What happens if you miss a mortgage payment? Long story short — you can. A missed mortgage payment can really screw your credit score or even create rolling late, but we will talk about it later. No matter the reasons why you have problems with your mortgage payments it is really crucial to think ahead and to avoid delays.
What Happens if you Miss a Mortgage Payment?
Imagine that you finally decide to buy your own house, prepare all the documents and even have approval for a mortgage from a bank but suddenly your employer tells you that the company has financial problems and he can not pay you on time. You do not have money to pay for your house and the question arises what happens if you miss a mortgage payment in Canada?
First of all, there is no one to pay for you and the bank will go after you. We are not talking about debt collectors and the police, for this there must be a very severe case, but the bank will have questions for sure. Bank’s specialists will call you and will send angry emails with a simple question: when are you going to pay?
Also, your credit score will be affected very badly. Usually, this impacts your score by 1-2 points and can even lead to a whole credit report revision. Another impact is the rolling late fee that you will have to pay.
What is a Credit Score?
A credit score is a measure of an individual’s creditworthiness that financial institutions use to determine whether they will provide credit to a person applying for a loan or other type of credit. The credit score ranges from 300 to 850, from lowest to highest. The higher the credit score, the lower the risk of not being able to borrow money.
The way the score formula works is as follows:
`Credit Score = Credit Total / Credit Utilization`
“Credit Total” here is a part where banks take account of all your debts and decide what percentage of your income should go to pay for them. The higher your credit score, the less you will have to pay for this credit. And Credit Utilization – This is a part that shows how much of your income goes towards the debts.
The lower the utilization, the higher your credit score will be.
So the formula of the credit score is an adaptation of these two parts. You may think, but how is this connected with the main question of the article, what happens if you miss a mortgage payment in Canada? It is quite simple: the reduction of your credit score may result in “Denial” on your next mortgage, credit card, or any other sort of loan.
What is Rolling Late?
Let’s say you can’t pay a mortgage payment in full in time. In this case, the bank will put the payment on your account as a “rolling late” and will not charge you a fee for it.
The rolling late fee is only charged when your payment is “late” by more than 5 days.
If you do not pay your mortgage on time but no more than 5 days, then there will be no penalty. If more than your payment for the next month is automatically considered late because it’s technically the previous month’s payment, you will receive a fee.
The rolling late fee is usually $10 or $15 and is charged per day for every day of the delay. It might not seem much on paper, but it can eat a decent amount of your salary. To avoid that you need to pay twice your monthly mortgage payment after the delay. But it is better to receive more precise information from a bank, which approved your mortgage.
Rolling Late also depends on your bank, mortgage insurance, and other factors like your loan type. In the table below there is a comparison of two loan types with approximate sums and percentages you need to pay.
|15 Year Fixed
|30 Year Fixed
|~1 454 $
|Total Interest Paid
|61 451 $
|153 929 $
How to Avoid Missing on Mortgage Payments and Rolling Late
In simple terms — you have to master just one skill: punctuality. We know that it just sounds easy and is actually pretty hard, so here are some practical things that can do the trick for you:
- Check your bank account on a regular basis. It might seem that it is not your money and does not concern you, but this is exactly what can lead to problems.
- Planning for spending – if you don’t know how much you will pay each month, at least know how much you will need for the mortgage payment.
- Try to avoid having a lot of credit cards. Having too many credit cards means that you have more lines of credit with different banks and this is not good. Banks are noticing this and if you have too many credit cards it will be difficult to get a mortgage.
- You can also avoid missing mortgage payments by doing other stuff. For example, if your boss is not paying you on time, ask for early payment or try to negotiate with him so that he will pay you on time again. If you are having problems with your employer, ask for an advance of your salary so that you will have more money for mortgage payments.
Conclusion: so what happens if you miss a mortgage payment
We hope that now you know what happens if you miss a mortgage payment. If you are late for no more than 5 days – everything ok, but if more – you start receiving a fee that can even negatively affect your credit score. So you better think ahead, save money for at least two payments ahead. and never delay them!