Most of us don’t plan on missing our mortgage payments - but has a way of throwing financial curveballs, now and then. Unfortunately, the majority of us also don’t know what our options are if we do find ourselves unable to meet our mortgage obligations. There are a number of unexpected reasons why you could fall behind on payments: unforeseen major expenses, health problems, losing your job, and so on. But there are alternatives to simply waiting around for your lender to foreclose. The key is to know what you can do when the unanticipated happens.
A recent survey commissioned by the Lawyers’ Professional Indemnity Company (LawPRO), found that 61 per cent of Canadians don’t know what their options are if they can’t make their mortgage payments. Nearly three quarters (74 per cent) of younger homeowners (18–34 years old) are unaware of the alternatives to foreclosure available to them.
“Arming yourself with knowledge is key,” says Ray Leclair, vice president of public affairs for LawPro. “But most people’s reaction is to stick their head in the sand and hope the problem goes away.”
In most cases, you’ll know that you won’t be able to make your payments long before your bank does. Rather than hiding from the problem, you should prepare for a conversation with your mortgage provider.
If the cash shortfall is going to be short-term, say, you’re uninsured, self-employed, and an injury is going to keep you out of work for a few months, contact your lender before they call you. Explain the situation and they’ll most likely renegotiate the terms until you get through the rough patch. (Banks want to sell mortgages, not houses, so they’d really rather keep you in yours.)
If you know you’re going to be falling behind for an extended period of time, you should meet with a real estate lawyer or a bankruptcy trustee to find out what your specific options are before contacting your bank. Ultimately, the goal is to “negotiate from a position of strength,” says Leclair. “There are a lot of things that can be done. The sooner you do it, it puts you in a much better position.”
Here’s a rundown of the choices you may have.
In order to keep you in the house and making regular payments, your bank might be willing to renegotiate your mortgage rate and terms. If not, contact a mortgage broker to see if they can find you another lender who will. There will likely be penalties for breaking your mortgage, but the monthly savings could outweigh those and more.
If your other debts are preventing you from being able to make your mortgage obligations, a bankruptcy trustee can help you arrange a consolidated loan, rolling multiple, high-interest loans into one, lower-interest payment. In some provinces, you may be able to arrange a formalized consumer proposalto organize your debts at more favourable terms.
Rental income may be the secret to your budget shortfall. Your bank may even be willing to loan you money to create an extra apartment in your home, provided you can show that rents in your area would justify the cost.
If it’s a potential option, consider asking family for some support. It could be in the form of a gift, or a loan with a structured repayment plan. Leclair cautions that parents and others who might come to another’s aid to, “get the full picture.” If you’re behind on your mortgage payment, odds are you’re also behind on your property tax, utilities, and other bills.
If none of the above will solve your debt woes, sell your home and use the proceeds to pay off your debts. But don’t wait for the bank to do it. Simply ignoring the reminder notices your lender sends will not stop them pursuing legal action to repossess your home. You’ll not only shut yourself out of the legal process, you’ll get little to no notice of when the bank will sell the property or how much they’ll ask for. (They’ll lowball it for a quick sale, and most bidders will as well.) Even if you don’t have much (or any) equity in the home, selling it yourself helps avoid having your credit report labeled with the stigma of “foreclosure.”
One thing you definitely should not do is use credit card cash advances or other high interest loans to try to make one month’s payment, because you’ll only make it harder to make the next one.
What would you do if you couldn't make your mortgage payment?