Many expenses are competing for your paycheque, and it can be hard to manage all of them. Keeping up with your mortgage payments, however, is critical. Missing payments can cause financial problems, and you could lose your home. So, if you’re thinking, “I can’t pay my mortgage,” rest assured, there are options that can help.
Your Mortgage
A mortgage is a loan secured by property. You can get a mortgage from a financial institution, through brokers, or a private lender. It consists of the amount you borrowed, your interest rates, your payments and the amount of time it will take you to pay it off, known as amortization.
Your payment is based on the amount you borrowed, your amortization, your interest rate and how often you choose to pay your mortgage (monthly, semi-monthly, bi-weekly, accelerated bi-weekly, or weekly). Your payment will change if your interest rate, amortization, or payment frequency changes.
Interest rates have increased significantly since March 2022. These rate hikes have led to increases in mortgage payments for borrowers with variable-rate mortgages and mortgages coming up for renewal. For some borrowers, mortgage payments have increased by several hundred dollars a month.
It may be challenging to make your mortgage payment if it has increased, the cost of living has affected you, or if you’ve had a personal setback. Let’s look at some steps you can take if you have financial difficulty or your mortgage payments are behind.
Managing your mortgage payments
Inflation and the increase in interest rates are straining household budgets. Knowing where your money is going is a critical part of being able to manage your payments. Seeking mortgage help if you don’t have enough income can also assist with keeping your payments up to date.
The Financial Consumer Agency of Canada (FCAC) ensures financial institutions help mortgagors experiencing financial hardship. However, you must contact your lender as soon as you anticipate your payment might be late so you can begin exploring your options.
Budget
The first step is to create a budget. List the money coming in from all sources and all your expenses. If there is a shortfall, see if there are expenses you can reduce or cut.
Another option is to find ways to increase your income, such as asking for a raise, starting a side hustle, or selling items you don’t need.
Increasing your income or decreasing expenses can take time before you see results. Other options are available if you will be late or behind on your mortgage payment.
Financial support
You might qualify for financial support if you have lost your job or can’t work for health reasons. Government benefits like Employment Insurance can be a lifeline in these situations.
Check to see if you have disability insurance through your workplace. Your employer may offer benefits you’re not aware of.
Finally, look to see if you have creditor insurance on your mortgage. Some borrowers purchase disability, critical illness or job loss insurance. These types of insurance can make your payments for a while. Some creditor insurance may pay off your mortgage.
Mortgage deferral
A mortgage deferral allows you to miss a mortgage payment or sometimes more than one. Missed payments will accrue interest and be added to your mortgage or extend your amortization. This means that the amount you miss, plus the interest, will be added to the amount you owe. However, the benefit of deferring your mortgage payment is it gives you time to catch up on expenses without affecting your credit rating.
Deferring your mortgage payments typically leads to added costs. The amount you miss, plus the interest, will be added to the amount you owe. Once you can make your payments, talk with your lender to see how to reduce those additional costs.
Increasing your amortization
You can talk to your lender about extending the time you take to repay your mortgage. A longer amortization typically increases interest costs but can help you keep your payments low. Depending on your mortgage type, you may be able to increase your amortization to 25 or 30 years.
Refinancing your mortgage
If you have enough equity in your home, you might be able to refinance it to reduce your payments by lowering your rate or increasing your amortization.
You can also refinance your mortgage to pay off other debts, so you only have one payment. Getting rid of other debt payments might give you enough room in your budget to make your mortgage payments.
Another option is to convert your mortgage to a secured line of credit. You need a significant amount of equity in your home to do this. If available, payments on a line of credit are often interest only, which can keep your payments low.
These options can work for you. However, each can significantly add to your costs by increasing the interest you must pay. Additionally, your lender must approve your request to make changes to your mortgage.
Sell your home
Once you explore all your options, you may still think, “I can’t pay my mortgage”. Sometimes, selling your home makes sense, even though it will be difficult.
It can bring a sense of relief to get out from under the burden of high mortgage payments. Before selling, it’s essential to:
- Find out how much you owe.
- Determine the selling expenses (realtor fees, mortgage penalty, taxes, moving costs).
- Research to see if you can sell it for more than you owe and expenses.
- Find out how much it will cost to rent or downsize in your area.
If selling your home will not cover the mortgage and expenses, there are other debt-relief options to consider:
Debt negotiation
Having too much unsecured debt like credit cards, lines of credit, or personal loans can leave you with little money to pay your mortgage. Failing to make your mortgage payments can lead to increased fees, higher interest rates, the bank’s refusal to renew your mortgage or losing your home in a home foreclosure.
If the lender forecloses on your home, they take control of the asset and sell it. You may be responsible for paying the difference if you owe more than the selling price.
One way to get control of your debt is to meet with a Licensed Insolvency Trustee (LIT). LIT’s are licensed by the Federal Government and therefore they offer government-approved debt solutions.
LITs offer credit counselling, Consumer Proposals, and Bankruptcy for debt relief. Each option affects you differently. Your LIT will help you decide which will work best for your situation.
- Credit counselling- A LIT will look at your income, debt, and expenses. They’ll offer advice on adjusting your spending or restructuring your debt to make your mortgage payments. This might be all the help you need to get back on track.
- Consumer Proposal- A Consumer Proposal is a form of debt negotiation your LIT can do on your behalf. It can reduce your debts by up to 80%. If your creditors accept the Proposal, you will make one monthly payment for up to 60 months to pay off what you owe. You keep all your assets, including your home.
- Bankruptcy- Filing for Bankruptcy will eliminate your debt in as little as nine months. It gives you the chance to start fresh. However, you could lose many of your assets, including your home. Each province outlines the assets you can keep if you file for Bankruptcy.
Where to get Debt Help
Admitting “I can’t pay my mortgage” is one of the most stressful financial situations. If you’ve contacted your financial institution but their homeowner debt solutions won’t work for you, call us at 1-888-371-8900 or contact us online for a free consultation to review debt options.
Our LITs at Allan Marshall and Associates will help you find the right solution for your debt. We’ll help you resolve your debt problem as quickly as possible so you can get a fresh new start.
