Few situations are scarier than losing your home. Where you live is a foundation for security and stability. That’s why the threat of foreclosure doesn’t just impact your finances—it can shake your entire sense of well-being.
But house foreclosure isn’t inevitable. Understanding the financial warning signs and taking action early can help you stay in the home you love.
How House Foreclosures Happen
A house foreclosure typically occurs when you miss mortgage payments. Wait too long with non-payment, and your lender will usually send a demand letter that outlines the details and consequences of any missed amounts. If you don’t catch up, the lender may begin mortgage foreclosure or power of sale to sell the property and recover losses.
Missed payments
What’s causing most Canadians to miss mortgage payments and threaten foreclosure? There are several possible reasons why:
- Interest rate increases: Higher interest rates mean loans of all types are more costly, whether that be your mortgage, your line of credit, or your car loan. Those increases can squeeze the budget till you miss a home payment.
- Inflation: The cost of groceries, gas, and other necessary services can eat up more of your budget. Essential expenses to maintain a home are no exception, and can lead some owners being “house broke.” Property taxes, homeowners’ insurance, utilities, and home repairs all cost more, straining household budgets.
- Wages not keeping up with the cost of living: Economists anticipate the inflation rate to increase in 2025 by 2.6%.2 If wages don’t keep up, that results in an effective loss of financial power
. Once you factor in income taxes, any expected pay raises are unlikely to cover the increases in living expenses. - Using credit to cover living expenses: Many homeowners use credit cards, payday loans, and installment plans to cover basic needs. Borrowing for day-to-day costs puts more strain on your finances till you can’t pay the mortgage.
What to do if You Can’t Pay Your Mortgage
If you’re at risk of missing a payment, the worst thing you can do is ignore it—here’s what to do instead.
Mortgage terms
Begin by contacting your lender to discuss possible changes to your mortgage. Several options may work better for both parties:
- Blend and extend: Combine your existing rate with a longer-term to change payment costs.
- Refinance: If you have equity in your home, you may be able to lower your payments by refinancing it to consolidate debt and extend your amortization.
- Change your payment frequency: If you make bi-weekly payments, you could return to monthly payments.
- Set up a Home Equity Line of Credit (HELOC): A HELOC can consolidate debt or give you capital to cover mortgage payments. However, doing this can leave you deeper in debt.
Payment solutions
Your lender may also offer the following payment solutions:
- Miss a payment: Ask if you can skip a payment, especially if you’ve made extra payments in the past.
- Creditor insurance: Check if you have creditor insurance on your mortgage. Some insurers will cover your payments for covered issues like job loss, disability, or illness.
- Payment deferral: Delay payments for several months, adding them to your mortgage balance. Remember, your interest will continue to accrue.
- Capitalization: Your lender may allow you to add costs like missed mortgage payments, overdue taxes and utilities, necessary home repairs, and condo fees to your mortgage balance.
When in doubt, use a mortgage calculator to help determine which option will have the most impact on your payments.
Debt Relief
If your debts are too high, the above-listed solutions may not fully address the situation. At that level, it is time for professional support from a Licensed Insolvency Trustee. They can provide legally binding solutions like Consumer Proposals or Bankruptcy for managing unsecured debt.
A Consumer Proposal can reduce the total debt and put it into one manageable payment. You have up to five years to repay it. You’ll be debt-free once it’s completed.
Filing for Bankruptcy, if a Consumer Proposal isn’t viable, will eliminate your unsecured debt. It’s primarily for those under severe financial difficulties.
A lot of people ask if they can keep their house after they file. Since mortgages are secured debts, they are not included in a Consumer Proposal or Bankruptcy. However, the equity in your home may affect what type of debt solution is best for you.
It’s important to discuss these implications with your LIT. The goal is to make your mortgage affordable after reducing other debt payments. However, If you can’t afford the mortgage and upkeep of the house, you may decide that you are better off walking away from the property. In that case, any shortfall on the mortgage would be discharged in the Bankruptcy.
Buying another home
It’s possible to get a mortgage after starting over. Some lenders offer borrowers a mortgage after Bankruptcy. However, you’ll need to research the policies of mortgage lenders.
Lenders may request:
- A clean credit history post-discharge
- Sufficient funds for a large down payment
- Good job stability
- Valid purpose for the loan
We’re Here to Help You With Your Debt
Remember, you don’t have to face your debts alone. Our team of Licensed Insolvency Trustees at LC Taylor is here to help you eliminate debt and relieve financial stress. If you’re concerned about your ability to keep your home, don’t hesitate to book a free consultation with us online or call us at 204-925-6400. Seeking help is a sign of strength, and we’re here to support you every step of the way. We look forward to working with you to navigate this challenging situation and get back on track.