According to data collected by the Canada Mortgage and Housing Corporation (CMHC), missing mortgage payments, also known as mortgage delinquency, is not a common occurrence in Canada.
The mortgage delinquent payment rate in the first quarter of 2022 was only 0.18%, down from 0.38% in 2012. While the percentage is relatively low, there may be individuals who find themselves in a situation where they are at risk of missing a mortgage payment or have already missed one.
In this article, we will provide tips on what you can do to prevent and mitigate the situation if you find yourself struggling to make your mortgage payments. Let’s get into this!
What Is Loan Delinquency?
A delinquent payment is a payment that is past due or not made in full on the due date. Most loans have a grace period, typically a few days, where you can make your payment without penalty.
After the grace period, your payment goes on a list of late payments, and you may incur a late fee. If you continue to miss payments, you become delinquent on your loan.
Once you are delinquent on a loan, the lender will begin to take action to collect the debt. The lender will report your delinquent debt to credit bureaus, which will negatively impact your credit score.
Your debt report will show the delinquent payments, and it will be visible to lenders, employers, and landlords. This can make it difficult for you to obtain credit, get a job, or rent an apartment.
Consequences of Defaulting on a Loan
If you continue to miss payments and become severely delinquent, you may default on your loan. Defaulting on a loan means you have failed to repay the loan according to the terms of the agreement. This is a serious matter and can have significant consequences.
When you default on a loan, the lender will take legal action to collect the debt. This may include wage garnishment, asset seizure, or court action.
The lender may also sell your debt to a collection agency, which will aggressively pursue payment. The collection agency may use harassment, threats, and other aggressive tactics to collect the debt.
In addition to legal action and debt collection, defaulting on a loan will have a severe impact on your credit score. Your debt report will show the default, which will stay on your credit report for seven years. This can make it nearly impossible to obtain credit, and if you do, you will likely pay much higher interest rates.
How to Avoid Loan Delinquency
The best way to avoid loan delinquency is to make your payments on time and in full. If you are struggling to make your payments, contact your lender and explain your situation. Many lenders are willing to work with you and may offer a forbearance or deferment to help you get back on track.
Another way to avoid loan delinquency is to set up automatic payments. Automatic payments ensure that your payments are made on time, every time. You can set up automatic payments through your bank or through the lender’s website.
If you are experiencing financial difficulties, consider seeking help from a credit counselor or financial advisor. These professionals can help you create a budget and manage your debt, so you can avoid delinquency and default.
What to Do If You Can’t Make Your Mortgage Payments
First, contact your lender and explain your situation. Lenders may be willing to offer forbearance, which allows you to temporarily stop making payments or make reduced payments for a specific period. This can give you time to get back on your feet and avoid default.
Another option is to refinance your mortgage. Refinancing allows you to replace your current mortgage with a new one with different terms, such as a lower interest rate or longer repayment period. This can lower your monthly payments and make it easier for you to keep up with your mortgage payments.
The Importance of Budgeting
One of the most effective ways to avoid mortgage delinquency is to create and stick to a budget. A budget is a plan for how you will spend your money each month. By creating a budget, you can see exactly how much money you have coming in and going out, and you can make adjustments to your spending to ensure you can make your mortgage payments.
When creating a budget, start by listing all of your sources of income and all of your monthly expenses. Be sure to include your mortgage payment, utilities, groceries, transportation, and any other expenses you have. Then, compare your total expenses to your total income. If your expenses are higher than your income, you will need to make some adjustments to your spending.
Consider ways to cut back on expenses, such as eating out less, reducing your cable bill, or finding a cheaper cell phone plan. Look for ways to increase your income, such as taking on a side hustle or asking for a raise at work. By creating a budget and making adjustments to your spending, you can ensure you have enough money to make your mortgage payments and avoid delinquency.
Staying Informed About Your Mortgage
Another important way to avoid mortgage delinquency is to stay informed about your mortgage. Make sure you understand the terms of your mortgage, including the interest rate, monthly payments, and repayment period. If you have any questions or concerns about your mortgage, contact your lender for clarification.
Keep track of your mortgage payments and make sure they are applied correctly to your account. Review your monthly mortgage statements to ensure that the information is accurate and that you are not being charged any unnecessary fees.
If you are considering making any changes to your mortgage, such as refinancing or taking out a home equity loan, make sure you understand the potential risks and benefits. Consider working with a financial advisor or mortgage specialist to help you make an informed decision.
The Delinquent Payment Concept Explained
A delinquent payment is a payment that is past due or not made in full on the due date. When you become delinquent on a loan, the lender will take action to collect the debt, which can negatively impact your credit score and make it difficult to obtain credit, get a job, or rent an apartment.
To avoid loan delinquency, make your payments on time and in full, set up automatic payments, and seek help if you are experiencing financial difficulties. If you need a loan, consider contacting Tekaloan, a trusted lender that offers fast and easy loans to help you meet your financial needs.