What to Do if You Are Struggling to Make Your Mortgage Payments in Canada

What should you do before you miss a mortgage payment?

Contact your lender early. That is the most important first step if your mortgage payment is becoming difficult to manage. FCAC tells borrowers experiencing financial difficulty to contact their financial institution as soon as possible rather than waiting for missed payments to accumulate.

Missing a required mortgage payment can put you in default under your mortgage agreement. A lender has legal remedies to recover what is owed, and unresolved default can eventually lead to the forced sale of a home. Acting before that point gives you more time to discuss a workable arrangement.

Start with the Government of Canada's mortgage financial difficulty guidance and then contact the institution that holds your mortgage.

Who is covered by the federal mortgage-relief expectations?

FCAC's guideline focuses on individual borrowers who have an existing residential mortgage on their principal residence, are experiencing severe financial stress because of exceptional circumstances and are at risk of default.

Examples of exceptional circumstances identified by FCAC include the combined effects of high household debt, increased living costs and rapid increases in interest rates.

The guidance specifically highlights borrowers who:

• have variable-rate mortgages with payments that have increased materially;
• have fixed-payment variable-rate mortgages where much or all of the payment is being absorbed by interest, including situations involving negative amortization;
• have fixed-rate mortgages approaching maturity and face a material increase in payments at renewal.

The guideline applies to federally regulated financial institutions. That includes banks, federal credit unions and other federally regulated institutions covered by the guideline. A mortgage from a provincially regulated lender may be subject to different consumer-protection rules.

What mortgage relief options can you ask your lender about?

There is no single federal relief package and no one option is guaranteed. FCAC expects a federally regulated lender to assess your individual circumstances and consider relief that is appropriate for your financial needs.

Depending on the mortgage and the lender, possible options include:

• renegotiating aspects of the current mortgage;
• converting an eligible variable-rate mortgage to a fixed rate;
• using an available skip-a-payment feature;
• a mortgage payment deferral;
• temporary reduced payments through a special payment arrangement;
• extending the mortgage amortization;
• capitalizing eligible missed payments or other permitted amounts into the mortgage balance;
• temporarily making interest-only payments in circumstances where the lender offers that option;
• a combination of relief measures tailored to the situation.

FCAC provides a detailed overview of current mortgage relief options.

Can you temporarily defer mortgage payments?

Possibly. A mortgage payment deferral is an agreement with your lender that lets you delay payments for a specified period. FCAC says a standard deferral is usually up to four months, although the actual option depends on your lender and circumstances.

A deferral does not erase the payments. After the deferral period, you still have to repay what was deferred. Your amortization may become longer, your mortgage balance may be higher and your future payment may increase.

This means a deferral can solve an immediate cash-flow problem while increasing the cost of the mortgage over time. Review the lender's figures before agreeing to one.

FCAC's mortgage payment deferral guidance explains the potential financial impact.

Can your lender extend the amortization to lower your payment?

Yes, an amortization extension may be offered as a mortgage relief measure. Spreading repayment over a longer period can reduce the amount required in each payment.

The trade-off is important: a longer amortization increases the amount of interest you pay. FCAC warns that the additional cost can reach thousands or tens of thousands of dollars depending on the mortgage.

For consumers at risk, FCAC expects a federally regulated lender that extends an amortization to use the shortest extension appropriate to the circumstances and develop a plan with the borrower to restore the amortization toward its original period within a reasonable timeframe.

That plan should explain:

• whether the resulting total amortization is reasonable;
• ways you may later restore the original amortization;
• the potential long-term financial consequences of the extension.

What should the lender explain before you agree to relief?

Do not judge a relief proposal only by the new monthly payment. A lower payment can hide a much higher long-term cost.

Before obtaining your express consent to a relief measure, FCAC expects a federally regulated lender dealing with a consumer at risk to clearly disclose:

• the outstanding amount owing under the original mortgage before the relief takes effect;
• the effect of the measure on the total cost of servicing the mortgage in dollars;
• the remaining amortization after the change;
• the new payment amount, due date and payment frequency;
• the new interest rate and whether it is fixed or variable;
• the date the changes take effect.

The lender is expected to obtain your express consent before implementing the arrangement. Ask for the numbers in a form you can review before accepting the proposal.

Can the bank waive mortgage fees or penalties?

In some hardship situations, FCAC expects federally regulated lenders to provide temporary relief from specific costs.

Once the lender and consumer have determined that there is a risk of default, the guideline expects the lender to consider measures that include:

• waiving a prepayment penalty when a consumer at risk makes a lump-sum payment to avoid negative amortization;
• waiving the prepayment penalty when a consumer at risk sells their principal residence as part of the relief process;
• waiving internal fees or costs for a limited period when activating relief measures that would otherwise carry those charges;
• for a limited period, avoiding interest on interest that has been capitalized where the relief arrangement results in negative amortization.

Under FCAC's guideline, a limited period for these purposes means 12 months or less. These expectations are specific to consumers and situations covered by the guideline; they should not be interpreted as a universal right to have every mortgage charge waived.

You can review the current FCAC mortgage loans in exceptional circumstances guideline.

Will mortgage relief hurt your credit report?

FCAC's guideline addresses this specifically. Once you and a federally regulated lender have agreed on a new mortgage payment arrangement as a relief measure, FCAC expects your credit report not to show a late payment or delinquency when that payment treatment is permitted by the new arrangement.

This does not mean missed payments made before an agreement exists are automatically protected. Contact the lender before making a payment different from the amount required by your current mortgage contract and make sure any new arrangement is confirmed.

What if your mortgage has reached its trigger rate?

A fixed-payment variable mortgage can become especially difficult when interest rates rise. FCAC describes the trigger rate as the point at which the mortgage payment only covers interest costs and none of the payment is reducing the principal.

If the payment does not cover all interest due, unpaid interest may be added to the mortgage balance. This is negative amortization, and the amount you owe can continue increasing.

If you are at or approaching this point, contact your lender rather than waiting for the balance to grow. Possible solutions depend on your agreement and finances and may include a lump-sum payment, a payment increase or another relief arrangement.

What happens if your mortgage renewal is approaching?

Start the conversation before the end of your term, particularly if the new interest rate is likely to make the payment unaffordable.

For a mortgage with a federally regulated institution, the lender must normally provide a renewal statement at least 21 days before the existing term ends. It must also notify you at least 21 days before the term ends if it will not renew the mortgage.

For a consumer at risk of default, FCAC expects the lender to make sure the renewal terms are appropriate to the person's circumstances and financial needs. The guideline also says the lender should not offer a less advantageous interest rate merely because the consumer cannot adjust the current mortgage agreement or qualify with another lender.

Review the Government of Canada's mortgage renewal guidance before accepting the lender's renewal offer.

What if you can no longer afford to keep the home?

Short-term relief is useful only if it leads to a sustainable outcome. If your income and expenses show that the mortgage will remain unaffordable, selling the home before the situation deteriorates further may be an option.

FCAC says that when a consumer at risk and a federally regulated lender determine that a consumer-led sale is appropriate, the lender is expected to discuss the considerations involved in selling the principal residence.

Some lenders may offer a sale by borrower plan. FCAC describes this as an arrangement under which the borrower is allowed to market the home at fair market value while continuing to occupy and maintain it. Such a period is typically 90 days or less, and the borrower may still have to make full or partial mortgage payments.

Where a qualifying consumer at risk sells the principal residence as part of the relief process, FCAC expects the federally regulated lender to provide temporary relief such as waiving the prepayment penalty.

What can you do if you have a problem with your bank?

If your mortgage is with a federally regulated bank and you believe the institution has not handled your situation properly, start by making a complaint directly to the bank. Banks must have complaint-handling procedures.

FCAC supervises compliance with federal consumer-protection rules but does not resolve individual complaints or award compensation.

If the bank has not resolved your complaint to your satisfaction through its internal process, or has not resolved or closed it within the legislated 56-day period, you may ask the Ombudsman for Banking Services and Investments to conduct an independent review.

Use FCAC's financial institution complaint guidance to determine the correct escalation route.

Common mistakes to avoid when you cannot afford your mortgage

• Do not wait for several missed payments before contacting the lender.
• Do not assume a payment deferral means the payments are forgiven.
• Do not accept a lower monthly payment without asking how much it increases the total cost and amortization.
• Do not stop making payments or change the payment amount unless the lender has agreed to a new arrangement.
• Do not assume every relief option is available to every borrower. The lender must assess what is appropriate for your circumstances.
• Do not ignore an approaching renewal if the new payment is likely to be unaffordable.
• Do not use additional borrowing, including home-secured credit, without considering whether it simply moves the problem into a larger debt balance.
• If selling has become the sustainable option, discuss it with the lender before default progresses and ask whether hardship-related penalty relief applies.

What should you ask during the mortgage-relief conversation?

Go into the conversation knowing what you can afford and ask the lender to compare the available options in dollars, not only in monthly-payment terms.

• What relief measures are available for my circumstances?
• What will my new payment be and for how long?
• Will the interest rate or mortgage type change?
• Will my amortization become longer?
• How much will this option add to the total cost of the mortgage?
• Are any internal fees, penalties or interest charges being waived?
• If the amortization is extended, how can I restore it when my finances improve?
• How will payments made under the agreed arrangement be reported to credit bureaus?
• What happens when the temporary relief period ends?
• If the arrangement is not sustainable, what options are available for a borrower-led sale?

The goal should be a payment arrangement you can realistically maintain, not simply the smallest payment available today.