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What Happens if You Pay Your Mortgage Late?

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past due bill sitting with a model house on a calendar portraying late mortgage

So you’re ready to start looking for a home, but you feel a little overwhelmed with all the odds and ends that come with it: there are different types of mortgages, amortization periods, and fees that all can pile up on each other before you’re even given the keys.

While there are plenty of resources available 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 it’s time to start paying bills for the month.

However, life happens, and even the most financially-sound people could miss a mortgage payment. But what does missing a mortgage payment do to finances? And what could you do to make sure you never miss a mortgage payment in the future?

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 easily prevent late payments, or worse, in the future.

Several factors make up a mortgage, these include:

  • Amortization period: how long it will take to pay off the mortgage.
  • Down payment: the initial payment you make on the house, which lowers the mortgage amount.
  • Interest rate: the cost of borrowing the mortgage money.
  • Payment frequency: how often you make payments.

These are the variables to consider when arranging a mortgage.  So before arranging a mortgage, calculate your current monthly expenses to determine how much in the way of a payment you can afford.  .

Purchasing a house is a considerable investment, and it’s always worth the time to plan ahead before making any final decisions.

Late Fees: The First Warning Sign

But what if you already live in a house and missed a mortgage payment?

More often than not there may be a late payment penalty fee for missed mortgage payments.  The lender usually charges interest on the penalty fees which can quickly start adding up.

If you miss a mortgage payment, try to pay it off as quickly as possible. Once you start falling behind on your mortgage you may well feel the financial anxiety of overdue obligations.

How Late Payments Stack Up

Sometimes financial institutions will relegate a missed payment to the end of your mortgage if such arrangements are made at the time.

However, if you’re chasing a single payment from month to month, it can continuously add up in late fees and interest rate charges.

The only way to effectively stop these continuous late penalties is to pay off the missing mortgage payment entirely, interest and all. You may need to pay 2 or 3 mortgage payments in one month, but at least you’ll be up-to-date with your mortgage payments.

Credit Score & Borrowing Difficulties

Not all mortgage debt is recorded at the credit bureau.  However, if your mortgage ends up in foreclosure it could certainly negatively affect your credit rating.

If you continue to miss payments, this may affect your ability to borrow funds in the future.

If you pay your missing mortgage payment within 30 days, it will likely not be reported to the credit bureau. However, depending on your arrangement with the lender, after 30 days, your lender may resort to notifying the credit bureau, and it’ll leave a note on your credit report that will last for 6 years.

Foreclosure or Bankruptcy: The Worst-Case Scenario

The ultimate result of mounting missed payments is foreclosure.

The foreclosure process generally begins after mortgage payments are 90 days in arrears subject to the discretion of the lender. Your lender will try to get in contact with you throughout this time to help you find a solution to this issue.  If they don’t hear back from you they assign your mortgage to a law firm which will correspond initially and then issue a statement of claim pursuant to enforcement of the mortgage.  The law firm will continue with foreclosure action and eventually obtain an order that you vacate the property.

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

Should you have a high ratio of CMHC guaranteed mortgage, the lender can pursue you for any shortfall.  You may choose to file for bankruptcy, in order to deal with this liability

Happy couple talking to lender about steps to catch up with missing mortgage payments

Falling Behind? Here’s How You Could Catch Up

Talking to Your Lender

Speaking to your lender is the first step you can take to help catch up with missing mortgage payments. Your lender may even allow you to skip or defer the payment without consequence.

Debt Consolidation

If you’re struggling to manage your debts, there are a few strategies you can use, including debt consolidation.

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

Lump-sum payments can accelerate the pay down of your mortgage.  Normally these payments are allowed on the annual anniversary date of your mortgage.  Should you choose to pay out your mortgage entirely before the due date there may be a penalty clause in the mortgage which is often in the thousands of dollars.

At A.C. Waring & Associates, Inc., we’re committed to providing solutions for all kinds of debt management problems. Whether you’re looking for ways to renegotiate your debt payments or file for bankruptcy, our team is here to ensure you have everything you need to start building your financial future on a stable foundation.

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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