For many homeowners, the dream of owning a home can quickly turn into a nightmare when faced with mortgage arrears. Missing mortgage payments can happen due to many uncertainties in life such as job loss, medical expenses, or other financial hardships. If you’re in this situation, it can feel overwhelming and isolating. However, there are several ways to overcome this challenging phase of life.
In this guide, we will talk about the options you can choose to keep up on your mortgage payments and keep your home safe from foreclosure consequences.
When Is Your Mortgage Considered to be in Arrears?
Your mortgage is considered to be in arrears when you miss a scheduled payment by the due date. If multiple payments are missed, the mortgage can be in cumulative arrears. If this continues without resolution, lenders may initiate foreclosure proceedings. Most lenders will start this process after a specific number of missed payments, typically three to six months, depending on the terms of the mortgage and local laws.
For those homeowners who are struggling to make payments on time, it can feel like a dead-end. But there are ways to navigate through this difficult period effectively:
Communicate with Your Lender: Reach out to your lender as soon as you realize you are falling behind. Discuss payment options, such as payment deferral, or forbearance, which may allow you to temporarily reduce or pause payments.
Implement a Repayment Plan: If possible, negotiate a repayment plan with your lender that allows you to gradually catch up on missed payments over time.
Explore Government Assistance Programs: The Canada Mortgage and Housing Corporation (CMHC) offers resources and programs to assist homeowners in distress. They guide you on managing arrears and provide access to financial assistance programs.
Can I get a loan if I have mortgage arrears?
Yes, you can still get a loan even if your mortgage is in arrears. It may be challenging to get it approved from traditional banks, but there are some lenders who see mortgage arrears as a temporary sign of financial instability and approve your loan in no time. You can explore the following options:
- Loans from Private Lenders
Private lenders are more flexible than traditional banks and willing to work with homeowners who have missed mortgage payments. Private lenders focus more on the value of your property (equity) rather than your credit score or arrears.
These loans may come with higher interest rates, but they can provide the funds needed to catch up with arrears and avoid foreclosure.
- Home Equity Loans or Second Mortgage Loans
If you have sufficient equity in your home, some lenders may offer a home equity loan or a second mortgage. You can use the funds from the second loan to pay off your arrears and refinance your primary mortgage later under better terms.
- Refinance Your Mortgage
Another option for managing mortgage arrears is refinancing your mortgage. It will replace your existing mortgage with a new one, ideally with better terms, such as a lower interest rate or extended repayment period.
- 4. Mortgage Modification
Some lenders may offer a mortgage modification, where the terms of your existing loan are adjusted to make payments more affordable. This could include extending the loan term or lowering the interest rate.
How Refinancing Works When You’re in Arrears
When you refinance, you might be able to tap into your home equity to pay off your existing mortgage, including any arrears. This means you would take out a new mortgage for a larger amount than you currently owe, using the extra funds to clear your debts.
The Lender will look at how much equity you have built up in your home. If your home value has increased since purchase, you might have a good amount of equity accumulated to refinance your new loan. Consult with a mortgage broker who works as a mediator between you and lenders, to find alternative options through non-traditional lenders who are more lenient with the terms.
Things to Keep in Mind:
- Higher Interest Rates: Loans for those in arrears often come with higher interest rates due to the increased risk to the lender.
- Shorter Repayment Terms: Some lenders may offer shorter repayment periods, which can mean higher monthly payments.
- Collateral-Based Loans: Loans like home equity loans rely on the value of your property, so you need to have sufficient equity built up.
Before applying for a loan, it’s essential to evaluate whether you’ll be able to afford the new payments. Consulting with a financial advisor or a specialized mortgage expert, like those at Turnedaway.ca, can help you explore the best options for your situation.
Manage Your Budget after Mortgage Arrears Resolved:
Once you’ve found a solution to your mortgage arrears, it’s crucial to plan your finances to avoid falling behind again. Creating a household budget that accounts for all expenses, including mortgage payments, can help you stay on top of your finances.
If income challenges persist, consider consulting a financial advisor who can provide personalized guidance on managing your money, reducing your debts, and improving your credit score.
Don’t Hold Back and Wait: Take Action
If you are currently facing mortgage arrears or financial difficulties, don’t hesitate to reach out for help. Taking proactive steps on a right time can help you from drowning in major financial consequences. By assessing your finances, communicating with your lender, you can address your mortgage arrears effectively. Remember that you are not alone in this journey—many resources are available to support you through this difficult time.
At TurnedAway.ca, we understand that facing mortgage arrears can be an overwhelming experience for homeowners. Our dedicated team is committed to providing the support and guidance you need to navigate this challenging time with confidence.
Frequently Asked Questions
Mortgage arrears can lower your credit score significantly, as payment history is a crucial factor in credit scoring models. Each missed payment may be reported to credit bureaus, negatively affecting your score.
Yes, you can improve your credit score after experiencing mortgage arrears. Consistently making on-time payments, reducing overall debt, and checking your credit report for errors can help rebuild your score over time.
A missed payment refers to a situation where a homeowner fails to make their mortgage payment by the due date. However, if the missed payment is caught up quickly, the long-term impact may be minimal. Whereas mortgage arrears occur when a homeowner has failed to make multiple mortgage payments over a period of time, leading to a backlog of unpaid amounts. This can lead to more significant consequences, including foreclosure if not addressed.
