In case there was ever any doubt, the last nine months have reminded us that life can be full of unexpected events. The COVID-19 pandemic has presented us with never-before-seen challenges. For some, this has meant struggling to meet financial obligations such as monthly mortgage payments.
Whether in the middle of a global pandemic or during ‘normal’ times, mortgage holders have a contractual obligation to make their mortgage payments in full and on time. If you fail to make these payments in full, on time, or at all, you have defaulted on your mortgage and it can have devastating consequences.
No matter how many other debts you have, always concentrate on repaying your mortgage first – the consequences of failing to do so are significant.
Failure to make your regular mortgage payments can have severe long-term impacts. Whenever you make a payment late or miss a payment entirely, additional fees and interest accumulates. The situation will worsen with the frequency of payments missed and the length of time they’re pushed back. A mortgage lender can either demand immediate payment of these additional fees and interest or add them to the mortgage principal. In the latter case, you could end up paying a lot more over the life of your mortgage.
Your credit rating will take a plunge and your ability to obtain a mortgage or qualify for new loans or lines of credit, now and into the future, will be compromised. An inability to demonstrate creditworthiness and overall financial health exposes you as a high-risk borrower and raises red flags with lenders.
Most lenders will offer a one-month grace period but ongoing delinquency, typically 60 days or more, will trigger legal proceedings to enforce the mortgage. By this point, significant fees and penalties may be added, which make it more difficult to take corrective action. The legal proceedings taken by a mortgage lender against a borrower in default include:
What to do in case of default
Whether you’re expecting a default or have already defaulted, reach out to your lender immediately. In rare cases, mortgages have “skip a payment” provisions that you may not know about. Be proactive in managing the situation and keep the lender informed about your situation. Your lender may offer you one of the following possible options, although they may not have a legal obligation to do so:
Without a crystal ball, we can never predict what life-altering circumstances may come our way. This why it’s essential to build a rainy-day fund – saving a little extra in a dedicated account each month so you can avoid defaulting on your mortgage.