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After nearly two years of interest rate increases, it’s no surprise that many people are struggling to keep up with their mortgage payments. Whether you have a variable-rate mortgage that's been steadily rising or you've recently renewed at a higher rate, read on for our best advice to help you stay in your home.

What Happens If I Don’t Make My Mortgage Payments?

If you miss your mortgage payments, your bank can quickly take steps to recover their money. Ignoring calls and letters from your lender is tempting, but they have the legal right to force you to sell your home through a power of sale or foreclosure. Defaulting on a mortgage is serious and involves more than just late fees and penalties.

If your mortgage renewal is approaching and you've missed multiple payments, your lender might refuse to renew. This means you'll need to requalify under the current stress test rules, which can be challenging. If you do find a new lender, expect to pay much higher interest rates. If you can’t secure new financing, you may have to sell your home. Discuss any renewal issues with your lender well in advance.

The Worst Thing You Can Do If You’re Struggling to Pay Your Mortgage

Your bank prefers to work with you, not against you. If you're struggling, talk to your lender before missing a payment. They can explore options like reducing your payment amount, restructuring your debt, or extending your amortization. Even making a partial payment shows you're committed to your mortgage.

Immediate Strategies to Consider:

• Skip a Payment: If your mortgage allows it, skipping a payment can be a quick fix. Most lenders let you skip up to two payments a year if your mortgage is in good standing. While interest continues to accrue, this can help with temporary financial issues. Check your mortgage documents or talk to your lender.
• Use Pre-Payments: If you've made extra payments in the past, you might be able to skip equivalent monthly payments. For example, if you’ve paid an extra $200 monthly for two years, you can likely skip $4,800 of payments. This option can provide flexibility despite erasing pre-payment interest savings. Discuss this with your lender.

The Next Worst Things You Can Do

Never skip or be late on payments for property taxes, income taxes, HST, or home and car insurance. Your municipality and the CRA can quickly garnish your income if you're late, potentially up to 50%. Being garnished can disqualify you for mortgage renewal and force you to sell your home. Also, always pay your home and car insurance on time to avoid losing coverage in emergencies.

Get Real About Your Debt

Canadians carry a significant amount of debt. According to Equifax, Canadians owed $107 billion on credit cards in Q2 2023, with non-mortgage debt averaging $21,131 per consumer. Assess your debt and expenses seriously.

• Make a list of all debts and monthly payments, including credit cards, credit lines, car loans, and consumer loans.
• List non-negotiable monthly expenses like utilities, insurance, property taxes, transportation, and groceries.
• Compare your total monthly obligations to your after-tax income.

Don’t Play the Shell Game

Avoid paying one debt with another. Don't use credit cards, credit lines, or overdraft protection to pay your mortgage. Never get a payday loan. Moving debt around only creates more interest and long-term problems.

Stop the Bleeding and Commit to a Cash Lifestyle

If you're struggling, it may be time for a strict budget. No more eating out, online shopping, or unnecessary purchases. Check your statements for the past year, cancel unnecessary subscriptions, and ask for loyalty discounts on necessary recurring charges. Remove credit card details from online stores and pay with cash to prevent further debt accumulation.

Talk to your lender about consolidating non-mortgage debt into your mortgage through refinancing. While this reduces home equity, it can lower monthly obligations.

Find Ways to Bring in More Money

Consider ways to increase income:

• Get a part-time job or start a low-cost side hustle.
• Move to a higher-paying job.
• Sell unused items.
• Rent out a room or use Airbnb.
• Dip into savings carefully, understanding the implications.
• Ask family for help.

If All Else Fails…

If consumer debt is overwhelming, consider a Consumer Proposal or bankruptcy. These options will impact your credit but can solve cash flow problems and help you keep your home.

Don’t Forget To Talk to Your REALTOR!

If you're struggling with mortgage payments, talk to your REALTOR. They have financial contacts and strategies, and can help you understand your home's value and explore real estate options.