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After almost 2 years of interest rate hikes, it’s no surprise that some people are struggling to make their mortgage payments. Whether you’ve got a variable-rate mortgage that has been steadily increasing or you’ve just renewed your mortgage at a higher rate, read on for our best advice to help keep you in your home.
What Happens If I Don’t Make My Mortgage Payments?
If you don’t make your mortgage payments on time, your bank can (and will) take steps to recover the money they are owed. You may be surprised at how fast they start the collections process, and while it may be tempting to ignore your lender’s phone calls and letters, it’s important to understand that they have the legal right to force you to sell your home (either through a power of sale or foreclosure). Defaulting on a mortgage is serious – and the consequences are greater than late fees and penalties.
If your mortgage is coming up for renewal and you’ve missed multiple payments, your lender may choose not to renew your mortgage. That means you’ll have to requalify for a mortgage under the current stress test rules and may struggle to find a lender willing to give you financing. If you are successful in finding a new lender, expect to pay much higher interest than the going rate; if you aren’t successful, you’ll likely need to sell your home. Don’t wait until the last minute to talk to your lender about an upcoming mortgage renewal.
The Worst Thing You Can Do If You’re Struggling to Pay Your Mortgage
Your bank wants to work with you – not against you. If you’re struggling to make a mortgage payment, it’s critical that you talk to your lender BEFORE you miss a payment. They’ll explore ways to help – from reducing the amount of your payment to restructuring your debt to extending your amortization.
The most risky thing you can do is not make any payment – even a partial payment shows your lender that you’re taking your mortgage commitment seriously.
Immediate Strategies to Consider:
- If your mortgage allows you to skip a payment without penalty, consider taking advantage of it. Most traditional lenders allow you to skip up to two payments a year, provided your mortgage is in good standing. While the interest will continue to accrue and it will cost you more in the long term, it can be a quick fix to a temporary money problem. Talk to your lender or read the fine print in your mortgage documents to see if this applies to you.
- If you’ve made extra payments on your mortgage in the past, you may be able to waive the equivalent amount of monthly payments. Many traditional mortgage products allow you to double up your payment each month and offer the option of a 10% paydown once a year. So if you’ve been paying an extra $200 a month on your mortgage for the last 2 years, you can likely skip $4,800 of payments. It’ll erase the interest savings of the pre-payments, but it does provide flexibility. Talk to your lender.
The Next Worst Things You Can Do
Never skip a payment or be late on your:
- Property taxes
- Income taxes and HST
- Home and car insurance
The City of Toronto and the CRA are quick to garnishee your income if you’re late – meaning they go directly to your employer for payment, bypassing you entirely. In Ontario, they can garnishee up to 50% of your income. IMPORTANT: If you’ve been garnisheed, you probably won’t qualify for a mortgage at renewal time and may be forced to sell your home.
It’s also important to always pay your home and car insurance on time. If you’re already under financial stress, the last thing you need is to find out you don’t have insurance in the event of an accident, break-in or fire.
Get Real About Your Debt
Experts have been warning us for years now that Canadians are carrying too much debt – in fact, according to Equifax, Canadians owed $107 billion on their credit cards in Q2 2023 (yep, that’s an all-time high). That works out to non-mortgage debt of $21,131 per Canadian credit consumer. In Toronto, the average consumer was carrying $20,067 of non-mortgage debt.
|Average Amount of Non-Mortgage Debt
Unless your cash crunch is temporary and will only last a few weeks, it’s critical to get real about your debt and expenses.
- Make a list of all the debts you owe and your monthly payments. Include credit cards, credit line minimum payments, car loans and consumer loans. Add it up.
- List all your non-negotiable monthly expenses – utilities, insurance, property taxes, transportation and groceries. Add them up.
- How do your monthly debt and expense obligations compare to your monthly after-tax income?
Don’t Play the Shell Game
It’s easy to get sucked into a never-ending financial shell game, where you pay one debt off with another. Don’t pay your mortgage with an advance from your credit card. Don’t pay your credit card with your credit line. Don’t pay your credit card with your overdraft protection. And please, please, please, don’t ever get a payday loan.
Moving your debt from one pile to another won’t help you in the long run. It just means more piles of debt, more interest to pay and more pain in the long run.
Stop the Bleeding and Commit to a Cash Lifestyle
I’m not just suggesting cutting out your daily Starbucks – if you’re struggling to make your mortgage payments, it may be time for a serious ‘Necessities Only’ budget. No more eating out. No Amazon purchases or online shopping. No new clothes or books or travel. There are lots of great online resources to help you create a budget and cut expenses, but if the process intimidates you, start with this:
- Check ALL your credit card and bank statements for the last 12 months. Cancel any subscriptions or recurring charges unless they are ABSOLUTELY necessary. I guarantee you’ll find at least 3 monthly expenses for things you don’t even remember signing up for.
- Ask for loyalty discounts. For the recurring charges you deem ‘necessary’, call the companies and see if you qualify for any loyalty discounts. I regularly get 30-50% off my bills just by calling and asking. Do this at least once a year.
- Remove your credit card details from the online stores where you shop. If you have to input that information each time you make a purchase, you’ll buy less. We’re all lazy that way.
- Take those credit cards out of your wallet – better yet, cut them up. Pay for everything with cash. Don’t have the cash? Don’t make the purchase. While this won’t help your existing debt problem, it will help prevent your debt from getting even higher.
- Talk to your lender about consolidating your non-mortgage debt into your mortgage by refinancing your current mortgage (to a max of 65% of the value of your home). While this will deplete the equity in your home, it’ll save you from paying high-interest credit card rates and may help bring your monthly debt obligations in line with your income.
- Remember that your HELOC (home equity line of credit) is NOT a bank machine. Don’t dip into it unless it’s an emergency. HELOCs deplete the equity in your home and can cost you tens of thousands of dollars in interest over time.
Find Ways to Bring in More $$
Cutting expenses only goes so far – if you want to get out from under that pile of debt so that you can continue to make your mortgage payments, you need to get creative about bringing IN more money. Consider:
- Getting a part-time job
- Starting a business or side hustle (provided it won’t cost you much to start)
- Moving to a higher-paying job
- Selling unused items
- Renting out a room in your home
- Occasionally Airbnb-ing your home and bunking with a friend when it’s booked
- Dipping into savings (talk to your bank or accountant if you’re thinking of dipping into your RSP or TFSA so that you understand the full implications)
- Asking family for help
If All Else Fails…
If you’re in a lot of consumer debt (in other words, non-mortgage debt) with no manageable way to make your payments, you might want to consider talking to a trustee about a Consumer Proposal or bankruptcy. While both options will affect your credit rating and future ability to obtain credit, they may solve your cash flow problems and help you stay in your house.
Don’t Forget To Talk to Your REALTOR!
If you’re having a hard time making your mortgage payments, talk to your REALTOR, ASAP. In addition to having lots of financial contacts and strategies, we can help you understand how much your home is worth in today’s market and what real estate options you might have.