Working with a mortgage broker is a different experience than working with a bank specialist. It’s also a different part of the home buying process compared to working with your Realtor. Some people may have never worked with a mortgage broker before and don’t know what to expect. Because of that, there are some questions…Read Article
Missed Mortgage Payments and Mortgage Deferrals
There has never been a good time to miss a mortgage payment. While Canadian lenders stepped up and offered mortgage deferrals to those affected by COVID-19, there are still homeowners unable to make their mortgage payments.
According to Canadian Mortgage Trends, one in 20 homeowners said they missed a recent mortgage payment due to the pandemic. The survey from Forum Research polled 1,335 people on April 13. It found that up to 76% of the people who missed a recent mortgage payment said they will miss another payment before the COVID-19 pandemic ends.
Missed Mortgage Payments
While this is a very small sample size, as a mortgage broker in Kelowna, this is something I’m seeing on a regular basis. There are times in our lives when the unexpected happens and we find it difficult to cope financially. Whether this is missing mortgage payments or having to ask for a mortgage deferral.
Homeowners in Kelowna may have enough money for a couple of months, but it’s easy to become overwhelmed as the bills start to mount and household finances begin to dwindle. When a homeowner starts to miss payments to creditors, including their mortgage payment, long term problems arise that need a different approach.
Here are some things to consider if you have a mortgage in Kelowna that you’re not able to pay.
A Lender’s Views on Arrears
If there are more than a few missed mortgage payments, it can be difficult to get a bank loan to pay the arrears. By missing payments, it flags lenders that there might be an issue repaying the loan. There is a difference between a missed payment and a late payment. A missed payment is one that is completely missed and never made up. A late payment is one that’s not paid on time but is eventually made up.
It could be a challenge to get a loan when in arrears, especially if you’re not working due to COVID-19. The good news is that lenders will sometimes work with clients on a plan to pay the arrears while keeping other payments current. Lenders will want arrears cleared up as quickly as possible, which means it can be quite stressful for Kelowna homeowners in this situation.
Penalties for Missed Payments
When you’re not able to pay your mortgage on time, lenders will charge a default or penalty interest rate. This is normally charged on the overdue amount. If the lender proceeds with a Power of Sale or foreclosure, legal costs are added on top of the penalties. Remember, mortgage payments must stay current and be paid when due, along with payment for the arrears, as per the repayment plan. This includes the payment of penalties.
Generally, after two missed payments, a lender will become concerned. Some lenders will even contact you after the first missed payment. Once you know you’re going to miss a payment, it’s important to be proactive and speak to them about your mortgage. Lenders will first want to work with borrowers and potentially the mortgage insurer to help bring the client current.
What Kelowna Homeowners Can Do
The most important thing that a homeowner can do when they know they’ll miss a payment is to communicate openly and early. The longer that it’s left, the more bank fees and legal fees will be tacked on. This will all eat towards the equity in the property.
One positive is that there is help, especially during COVID-19. If you have an insured mortgage, the insurer may have an assistance program that offers a variety of solutions. Some common options include:
- Add arrears to mortgage
- Increase amortization period
- Deferred payments
- Restructure mortgage
- Reduced payments for a period of time, then make up arrears
Getting a Mortgage Deferral in Canada
In my last blog post “Mortgage payments during the COVID-19 Crisis”, I spoke in depth about mortgage deferrals. I thought it would be important to mention it briefly here as well.
Last month, six of Canada’s largest banks announced that they’d be allowing mortgage payment deferrals due to COVID-19. The Bank of Montreal, CIBC, National Bank of Canada, RBC Royal Bank, Scotiabank TD Bank and most other lenders have all agreed to allow mortgage payment deferrals for up to six months.
This is a very good option for homeowners who have been affected by the virus and are unable to work. By applying for a mortgage deferral, you remove the risk of how missed payments will affect your lender and your mortgage. Please note, a deferral is not a forgiven payment. You will still have to pay this amount, it’s just being moved for now. You can read more information on applying for a mortgage deferral here.
Since every situation is unique, it’s important for us to talk as soon as problems start with not being able to pay your mortgage – it can be the difference between keeping a home and losing it.
If you’ve already missed mortgage payments or believe that you’re going to miss one in the next couple of months, reach out to me today. Let’s work together on saving your home while saving you money.