• This past year has been incredible in terms of Hamilton Ontario’s real estate values. The market is strong, values are up and mortgage interest rates are at record lows. So you may be asking yourself, why would we discuss not paying off your mortgage? Well quite frankly, it is a question that we entertain frequently at Robert Floris’ office.

    The easiest answer of not paying off your mortgage is that the bank will repossess the home and re-sell it. In today’s market, the financial institutions should get their money back. They do this by simply selling the home for more than the current balance of the mortgage and the expenses incurred to sell the home. Any remaining proceeds will go to the homeowner.

    But what if the home sale proceeds are not enough to cover the total mortgage outstanding? Since we are in Ontario, we will put our emphasis of mortgage default in our own province. Since most mortgages are insured with CMHC (a government Crown corporation that controls a majority of the mortgage default insurance market), they will cover any losses that have been incurred by the banks. In other words, CMHC (the government) will make sure that the banks do not suffer any losses. But if you as an individual mortgage owner walked away from a $40 000 loss, CMHC will ensure that they come after you by suing you for that loss.

    Let’s take another example. What if you did not have government insurance on your home and you walked away? Well again, the bank would sell your home and, if there were, a loss, the bank would sue you for the difference.

    As a mortgage holder, you do have a re-course. You can go bankrupt and it will wipe out the loss as an individual. But what are the repercussions? Your credit will be greatly affected but your plate will be cleaned. If you do not go bankrupt, the bank can go after other assets to ensure that they get their money back.

    So there you have it. It appears that the old adage of how the “bank never loses” will most likely be true if you walk away from your home.

    Robert Floris is an independent mortgage broker from Mortgage Architects in Hamilton, Ontario.

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