Missed a mortgage payment? Here's what happens next

With interest rates at an all-time high, it’s no surprise that Canadian homeowners are worried about affording their mortgage. In 2022 alone, Canada’s prime rate increased by 4.25% points from where it was in March, making it now over 6%. 

This increase could have borrowers concerned about making a mortgage payment, or even worse, missing one. Missing a payment can happen and doesn’t necessarily end up disastrous–but it’s how you react to the situation afterwards that could make or break your mortgage situation. 

Understanding mortgage payment schedules

When you first sign up for a mortgage in Canada, you’ll often be given the option to decide what payment frequency you’d like to follow. More often than not, Canadians usually opt for a monthly payment–when you pay on the first day of each month–but there are other options like semi-monthly and accelerated bi-weekly payments. 

If you get paid monthly or bi-weekly or bi-monthly, you may choose to opt for the mortgage payment schedule that works with when money is deposited into your account. And the beauty is, you can always change this schedule at any time by contacting your mortgage provider. 

However, regardless of what payment schedule you choose, it’s important to make your payments on time. 

What’s the difference between a missed payment and a late payment?

In Canada, a payment is considered officially missed if it’s 15-days overdue. Many lenders give you this grace period to allow you to have a “late payment” instead of a “missed payment.” So, if you’ve missed your payment by a day or two, it’s not considered missed but rather late. But late payments don’t always go unnoticed: there are still consequences depending on your lender.

What happens when I miss a payment?

You’re charged a late fee or penalty

When you sign your mortgage contract, there are terms that outline the fees associated with a late or missed payment. These fees typically range between $25 to $50 depending on your lender and are charged right away. 

Your credit score could decrease

Once you’ve passed the 30-day mark of missing your payment, this information is reported to the credit bureau. A missed payment can stay on your credit history for up to seven years so it’s important to understand the repercussions on your credit score. Ultimately this could impact your ability to get a loan or mortgage in the future, as well as possibly affect the rates for your renewal. 

You could default on your mortgage

If you miss a payment and don’t make it up, you end up behind on your mortgage payments. Eventually if you don’t catch up, your mortgage is considered delinquent and after 30 days, it will go into default. Having your mortgage default means that you’ve broken the obligations you had from your mortgage agreement. This isn’t something to take lightly and can have serious negative consequences including harming your credit score and worse, possibly leading to foreclosure where your lender can seize your home. 

You could foreclose on your home

If you miss mortgage payments, your lender can legally take your home from you and sell it to get back the missing costs. This process is known as foreclosure and is the final step in the process of losing your home. It can be a lengthy process and varies by province, but ultimately, the court gets involved in transferring your home ownership over to your lender. 

Prior to this happening, you’ll usually get letters from your lender about your missed payment after 30, 60, and 90 days. Once that time has passed, lenders will initiate the foreclosure process. 

However, in Ontario, Prince Edward Island, New Brunswick and Newfoundland, this process is much faster. It’s referred to as Power of Sale and doesn’t actually require the courts to be involved. Instead, your lender will issue you a letter that gives you 35 days to catch up on your payments. If you don’t take action by the 35-day mark, the transfer of ownership to your lender begins. 

Avoiding “rolling late” payments

Once you’ve missed a payment, it’s crucial to catch up on that payment prior to your next one. If you miss a payment, whether accidentally or not, and continue with your regular payment schedule, you’re actually making multiple late payments. This is also known as “rolling late payments,” where your payment is continually making up for the past missed ones. You’ll need to catch up on your outstanding payments and make a double payment to avoid a rolling late scenario. 

What to do if you’ve missed a payment?

As mentioned earlier, missing a payment is one thing–but getting yourself back on schedule is where it really matters. 

Make a payment ASAP

Your first course of action should be to make your payment as soon as possible. This will help you avoid any further penalties or late fees and a rolling late payment situation. 

Contact your lender if you might miss a payment

If you anticipate not being able to make a payment on time, it’s best to contact your lender. Some lenders do offer a skip a payment option or might have options for a lesser penalty if you miss a payment. It’s important to be as proactive as you can. 

Explore the option of refinancing your mortgage 

If your mortgage payments are becoming too much of a burden, you might want to consider refinancing your home to find an option that might be better suited to your current financial situation. 

Be proactive to get back on track

Missing a mortgage payment can happen, whether it be accidental or because you’re navigating some financial challenges. However, being proactive is the key to to get yourself back on track and avoid serious consequences to your home or credit score. 

If you have any questions about your mortgage payments or your agreement, one of Pine’s mortgage advisors would be happy to speak with you.