Those deferred mortgage payments are ending soon. You dodged a temporary bullet when you lost your job due to COVID-19 or layoffs. No job, no money — what do you do now?
Confessing to Your Lender
Time’s up. First step if your grief is short-term, talk to your mortgage lender. Your mortgage officer is likely expecting your call and can often temporarily reduce your payments to help you get through temporary unemployment (remember CERB and EI are income) or while you find another way to pay your mortgage. Talk to a lawyer or bankruptcy trustee before your banker if you have suffered a injury or may be without work for a long time.
How it Goes Down
Whatever you do, don’t ignore your lender. In minutes, a court can sign off on an order allowing your lender to sell your home right out from under you. When you fall behind on mortgage payments, your lender will call or send a reminder letter. If you still can’t or won’t make mortgage payments, a demand letter will follow requesting immediate payment of the full mortgage amount still owing. Next step, the bank can use the power of sale clause in your mortgage agreement to simply sell your property and transfer the legal title to the buyer. They’re in, you’re out, without even having your day in court.
Going into Foreclosure
More politely, but just as disastrous for you, is a foreclosure application. With the court’s consent, your lender can take possession and foreclose on you. Legal costs, realtors’ commissions, home appraisal fees and any other costs are added to your outstanding mortgage amount. Lenders often low ball foreclosures to sell them as quickly as possible. Even if you had equity in your home, it could be gone.
Other Ways You Could Default
We know you probably weren’t making plans to default intentionally. But watch out you don’t default by mistake by not reading the fine print on your mortgage agreement. Your mortgage is a contract and like any, it creates obligations for you. You could violate your contract if you:
- get a second mortgage without telling your lender
- default on strata fees
- neglect your taxes
- cancel or stop paying the property insurance
- let your home fall into disrepair
- or sell your home on Kijiji without your bank’s consent.
Your lender can call in the mortgage at anytime. Your home is their security for the mortgage they lent you. They’ve got eyes on you.
Could You Reamortize?
What to do? If you have some financial resources but your mortgage payments are too high, ask if your lender can adjust the amortization period. The difference to your payments can be substantial — $2,410.98 a month for a $350,000 mortgage amortized over 15 years, compared to $1,644.43 amortized over 25 years. Your interest costs will go up, but you can always change the term later or make lump sum payments when your finances improve.
Try a Private Mortgage
If that doesn’t work out, don’t despair just yet. As long as you have some income — from spousal support, commissions, self-employment, family contributions, renters or other sources — you could try to refinance your mortgage through another lender. Mortgage brokers can connect you to private lenders when conventional banks, credit unions and trust companies have turned you down. Interest rates are higher, but you could get more flexible terms. Private lenders are institutions or investors who make high risk mortgage and consumer loans to borrowers with financial troubles, a bad or no credit history or who otherwise don’t qualify.
Get Your Loan to Value Ratio
Private lenders take a bigger risk than traditional lenders. Consequently, they look for greater security in case you default. Using your home’s loan to value (LTV) helps them decide if your property is worth mortgaging. Find the LTV by dividing your home’s market value by the mortgage amount you need. A $500,000 condo with a $400,000 mortgage has a LTV of 25%, potentially qualifying you for a private mortgage loan. Ask a mortgage broker about private lenders and other non-traditional lending sources.
Consolidate or Go Bankrupt
If cash flow is low, a formal consumer proposal could get you much needed relief and allow you to keep your home. Consumer proposals are legally binding on unsecured creditors, reduce and settle outstanding debts and prevent legal action like wage garnishments. You make a single monthly payment and hang onto assets like your home, a car and investments. Bankruptcy is more drastic, but can still keep you in your home if you can manage the mortgage payments and your home’s equity is under $10,000.
Selling Your Home
If you have any equity in your home, you may be able to make interest-only payments while you list it for sale. Selling allows you to keep your credit rating intact (as much as possible anyway) and collect the difference between the outstanding mortgage and sales price.
Walking Away From a Mortgage
Walking away from your home is never easy. But if you truly can’t make the payments and your house is worth less than the mortgage, you could sign a quit claim deed. The deed releases you from your mortgage obligations and transfers ownership to your lender. You do what you can.
Finalize Your Mortgage Refinancing Deal
Axess Law Ontario real estate lawyers go over your mortgage refinancing agreement to ensure you understand every detail. Video conference online any day of the week, from anywhere in Ontario. Day or evening appointments are available, at times that work for you. Book ahead by calling toll-free to 1-877-552-9377 or 647-479-0118 in Toronto or use our online booking form. In person meetings can be arranged at our Toronto, Scarborough, Vaughan, Etobicoke, Ottawa, Mississauga Winston Churchill or Mississauga Heartland law offices.
Click here to learn more about Axess Law’s real estate law services.
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