which your house is put up as security. The home can be legally taken back and sold by the lender to make up for their losses if they don’t receive payments in accordance with the conditions of the mortgage agreement. Foreclosure is the term used for this.
Each province has a different foreclosure procedure. The judicial sale or judicial foreclosure are the terms used in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, and Nova Scotia, respectively. The house’s title is ultimately transferred to the lender through a drawn-out legal process that could take up to six months, and the lender then keeps all the sale proceeds.
Power of sale
Instead of using the foreclosure process, Newfoundland, New Brunswick, Prince Edward Island, and Ontario use the power of sale procedure.
A notice from the lender giving you 35 days to make up for late payments triggers the power of sale. The procedure ends as long as you get back on track, but you’ll still be responsible for any connected fees and your credit score will suffer.
The power of sale is used to transfer ownership to the lender if you don’t make the necessary repairs within 35 days. Power of sale occurs far more quickly than judicial foreclosure since it bypasses the court system.
How long before a payment is considered “missed”?
The majority of Canadian lenders will grant you a 15-day grace period until deeming your missing mortgage payment has occurred. Due to this grace period, your payment won’t be considered late until it is 15 days past due, and you won’t normally be responsible for late fees until then.
A missed payment will be reported to the credit bureaus if it is not received by the lender 30 days after the due date. At this point, the effects start getting worse.
What is a “rolling late”?
Skipping a payment and failing to make a mortgage payment are two different offenses. You are not back on schedule if you miss the mortgage payment one month and then start paying again the following month (essentially skipping the missing payment). The subsequent payment is regarded as a catch-up payment for the initial missed payment.
You’re in a “rolling late” position where every successive payment is treated as being past due unless you double up on the mortgage payments in order to up for the missed payment. This implies that you will be assessed late fines each month, which might negatively impact your credit score.
Make up the missed payment as soon as you can, then restart your usual payment schedule, to avoid the situation of rolling late payments.
How many missed mortgage payments are required in Canada before foreclosure?
Since foreclosure is a time-consuming and expensive process, it is not started right away after a missed mortgage payment. After 30, 60, and 90 days after you stop making payments, you’ll probably receive letters from your lender. After 90 days, if you haven’t replied to these letters, foreclosure proceedings will start.
Think you’ll miss a mortgage payment?
The better, the more proactive you are. Contact your lender as soon as possible if you believe you will be late with a payment. If you notify them in advance rather than waiting till after you miss the payment, they are more likely to reach an agreement and mitigate the effects of a missed payment.
Make a payment ASAP
The lender might let you make a late payment based on the situation (with or without a fee). If your predicament is more serious, they might assist you in creating a repayment strategy, making changes to the mortgage (such as prolonging the amortization), obtaining a second mortgage, or even setting up a deferment.
What to do if you’ve already missed a mortgage payment
Again, the sooner you start talking to your lender, the more alternatives you’ll have to work with it so you can keep your house and continue to pay your mortgage.
You might wish to seek counsel from a lawyer or mortgage broker if your financial status has significantly changed and you don’t believe you will be able to continue making your mortgage payments in the future. If you’re in danger of foreclosing, you might want to think about selling rather than going through with it because both bankruptcy and foreclosure are worst-case situations with long-term effects on your credit.
This survey was conducted online by The Harris Poll on behalf of NerdWallet from September 6-7, 2022 among 1,116 Canadian adults ages 18 and older. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this study, the sample data is accurate to within +/- 2.8 percentage points using a 95% confidence level.