Authored By Joshua N. Switzer
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As we continue to go through tenuous times in Alberta we are being told in 2016 to expect more of the same. Accordingly, it is now a good time to review your major financial obligations. For most people, this is your home mortgage.
If you find yourself facing financial difficulties as a result of job loss, family income reduction, or for other reasons, your ongoing mortgage contributions may be causing you significant personal stress. It is important to intervene early to have the best chance of relieving your financial difficulties.
Step 1. Get Informed.
It is time to dust off those mortgage documents and review them.
It is important o determine whether your mortgage is default insuranced. Mortgage default insurance is mandatory for federally regulated lenders in Canada when the buyer of a home has paid at the time of purchase less than 20 per cent of the purchase price. The purpose of mortgage default insurance is two fold. First, it protects the mortgage lender against loss if a borrower defaults. Second, it allows qualified borrowers to access homeownership at interest rates comparable to those offered to buyers with larger down payments. Mortgage default insurance is commonly provided by Canada Mortgage and Housing Corporation or non-government insurers such as Canada Guaranty Mortgage Insurance Company or Glenworth MI Canada Inc.
However, there are significant legal repercussions if a default insured mortgage goes into foreclosure. If you allow the mortgage to go into default and foreclosure proceedings result, you could be personally liable to the default insurer for any deficiency should the value of the property be less than the total amount of principal, interest, and costs ultimately determined to be owing under the mortgage. Further, you will remain personally liable to the default insurer under the mortgage for so long as the mortgage remains in existence, that is, until it has been repaid in full.
A second issue you will want to investigate is determining your prepayment penalties if your mortgage is repaid in full prior to the term expiring.
If you are finding your mortgage terms difficult to understand and overwhelming, it is time to bring in the experts. Our experienced legal advisors can assist you with understanding your mortgage terms and obligations while assisting you with the all the steps that follow. The more information you have at your disposal on managing your finances, the easier the process will be. We can guide you in making the right decision.
Step 2. Talk to your bank or mortgage lender.
Before you default on your payments, your lender will want to maintain the positive relation you have developed over the term of your loan. Ask your mortgage lender for information with regards to what options are available to you. These options may include:
1. temporary short term payment deferral; or,
2. refinancing to lower monthly debt payments to either consolidate debt (such as credit card debt, unsecured or vehicle loans) with large monthly interest payments, or to take advantage of low interest rates (be careful of large prepayment penalties).
Once your mortgage goes into default the relationship will no longer be positive and your existing mortgage lender will limit the options available to you.
In every case, the options available will depend upon your individual financial circumstances. Our legal professionals have a wealth of knowledge. If retained, we are available to assist you with communicating with your existing lenders.
Step 3. Talk to a mortgage broker or bank and Realtor about downsizing.
Downsizing your lifestyle by lowering your financial obligations may be the most viable financial option available to you. This would include selling your existing home (and other luxury items you may have accumulated) and purchasing a new more affordable home by either;
1. porting your mortgage to the new property and lowering your payments while avoiding costly prepayment penalties; or,
2. paying out your existing mortgage from the sale proceeds and obtaining a more financially viable loan from a competitor lender.
Marketing your existing home for sale early will give you the best chance to sell your home to prevent your existing mortgage going into foreclosure. Foreclosure proceedings, regardless of whether the mortgage loan is fully repaid, result in increased payment of foreclosure legal and other costs and your credit ratings will be adversely affected.
What can we do to help?
Our legal professionals stand by you as you work through your financial difficulties. Retaining our services early will give you the best chance for success. Flat fee services are available for many of the services that we provide.
If you do find your mortgage in default, retaining our services early may assist in lowering, or in some circumstances, avoiding costly lender legal fees and costs.
Joshua is a solicitor with a focus on real estate (commercial and residential) and corporate/commercial work. His approach is to work closely from the outset with clients to move matters forward. Joshua enjoys a broad real estate practice representing both individuals looking to purchase, sell or finance residential property or corporate clients with acquisitions, divestment, financing, leasing, developments and joint ventures.