In today's challenging economic climate, where interest rates are on the rise and a potential recession looms, the prospect of missing one or more mortgage payments can become a harsh reality for numerous homeowners in Canada. Understanding the consequences that follow when mortgage payments are missed is essential, regardless of the circumstances. It is crucial to be informed about the potential outcomes and take proactive measures to address the situation promptly.

Fortunately, there are several viable steps you can take to prevent the possibility of losing your home through foreclosure or power of sale, or damaging your credit.  However, it requires a deep awareness of the situation and close collaboration with your lender and other professionals to safeguard your property from potential loss. It is important to emphasize that this article does not provide legal advice, nor does it encompass all available options. Seeking assistance from a qualified professional as early as possible is imperative in navigating your specific circumstances successfully.

So let's start by covering what happens when you miss a mortgage payment:

The Impact of Missed Mortgage Payments

Late Payment Penalties and Fees

When you miss a mortgage payment, lenders typically impose late payment penalties and fees. These charges can vary depending on your mortgage agreement, but they often range from a percentage of the overdue amount to a fixed fee. These additional costs can accumulate quickly, putting a strain on your finances and making it even more challenging to catch up on missed payments.

Negative Effects on Credit Score

Another crucial consequence of missing mortgage payments is the negative impact on your credit score. Your credit score plays a pivotal role in various aspects of your financial life, including future loan applications, interest rates, and even potential employment opportunities. When mortgage payments are missed, it can significantly lower your credit score, making it harder to secure favourable loan terms in the future.

Risk of Foreclosure or Power of Sale

Perhaps the most severe consequence of consistently missing mortgage payments is the risk of foreclosure. Foreclosure is a legal process that allows lenders to seize your property due to non-payment. It is crucial to note that foreclosure laws and procedures can vary depending on your province,  so it's important to consult with legal professionals for accurate information pertaining to your specific circumstances. Losing your home through foreclosure or power of sale can have a devastating impact on your financial stability and personal well-being.

If I missed a mortgage payment, how long do I have before the power of sale proceedings start?

Before the power of sale can begin, the foreclosing lender needs to serve you notice and allow for a redemption for a certain period of days. In Ontario, this time period is 37 days. This means that you have 37 days to clear the mortgage debt in full and bring your mortgage to good standing with your lender.  If the power of sale is statutory, you have 45 days to come up with the money. Under the mortgage act, the lender has no right to commence any further action against you until the notice of sale expires.

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Strategies to Avoid Missed Mortgage Payments

Open Communication with Your Lender

If you find yourself facing financial difficulties that may affect your ability to make timely mortgage payments, it is essential to establish open communication with your lender. Most lenders have dedicated departments to assist borrowers who are experiencing financial hardships. By reaching out and explaining your situation, you may be able to negotiate alternative payment arrangements or explore options such as loan modification or forbearance.  Recently, Canada also introduced consumer protection guidelines for lenders that help them deal with borrowers under financial stress. Despite what you may perceive, lenders are usually quite flexible and willing to work with a homeowner who has fallen behind on mortgage payments. This is because a power of sale process takes time and is quite complicated.  Remember that your lender is in the business of lending money, not owning properties.  If you know you are going to be missing a mortgage payment, reach out to your lender prior to missing the payment to discuss options.  Be honest and upfront and don't hesitate to escalate the matter to the management team at your mortgage lender.

Refinance Your Current Mortgage

Depending on the equity you have in your home, you may have the option to refinance your property with another lender and pay off your initial mortgage, or in some situations, arrange a second mortgage to pay off the first mortgage.  A new mortgage may allow you to reduce your monthly payments through a longer amortization process. In addition, contacting a reputable mortgage broker may be able to analyze your situation and offer alternative solutions and access to financial products that your bank or current lender may not have at their disposal.

Selling Your Property

Similarly, you may be able to have the opportunity to sell your house prior to a power of sale and use the proceeds from the sale to pay off your mortgage balance.  For many homeowners, this is a last resort, however, keep in mind that sometimes it is the only viable solution.  If your plan is to sell the property to avoid a power or sale or further missed mortgage payment, speak with your lender and inform them of your intentions.  Once again, your lender may collaborate with you to come up with a solution.

The Bottom Line

In conclusion, missing mortgage payments can have serious consequences on your financial well-being and homeownership journey. The penalties, negative impact on credit scores, and the risk of foreclosure underline the importance of prioritizing mortgage payments and taking proactive measures to avoid missed payments. By establishing open communication with your lender, creating a budget, exploring government assistance programs, and seeking professional financial advice, you can mitigate the risks and ensure a more secure financial future.