For many, it's difficult, if not impossible, to ignore the drastic increase in the cost of living that's taking place right now. Gas and grocery bills are rising, home prices and rents are skyrocketing, and interest rates are very high... In short, Canadians' finances are being squeezed!
With the cost of living rising dramatically, many are finding it difficult to make ends meet. Combine that with a costly unforeseen event, job loss or temporary layoff, and outstanding payments can quickly pile up. That's why this article answers the question: what should you do if you can no longer afford your mortgage?
While no one wants to find themselves in this stressful situation, there are some solutions. Let's explore them.
Contact your mortgage lender as soon as possible
First, you need to contact your mortgage lender. In any case, the worst thing you can do is not inform your lender about your delicate financial situation.
Don't ignore the calls and notices they send you, and don't skip payments without notice. The longer you ignore your situation, the harder it will be to find appropriate solutions. The consequences of this kind of negligence can be far-reaching. Your home could be in foreclosure.
Are you tightening your belt because of the rising cost of living? Do you have health problems? Have you temporarily lost your job? Have you fallen victim to an unforeseen event that has cost you dearly?
As soon as you realize that a major change in your life could affect your ability to pay your mortgage, contact your lender. If you take the time to explain your situation, they'll be able to help you find an appropriate solution.
Request a mortgage deferral
Did you know that you can ask your lender to defer your mortgage payments?
Do you think that taking a few months off from your payments will help you get your finances back on track? Depending on your situation and your file, your mortgage lender may or may not be able to accommodate your request. The average forbearance period is about 1 to 6 months.
Depending on the type of agreement you have with your lender, they may make you pay the deferred payments by adjusting your amortization period or by increasing your monthly payments as a result of the deferment.
It's also important to note that deferred payments must eventually be repaid, not forgotten or forgiven. Your lender will also continue to charge you interest on your loan.
Before requesting forbearance, please consider all of the short- and long-term financial implications of forbearance.
Consider mortgage refinancing
Are you still able to make your mortgage payments, but you need to tighten your belt? Do you think you could benefit from lower payments? Mortgage refinancing could be the answer.
Depending on your lender, your track record and current market rates, you may be able to get a lower interest rate on your mortgage and lower your monthly mortgage payments at the same time.
Before you contact your lender about refinancing, review your mortgage file and financial situation to determine if refinancing is the best solution for you. It's important to note that there is a financial penalty for prepaying your mortgage.
While this can be financially beneficial in the long run, it's unlikely to be the best solution for someone who can't afford their next mortgage payment.
Consider putting your home on the market
Has your financial situation changed dramatically since you bought your home, and you just can't afford it any more? Are your payments starting to get overwhelming and have your needs changed? Maybe it's time to consider putting your home on the market.
Of course, this is not a decision you should make lightly. You'll need to consider several factors to determine if it's the right decision for your situation.
Take the necessary steps to afford your loan
Although some situations that can lead to financial difficulties are beyond your control, there are a few things you can do before you buy a property to confirm your long-term financial capacity. Here are three things to do:
- Conduct a mortgage stress test;
- Evaluate your mortgage borrowing capacity;
- Create a budget.
First, all potential buyers must undergo a mortgage stress test to obtain a loan. The results of this test allow the mortgage lender to determine whether the client will be able to make the required payments even in the event of an interest rate increase.
Then, by combining several elements, you can determine your mortgage borrowing capacity. In other words, how much can you borrow to buy a property? Don't buy beyond your means. Just because you have a high borrowing capacity doesn't mean you need to use it all.
Finally, dealing with your financial situation can cause a lot of stress. To eliminate much of this stress, many people create a budget to better understand their financial habits. By staying on top of your finances, you'll ultimately enjoy greater financial freedom.
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