Estimated reading time: 10 minutes
No one likes to consider paying their bills late, especially for a late mortgage payment.
A late mortgage payment is a big deal, but if you take action as soon as possible, your lender can help get you back on track financially.
As a homeowner, you must pay your mortgage in full every month.
What Happens If You Have A Late Mortgage Payment?
Missing a mortgage payment and a late mortgage payment can either mean the same thing or two different things based on what your mortgage loan states.
Missing means you forgot about it, and late means you missed it but need to catch up.
Either way, the option to catch up should be available whether you miss a payment or it’s late.
When we rented, if we were a day late because we forgot, our landlord wouldn’t bat an eye.
That was wrong for us, mainly since she lived in the same house.
Although she didn’t mind and would have been generous to allow us to be late a month or two or pay her back to catch little by little if need be, banks or mortgage lenders might not be so kind.
Losing cash that should be in your pocket must be very important to anyone who holds a mortgage, whether it be a home or a business.
The banks won’t lose; you will, but they aren’t out to get you. But if left with no other options, you may face foreclosure.
You don’t have to let it get that far, as options may be available.
Can I Miss A Mortgage Payment?
Ah, the golden question every homeowner should know the answer to.
Can I miss it, or can I pay it back late?
If you are unsure what will happen if you have a missed or late mortgage payment, it’s best to contact your lender or read your mortgage agreement in total (you know the fine print).
Ideally, the minute something happens in your life that will impact your ability to pay your mortgage, you must contact them.
They’d rather know ahead of time so they can look at options to help you get back on track with your mortgage.
For homeowners who put less than 20% down payment on their mortgage and are insured under the Canada Housing Mortgage Corporation CMHC, they can help find a solution to your unique financial situation.
They will look at various options, such as changing a variable-rate mortgage to a fixed-rate mortgage, temporary short-term payment deferral, or other flexibilities to help you keep your home.
Alternatively, any homeowners who purchased other homeowners’ insurance should consult with their policy for further information on mortgage loan defaults and any assistance programs available.
What might cause a late mortgage payment?
There are only some reasons someone might have a missed or late mortgage payment: life is not predictable, and let’s face it, we all make mistakes.
Just last month, we forgot to put money in our chequing account, only to see later all of our investments come back as Non-Sufficient Funds, and we had to take the financial blow for that.
Thankfully, the bank took part of the blame as a bank error on their part would have saved us, but it didn’t.
You know what, though? It happens, but you want to try and avoid this at all costs, catch up, and don’t let interest or your credit score bite you in the butt.
- You forgot
- Death or Illness in the family
- Lack of funds
- Lowered Income
- Job loss
- New Job
- Divorce or Relationship Issues
- Bank error
- Human error
What is considered a late mortgage payment?
Whether your mortgage is paid weekly, bi-weekly, or monthly, it has a due date each time, and your lender can provide this information to you, or you should be able to locate it on the online portal where you obtained the mortgage.
When we received our mortgage of $185,000, we agreed that it would be paid weekly every Friday, and the money had to be ready in the bank.
Your mortgage payment becomes late when you don’t pay it by midnight of the day it is due.
So, it’s late if your mortgage is due November 01, 2018, and you don’t have it paid in full when the clock turns midnight.
If the due date is November 01, 2018, paying it on November 02, 2018, means it’s late.
You can’t even argue the toss with your lender and will have to take the hit to your credit score.
Talk to them BEFORE.
If you have gone away on holiday or forgot to pay your mortgage, they understand it happens and want you to catch up.
It won’t make or break your credit score unless you make it a habit.
The problem with your credit score happens when you don’t catch up with that late mortgage payment, which turns into a rolling late mortgage payment.
We learned about this before our mortgage when renting and paying typical monthly rental bills.
Rolling Late Payment
I explained the rolling late payment to my sister-in-law last month because she has this habit of not paying her bills on time. After all, she ‘forgets’.
Although we could tell her the best processes to ensure bills are paid on time, she likely won’t listen and must learn the hard way.
That means she wastes more money than she should be saving.
She reasons that she puts the charges on her credit card to earn points, but what she fails to see is that she isn’t catching up on the missed payment, which leads to, you guessed it, lots of interest.
The same holds when you miss a mortgage payment and think you are catching up by paying for the month but forget that it’s not just one month you owe; it’s two or however many you’ve missed.
Until you catch your missed mortgage payment in full, you will suffer the interest-building consequences until the last mortgage payment.
Your credit score won’t be too high, although Equifax and TransUnion Canada base their credit reports on different values.
If you miss a payment and don’t catch up, your credit report will see the missed payment, and it will continue for the year until you are caught up.
This is only if your mortgage company doesn’t have to skip a payment, but even then, you will still have to catch up on that missed payment as soon as possible or face the financial consequences I mentioned above.
If you are not paying your credit cards or other utility bills in full or are late or rolling late, this could also be the scenario.
- You miss the January 2018 Mortgage Payment of $1000
- You catch up January 2018 Mortgage Payment in February $1000
You’re still behind one month for February, so if you continue like this month after month by the end of the year, your credit report will show 11 missed mortgage payments or other payments, including credit cards.
It is ideal to talk to your bank or lender about your situation and ask them what the procedure is for a late payment and how you can avoid any long-term financial consequences.
Whatever you do, don’t be afraid to make a phone call to them because they won’t take your house away for one or two missed payments.
They’d instead work with you to find a solution that is best for you and them, which means exhausting all efforts, but this means YOU have to take the wheel because they won’t.
I always suggest that everyone order their free Credit report in Canada at least once a year to review it for any errors or issues that need clearing up.
You never know what you will learn about your financial history if you don’t look.
Can you skip a mortgage payment?
This depends on your mortgage terms and conditions, as many mortgages allow homeowners to skip a mortgage payment throughout the year.
If you pay monthly, you can skip one payment, bi-weekly two prices, or weekly four payments.
The Royal Bank of Canada (RBC) has a skip-a-payment option where once every 12 months, you can skip mortgage payments.
This is provided that:
- The mortgage must not be in arrears
- Your current mortgage balance and the amount of the payments you wish to skip do not exceed the original amount of your mortgage.
Also, because your mortgage states you can skip or have a late mortgage payment, you must meet certain criteria and conditions before doing this.
Just don’t expect to miss a mortgage payment and then ring them up and say, Oops. You might win, but you might lose.
The only downfall to taking advantage of the skip-a-mortgage payment option is that you aren’t paying down the principal of your mortgage.
However, if it is an emergency, it’s a nice perk to have.
The same applies to the late mortgage payment unless you fully catch up.
Problems Can Arise
The problem is when the homeowner uses the skip-a-mortgage payment option to pay down other debts, go on holidays, or use the funds for things they don’t need.
Remember that when you skip a mortgage payment, you are still paying interest on that skipped payment, which gets added to your mortgage balance.
Ah ha, you see, nothing in life is free it will cost you far more than you bargained for.
It is similar to the rolling late payment, where you miss a bill payment but only catch up by 1 when you need to pay for 2, so you are always behind.
Ideally, if you don’t need to skip, miss, or be late with a mortgage payment, avoid it at all costs.
Can you afford your mortgage payment?
If the answer is NO, you need to either look at options to refinance your mortgage or sell your house and move into something affordable that your budget can handle.
Trust me, you would instead find something your budget can handle rather than going through the late mortgage payment process each time it happens.
Perhaps moving to a new city for a new job and starting fresh might be an option if you can move or want to move to a more affordable place.
Before you even start house hunting, create a monthly budget as if you were paying a mortgage and everything else that comes with a house.
If you can’t sustain that, then you are in no way ready to be a homeowner. That’s just the way it is.
Cutting it close every month will only choke you with stress month after month.
Granted, homeowners always go through bumps during the life of their mortgage as things happen, but being financially prepared is part of the responsibility of owning a home.
Ideally, saving 6 months of your budget in savings is what I would suggest, but a year would be even better.
You may suffer job loss, Illness, or other emergencies that force you or a loved one away from work without financial coverage.
Be your boss and own your financial life by saving like a pro and tucking the worry of financial emergencies away.
Foreclosure in Canada
A Power of Sale or Foreclosure on a home in Canada only happens in Canada when the lender and homeowner have exhausted all avenues.
Don’t let this deter you from buying a house rather let it sink in that owning a home is nothing like renting, and understanding the differences before signing on the dotted line is vital.
If you’re reading this and doing your research before buying, congratulations to you.
Remember, your first line of defense is the banks and lenders, so talk to them because they are your professionals and have up-to-date info based on what they will be offering you.
Discussion: Have you accidentally missed a mortgage payment or lack of funds? What happened? Were you able to catch up?
Please share any tips below that I may have missed or that others in this situation might benefit from.