What Happens if You Can't Make Mortgage Payments?
What Happens if You Can't Make Mortgage Payments?
A mortgage is a loan agreement which requires you to repay the loan with interest and which also gives the lender (the mortgagee) a claim on your house if you don't repay.
If you miss a mortgage payment, that's a default under your mortgage. When you default, the full amount of your mortgage becomes payable immediately if the mortgagee wishes, and the mortgagee has the right to collect the money owing either by suing you on your promise to repay or by taking steps to seize your home.
If you default on your mortgage, in Ontario the mortgagee will usually:
- Exercise its power of sale under the mortgage agreement. After you have been in default for 15 days, it can give you notice and then sell your home once another 35 days have passed; and
- Sue you on your promise to repay. If your house sell for less than the outstanding balance of your mortgage, the court will order you to make up the difference. (If the house sells for more that the outstanding amount of all of your mortgages, you get the surplus.)
The mortgage could foreclose (take your property and become the legal owner, which cancels the mortgage debt), but it's less likely to do so because this is a slower and more complicated procedure. If the mortgagee starts a foreclosure action, you can have your home sold under court supervision instead.
Whether the mortgagee decides to sell your house under a power of sale or to foreclose, it will want you out, so it will ask the court for an order for possession of your property. You can't stop it from getting possession unless you can stop the power of sale proceedings or the foreclosure. If you don't leave it too long, you can stop a sale under power or a foreclosure action by paying off the mortgage OR by making the mortgage payments you missed, plus paying a penalty.
A mortgagee may not take any action against you until you missed more than one payment. However, if you know that you are going to miss a payment, you should contact your mortgagee in advance. Some mortgages have a special feature that allows you to miss an occasional payment; if yours doesn't your mortgagee may be willing to let you make up the missed payment later.
If you know you can't make any more payments ever, it's best not to put up a fight when your mortgagee comes after your home.
- That's because the longer you fight the more interest piles up on your unpaid debt and the higher the mortgagee's legal fees go. The interest and the legal fees go. The interest and the legal fees get added to your mortgage debt and are paid, in the long run, by you.