UNDERSTAND WHAT A LATE MORTGAGE PAYMENT MEANS FOR YOU BEFORE YOU MISS IT
No one likes to think about paying any of their bills late especially when it comes to a late mortgage payment. As a homeowner you have a responsibility to make sure your mortgage is paid in full each and every month.
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 whether you miss a payment or it’s late the option to catch up should be available to you.
I know when we rented if we were a day late because we forgot our landlord wouldn’t bat an eye. That was wrong of us especially since she lived in the same house as us.
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 there may be options available to you.
Can I Miss A Mortgage Payment?
Ah, the golden question every homeowner should know the answer to. Can I miss it or can I just be late paying it back?
If you are not sure what will happen if you do have a missed or late mortgage payment it’s best to contact your lender or read your mortgage agreement in full, (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 a variety of options such as changing a variable rate mortgage to a fixed rate mortgage or 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 of the reasons why someone might have a missed or late mortgage payment because 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 later see all of our investments come back 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 what you want to try and do is 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, if your mortgage is due November 01, 2018 and you don’t have it paid in full when the clock turns midnight, it’s late. 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 are gone away on holidays or simply forgot to pay your mortgage they understand it happens and simply 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 and it turns into a rolling late mortgage payment. This was something we learned about early on before our mortgage when we were renting and paying typical rental bills each month.
Rolling late payment
I was explaining the rolling late payment to my sister-in-law last month because she has this habit of not paying her bills on time because she,’forgets’.
Although we could tell her a million times the best processes to make sure bills are paid on time she likely won’t listen and have to learn the hard way. That being, she wastes more money that should could be saving.
Her reasoning is because 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 true when you miss a mortgage payment and think you are catching up by paying for the month but forgetting 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 continue to suffer the interest building consequences until the last mortgage payment.
Your credit score won’t be too happy either even though Equifax and TransUnion Canada both base their credit reports on different values.
You see, if you miss a payment and don’t catch up your credit report will see the missed payment and it will continue for the duration of the year until you are caught up.
This is only if your mortgage company doesn’t have a skip a payment but even then you will still have to catch up on that missed payment somehow 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 a rolling late this could be the scenario as well.
- You miss January 2018 Mortgage Payment $1000
- You catch up January 2018 Mortgage Payment in February $1000
You’re still behind 1 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.
Ideally, talking to your bank or lender about your situation and asking them what the procedure is for a late payment and how you can avoid any long-term financial consequences is ideal.
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 rather 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 do allow homeowners to skip a mortgage payment throughout the year. If you pay monthly you can skip one payment, bi-weekly two payments or weekly four payments.
At the Royal Bank of Canada (RBC) they have a skip-a-payment option where once every 12 months you have the option to skip mortgage payments.
This is provided that:
- The mortgage must not be in arrears
- Your current mortgage balance together with the amount of the payments you wish to skip, does not exceed the original amount of your mortgage.
Also, just because your mortgage states you can skip or have a late mortgage payment you must meet certain criteria and conditions before you can do 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 principle of your mortgage however if it is an emergency it’s a nice perk to have. The same applies with the late mortgage payment unless you catch up in full.
The problem is when homeowner use the skip a mortgage payment option to pay down other debts, go on holidays or use the funds for things they don’t need.
Keep in mind that when you skip a mortgage payment that 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, in fact it will cost you far more than you bargained for in the end.
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, then 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 that you would rather find something that your budget can handle than having to go 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 are able to move or want to move to a more affordable place.
Before you even attempt to start house hunting I suggest that you create your 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 which force you or a loved one away from work with no financial coverage.
Be your own 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 but remember your first line of defense is the banks and lenders so talk to them because they are your professionals and have the up to date info based on what they will be offering you.
Discussion: Have you missed a mortgage payment either by accident or lack of funds? What happened? Were you able to catch up? Share any tips below that I may have missed or that others in this situation might benefit from.