More and more Canadians are finding they can’t afford their mortgage as rising interest rates and inflation squeeze household budgets. According to new data from Statistics Canada, more people in Ontario and British Columbia are missing payments, particularly in areas where housing is most expensive.* The financial strain is becoming more noticeable as people renew their mortgages at higher rates, making it tougher to cover monthly costs alongside increasing everyday expenses. The combination of higher housing costs and steeper borrowing rates is pushing some households to the limit. What to do if you can no longer afford your mortgage? Here are a few options.
What Happens if I Can’t Afford My Mortgage?
If you’re asking, “What happens if I can’t afford my mortgage?” Missing payments can lead to late fees, damage to your credit score, and, eventually, the risk of foreclosure. Lenders usually give a grace period, but after 30 days, missed payments can be reported to credit bureaus, which hurts your credit. If payments continue to be missed, your mortgage could go into default, and legal action might follow, possibly resulting in the loss of your home. However, before it gets to that point, many lenders are willing to work with you to avoid foreclosure.
What Steps Can I Take to Keep My Home?
Contact Your Lender
If you’re thinking, “I can’t afford my mortgage,” your first step should be to contact your mortgage lender. While it might be tempting to avoid that conversation, staying proactive is essential. Lenders would much rather work with you than go through the costly and complicated process of foreclosure. The earlier you reach out, the more options you’ll likely have.
Be honest about your situation and ask what solutions they can offer. Many lenders have alternatives for homeowners facing financial difficulties, such as payment deferrals, loan modifications, or extended repayment plans. If your lender agrees to modify your loan terms or provide any form of relief, ask for written confirmation. Having documentation helps make sure everyone is on the same page.
Payment Deferral
A payment deferral allows you to pause your mortgage payments temporarily. This can be helpful if your financial difficulties are short-term, as it gives you breathing room without the immediate pressure of making payments. However, keep in mind that the deferred payments will still need to be paid later, either at the end of the loan term or through higher future payments.
Loan Modification
If your financial hardship is more permanent, such as a significant reduction in income, a loan modification could be a better recourse. This involves changing the terms of your mortgage to make the payments more affordable. A modification might include extending the loan term, reducing the interest rate, or, in rare cases, reducing the principal amount. Talk to your lender to see if you qualify for it, and be prepared to provide documentation that explains your financial situation.
Repayment Plan
If you’ve missed a few payments but can now afford to resume them, a repayment plan might be a suitable option. With a repayment plan, you spread out your missed payments over several months while continuing to make your regular mortgage payments. This can help you catch up without the immediate burden of paying all the missed payments at once.
Explore Refinancing
If you’re finding it difficult to keep up with your mortgage payments, refinancing could be a practical option. For instance, if interest rates have decreased since you originally secured your mortgage, switching to a lower rate could reduce your monthly payments. You can also extend your mortgage term, which would also result in smaller payments, though it would lead to paying more interest overall. However, if you’ve reached a point where you’re thinking, “I can’t afford my mortgage.” refinancing may not be the best solution. Refinancing comes with costs, like legal and appraisal fees, and possibly penalties for breaking your current mortgage. You’ll also need to qualify based on your current financial situation, which can be difficult if your finances are already stretched.
Consider Renting Out Your Home
Moving out and renting a more affordable place while renting out your home can be a viable solution if you’re struggling to cover your mortgage payments. This can work if the rental income from your home is enough to cover the mortgage, taxes, insurance, and maintenance costs and if you can find a cheaper place to live. However, it comes with challenges, such as ensuring your rental income is reliable, managing the property from a distance, and covering any unexpected expenses or vacancies. Consulting with a property management company can help you evaluate if it is suitable for your situation.
Can I Sell My House If I Can’t Afford My Mortgage?
If you’re asking, “Can I sell my house if I can’t afford my mortgage?” the answer is yes. Selling your home privately can be a proactive way to avoid foreclosure and protect your financial future. By selling, you can pay off your remaining mortgage balance, potentially avoiding damage to your credit and moving forward without the burden of debt. Acting quickly can help turn a challenging situation into an opportunity for a fresh start.
In a strong market, selling your home can help you pay off your mortgage and leave you with some extra cash to support your next steps. But even if you’re selling in a bad economy and your home’s value has dropped, a short sale could still be a better option than foreclosure. A foreclosure stays on your credit report for seven years, making it harder to obtain new credit, such as credit cards, auto loans, or mortgages. Plus, even if you do qualify for future loans, you’ll likely face higher interest rates.
If you are at a loss and don’t know what to do if you can no longer afford your mortgage, SLG Home Buyer can purchase homes quickly, regardless of their condition. With our process, you won’t need to worry about making repairs or enduring lengthy negotiations—we deliver fair, market-based offers that reflect the true value of your property. SLG Home Buyer is your trusted partner, guiding you through a smooth transition. Contact us for more details.