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What Happens if You Pay Your Mortgage Late?

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So, you are set to start searching for a home but feel overwhelmed with all the nitty-gritty details that come with it? You have to understand mortgages, amortization periods, and fees before you even get your hands on the keys. We get it. It can be a lot to take in.

While there are many resources for first-time home buyers, there is one thing every real estate and financial advisor can all agree on: pay your mortgage on time. 

Your mortgage will likely be your highest monthly expense, so it should be your priority when paying your monthly bills. However, life happens, and even the most financially sound people could miss a mortgage payment. 

If you miss several mortgage payments, your home could be foreclosed on. However, before this happens, you can expect to be penalized for each missed payment. Lenders usually charge interest on the penalty fees, which can add up quickly.

Choosing a Mortgage That Is Right for You

The type of mortgage you choose is the most important part of buying a home. By selecting the right mortgage, you can help prevent late payments.

Several factors make up a mortgage, including:

  • Amortization period: The length of time it will take to pay the mortgage in full.
  • Down payment: The amount of money to put towards purchasing a house, which lowers the mortgage amount.
  • Interest rate: The cost of borrowing money from the bank to pay for a house.
  • Payment frequency: How often you make mortgage payments.

Before arranging a mortgage, calculate your monthly expenses to determine how much you can afford. Purchasing a house is a considerable investment, and planning before making any final decisions is always valuable.

Consequences of Late Payments

A missed mortgage payment does not automatically mean you will lose your home, but the sooner you act to rectify the situation, the better. However, you can expect: 

  • Late fees: One of the immediate consequences of a late mortgage payment is the late fee. Typically, this fee can range between 4% and 5% of the overdue balance. So, if your mortgage payment is $1,500, you could owe an additional $60 to $75.
  • Credit score impact: Late or missed mortgage payments can harm your credit score. Your lender is obligated to report the late payment to the credit bureaus, resulting in a decrease in your credit score. The late payment could stay on your credit reports for up to 7 years.
  • Foreclosure risk: If you fall behind on your mortgage payments by more than 90 days, your lender may start the foreclosure process. Foreclosure is a legal process that allows the lender to take possession of your home if you fail to repay the mortgage debt. Communicating with your lender and exploring options to avoid foreclosure is crucial.
  • Penalties and interest: You may also be subject to penalties and accrued interest on the overdue amount. These additional charges can increase your financial burden of a late mortgage payment.

How Many Mortgage Payments Can You Miss?

Most lenders will allow 3 missed payments before beginning foreclosure proceedings. During this time, your lender will try to contact you to find a solution. 

If they do not hear back from you, they will assign your mortgage to a law firm that will issue a Statement of Claim, the first step in foreclosure. The law firm will continue with foreclosure action and eventually obtain an order that you vacate the property.

In Alberta, judicial foreclosures use the court system to allow lenders to realize their security. After foreclosing on a home or obtaining an acceptable offer to purchase, the lender can sell it with the court’s consent.

If you have a high-ratio CMHC guarantee mortgage, the lender can pursue you for any shortfall. A high-ratio mortgage means that if the value of your property is less than the outstanding mortgage amount, you may be held responsible for the remaining balance. You may choose to file for bankruptcy to deal with this liability. Bankruptcy seems scary, but you can still own a home in the future

Falling Behind? Here Is How You Can Catch Up

If you are struggling to pay your mortgage, consider the following options.

Talk to Your Lender

A young couple talking to their lender regarding their missing mortgage.

Reach out to your lender as soon as possible and explain your situation. They may be able to offer assistance or provide guidance on how to manage your payments effectively. Communication is key in finding a solution that works for both parties.

Debt Consolidation

If you have multiple debts, consider consolidating them into a single loan to simplify your payments and help reduce your overall interest rate.

A debt consolidation loan entails borrowing money from one source to pay off a larger number of individual debts. Sometimes, but not always, the single monthly payment may be smaller than the sum of the individual payments.

Making Lump-Sum Payments

If you have extra funds, consider making a lump-sum payment towards your outstanding balance. Doing so can help you make significant progress in catching up on missed payments and reducing your overall debt.

Lump-sum payments can accelerate paying off your mortgage. These payments are typically allowed on the anniversary date of your mortgage. But there may be a penalty if you choose to pay out your mortgage entirely before the due date.

Get Help With Your Mortgage

Whether you are looking for ways to renegotiate your debt payments or file for bankruptcy, talking to an expert can help ensure you have everything you need to build your financial future on a stable foundation.Contact A.C. Waring & Associates for help managing your mortgage.

Written by Arthur Waring

Arthur earned his Bachelor of Arts from the University of Western Ontario before earning a Bachelor of Commerce from the University of Windsor. During university, he also participated in a French immersion program in Trois Pistol, Quebec, and has been employed for several national firms over the years.

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