Did you know that, overall, 40 percent of Canadians have a mortgage, and most Canadians aged 25 to 44 (nine in 10) will hold a mortgage at some point in their life? The average amount owing is $200,000.
All of this is to say that a lot of Canadians are holding debts of all kinds in their accounts. Are you wondering, ‘what happens if I miss a mortgage payment in Canada’ due to certain extenuating circumstances?
No matter how much you would like to believe that life goes steady and smooth, your financial life will probably take a few tumbles down the road. Seeing the ravaging effects of the recent pandemic has made that quite clear.
This article will explain what happens to your credit history after a missed loan payment.
Most Lenders Give You A ‘Skip a Payment’ Option
If you hold a mortgage in Canada, you are probably dealing with a bank or a credit union. Most financial institutions have a ‘Skip a Payment’ option included within their mortgage.
If you know that you are going to be missing a payment or two in the upcoming months, you can use this ‘Skip a Payment’ feature. It’s usually available through your online banking account. Or you can call your financial institution directly to make this happen.
Call Your Lender To Speak About Your Options
Not sure if your mortgage comes with such an option? Then call your bank and talk to them about your financial situation.
Inform them that you might end up missing a couple of mortgage payments. The great thing about having such a conversation is that your lenders have can be more lenient with you or offer you some other options.
They might be able to suggest a compromise that could allow you to skip on a couple of mortgage payments without affecting your credit score. That’s why you must call your lender as soon as you realize that your financial situation has changed.
What About An Accidentally Missed Mortgage Payment?
Of course, you might end up with an accidentally missed mortgage payment. As soon as you realize that you have missed one, call your financial institution asap and get the situation rectified.
Perhaps you could put in an extra amount into your mortgage in the next payment, so your mortgage is still balanced.
If your lender allows this option, try to make your mortgage payments automatic, so they are directly debited out of your account every month. This will remove the possibility that you end up missing a mortgage payment because you were too busy or distracted.
Most Lenders Give You A 15 Day Grace Period
Another thing to be aware of is that a lot of lenders also have a 15-day grace period integrated into the mortgage system. If you end up missing a mortgage payment, you have 15 days to pay the missing payment before the lender starts penalizing you for it.
This doesn’t mean that you always keep taking advantage of this grace. But if it’s necessary, you can delay your mortgage payment by some time, while you try to borrow money from your friends, family, or other avenues.
A Mortgage Is A Promise To The Lender
When you take out a mortgage, you are essentially promising the lender that you will make all your payments on time and without delay. Whatever the cadence of the mortgage payments might be, biweekly, monthly, bimonthly, or weekly, that doesn’t matter.
You just have to pay the bill in full every single time.
Even so, the mortgage lenders understand that life happens and sometimes you can’t help but miss a mortgage payment or two. That’s why the mortgage system has this grace period built into it.
Recuperate A Missed Loan Payment ASAP
Keep in mind that if you ever miss a payment, you HAVE to make up for that missed payment at some point in time. You can’t just pretend like it never happened and add it to the principal loan amount.
If you miss one mortgage payment and then pay the next payment on time, that following month’s mortgage payment will be considered LATE.
Because you are essentially playing catch up with your payments. This is because the following month’s mortgage payment is covering your previous month’s missed mortgage payment and so on.
Beyond the Grace Period, Your Credit Score Will Be Downgraded
Once the grace period has ended, and you are still behind on mortgage payments, certain repercussions will be handed down. This is especially true if you don’t have a conversation with your financial institution to explain your situation.
Here are some other late mortgage payment consequences.
Every time you have a late payment, late fees are added to the equation. One or two of these late payments are not such a big deal.
But if you have many missed loan payments, then you are going to be in deep trouble. Try as much as possible not to get yourself into this situation, by borrowing money from friends or family. Or try dipping into your savings or emergency fund to tide you over until you fix your financial situation.
Credit Score Suffers
How does missing a mortgage payment affect credit?
When you have a late payment by 30 days or more, the financial institution will report the late payment to the credit bureaus. You might already know the impact of late or missed payments on your credit score – 35 percent of your credit score is related to missed payments.
One or two late payments won’t affect your credit score too much, especially if you have a high credit score to start with. This late payment will be considered an anomaly.
BUT if you have a poor credit score, to begin with, then a late or missed payment could have more negative consequences on your credit score.
Remember that a late or missed payment stays on your credit history for six years from the date filed.
What If You Are 60 Days Late On Your Mortgage?
This is when things get serious. Some of the steps your lender might take if you are 60 days or more late on your mortgage are:
- They might assign someone to your account, and that person will contact you and let you know about your options
- They will also start charging late payment fees to your account, every time you miss a mortgage payment
- Your account will go into the delinquent mode
- Every time you miss another payment, another delinquent report is sent to the credit bureaus, further deteriorating your credit score
- By the time you miss a second payment, you are also in default
- After FOUR missed payments, your mortgage can start the foreclosure procedure, unless you come to some kind of agreement with your lender
That’s why you must speak to your lender as soon as you know that your financial situation has changed for the worse. DO NOT WAIT until it gets worse.
In October 2021, 8,720 mortgages in Canada were in arrears (3-4 months behind in payment). If these people don’t want to lose their homes, they must come up with some other arrangement with their lenders.
Financial institutions can be quite understanding about these kinds of things. Even during COVID-19, one billion dollars worth of mortgages were deferred due to the pandemic’s detrimental effect on finances and job situations.
Some things you could potentially do to pay your late payments:
- Borrow from friends or family
- Dip into your emergency fund or savings or your children’s college fund
- Borrow from your RRSP, TFSAs, or other investment accounts
- Get another credit line or HELOC to cover your mortgage for a while
- Start selling certain valuable household items, like your automobile, jewelry, or electronic
You have to think creatively when it comes to a missed loan payment. If you don’t handle it right, it could devastate your credit scores and future financial life for a long time to come.
What Happens If I Miss A Mortgage Payment?
Now you know what happens if you miss a house payment. If you are reading this article and feeling apprehensive about what’s coming your way, don’t be disheartened.
If you take the right steps at the right time, you won’t have to sit there beating yourself up over things.
The great thing about financial situations is that you can take some steps to improve things and if you take the right steps, things could improve very fast indeed. The opposite applies as well – things could deteriorate very fast as well if you take the wrong steps.
‘What happens if I miss a mortgage payment?’ One missed payment or two aren’t such a big deal, but more than that, they can crack your financial life’s foundation.
If you are in too much debt, credit card, and more, consider refinancing your mortgage with Mortgage Brokers Network today. Contact them today to find out how they can help you build a brighter financial future.