There are times in our lives when the unexpected happens and we find it difficult to cope financially. It could be a job loss, an unexpected illness, the death of a loved one or separation and divorce. There may be enough money to get by for a few months, but soon families may find themselves overwhelmed as the bills start to mount and household finances begin to dwindle. Then households may start to miss payments to creditors, including a mortgage payment. While a one-time missed payment can easily be dealt with, long term problems may need a different approach. Consider the following:
Missing payments. If there are a few missed mortgage payments, it might be difficult to get a bank loan to pay the arrears. By missing payments, it looks as if 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 made up.
How a lender views arrears. Again, it might be a challenge to get a loan when in arrears, especially if you’re not working. Lenders may, however, work with clients on a plan to pay the arrears while keeping other payments current. This can be quite onerous and stressful since lenders usually want the arrears cleared up as quickly as possible.
Interest rate for arrears and/or default. Lenders will charge a default or penalty interest rate, which is normally charged on the overdue amount. If the lender proceeds with a Power of Sale or foreclosure, then legal costs are added on top of the penalties. Remember, mortgage payments must stay current and paid when due along with payment for the arrears as per the repayment plan, which includes the penalties.
When will the lender be concerned? Generally, after two missed payments. Some lenders may contact you sooner. It’s important to be proactive and speak to the lender to try to work with them. Lenders will first want to work with borrowers (and potentially the mortgage insurer, if there is one, to help bring the client current)
What can the homeowner do? Communicate openly and early. The longer it’s left, the more bank fees and legal fees get tacked on, which eats into the equity in the property. There is help.
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
Since every situation is unique, it’s important for us to talk as soon as problems start – it can be the difference between keeping a home and losing it.
Let’s talk. Call me today.