At Robert Floris’s Mortgage Architects office in Hamilton, we generally get questions regarding what are the lowest mortgage rates in the industry. Lately we have been talking to many mortgagors regarding the stress of financing and falling behind on a mortgage payment. As you well know, we like to share ideas as if our roles were reversed. We write about what we would want to know if we’re having financial difficult.
What can be Done when Behind on Mortgage payments.
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 many families find themselves overwhelmed as the bills start to mount and household finances begin to dwindle. Then households may start to miss payment 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 when unemployed. 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 that if the lender proceeds with a Power of Sale, 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 take action? Generally, after three missed payments. Some lenders may take action sooner. It’s important to talk to the lender and try to work with them.
• What can the homeowner do? The longer it’s left, the more bank fees and legal fees get tacked on, which eats into the equity in the property. A mortgage broker with experience in arrears financing has access to many lending solutions.
SOME SOLUTIONS TO MISSED PAYMENTS
1. Call the lender immediately; financial institutions do not want to force Power of Sale. In most cases they will work out a plan to pay the arrears in stages or in some cases put the missed payment at the end of the mortgage.
2. Call your mortgage broker immediately. They can sometimes help in the following ways.
A) Suggest a refinance where all the debts are consolidated and one easy payment is made to make life easier.
B) Suggest a second mortgage where again all the debts are cleansed and one easier payment is made. The theory behind this is to fix the credit for perhaps one or two years and then refinance again into a first mortgage which is at a much lower mortgage rate once the family’s finances and credits have improved.
3. Visit with a Bankruptcy and Trustee representative. Sometimes good people are stuck with bad luck. I have had clients who went bankrupt trying to cure cancer, bad divorces, death, bad accidents and job loss affect people. In many instances you can keep your home and get rid of the rest of the unsecured debt. This is a suggestion we give many of our clients.
4. Sell the home. In some cases, this is the best way to start fresh. Pay off the mortgage and all the debts. Clients’ lives change and what was best years ago, may not be appropriate now. Change is inevitable in today’s life.
5. If you have any further questions, please do not hesitate to contact our office.