There are few things that can match the pride you feel when you own your own house, but what happens if you can’t actually afford to keep making mortgage payments on said property?
Before you freak out about being kicked out of your home, here are some practical steps you can take to resolve the situation with as little stress as possible.
Keep Your Bank In the Loop
As soon as you realize you’re not going to be able to swing your mortgage payments (even if the problem won’t hit you for a few months) let your bank know. The sooner you can get on top of the problem, the better. Your bank will appreciate you keeping them informed and will be more likely to work with you to find a solution before your minor problem becomes a much bigger one.
Let’s say you lost your job; let your branch know how many mortgage payments you’ll still be able to cover before the money runs out and see how they can help you. Generally speaking, your bank will want to find a way to assist you with making your payments or at the very least finding a solution that works for both of you until your situation changes.
It’s always better to talk to someone at your bank before the problem grows. Most lenders don’t want to force you out of your home and will only do so as a last resort.
Understand Where You Stand Insurance Wise
If your initial down payment was less than 20% when you first purchased your house, you’re also paying for mortgage loan insurance. While most types of insurance exist to protect the buyer, in this case, your money is meant to protect the lender should you default on your payments.
Don’t think this means that you’re completely off the hook should you be unable to make your mortgage payments. Should you default, Canadian law says that insurance companies can still hound you for lost funds that might arise upon foreclosure.
What if Defaulting is Your Only Option?
There are a number of steps banks are likely to take once your loan has defaulted. They typically start with reminder letters or phone calls. If you do not respond (or are still unable to pay) they will upgrade to something called a demand letter (which essentially demands that you pay what you still owe on the mortgage).
If, after the demand letter, you’re still unable to pay, then the bank takes it to the next step by seizing possession of your home and putting it under foreclosure (this means they will sell it and try to make back the money owed to them in the sale).
If you know that you’re likely going to be forced into foreclosure, there are a few things that you can do. If you know your property has more value than what’s left of your loan, you can sell it and use the money that comes in to pay off the rest of your mortgage. You get to keep whatever’s left and don’t have to deal with the stress and humiliation that comes with having your property repossessed.