What To Do When You Cannot Pay Your Mortgage (Part 2)
So the reality is that life happens and we can become unable to meet our obligations. This week and next, we are going to take a closer look at this situation to develop strategies to get you through as painlessly as possible. This week, we will start with those who have mortgage default insurance.
There are 3 mortgage default insurance providers in Canada: CMHC, Genworth and Canada Guaranty. If you put less than 20% down on your mortgage, you will have paid one of these 3 to insure your loan in case of default. The mortgage lender is the beneficiary of this insurance as they have an assurance that in the case you default, they will not incur any losses.
If you find yourself unable to make the mortgage payment, the first step is to get into contact with your mortgage provider. Write down what has happened, be able and be willing to provide a list of assets and liabilities, and explain what steps you have taken on your end to meet the obligation. Tell them of the expected timeline to catch up. For example, you have lost your job but start another in 2 weeks. Be proactive and do not ignore their phone calls.
If you are unable to come to terms with the mortgage provider, you can opt to contact the insurer to intervene on your behalf. Each of the 3 has a direct line for consumers. There are many options they have available for you. Their goal is to avoid the expensive foreclosure process. No one wants to see you lose your home, that I can promise.
Here is a list of the ways they can help in the short term:
- Your variable rate mortgage can be converted into a fixed rate to re-establish the amortization schedule
- If you have prepaid the mortgage, you may be able to reborrow those funds.
- Deferring mortgage payments up to 4 months.
If your troubles are of a more long-term type:
- Extended mortgage payment deferral if you need more than 4 months.
- Extension of amortization period to a maximum of 40 years to decrease the payments.
- Special payments arrangements, as long as they are reasonable, may be negotiated.
- The bank has the ability to approve a capitalization of up to $20,000 to cover past due principal, property taxes, interest, condo fees, utilities and property repair.
If your situation is more complex:
- Combination of any of the above.
- Interest only period which brings the payments within affordability
If all the above will not mitigate the circumstances and foreclosure is unavoidable:
- Sale by borrower – You agree to stay in the home and maintain it to get the best price. The home is sold and the bank repaid. You will be expected to continue with some payments during this time.
Involve the bank and the default insurer as soon as you can. Early and well-planned analysis of the situation with financial assistance can, in the majority of cases, remedy the default problems. This is also the best way to preserve your credit and future borrowing ability. Life can happen, we will get through it together. Call your mortgage professional today for more info.