What Happens If I Don't Pay My Mortgage in Canada?

Key Takeaways

• Missing a mortgage payment in Canada can result in late fees, damage to your credit score, and action taken by the lender.

• Continued non-payment may result in a notice of default, leading to foreclosure or power of sale, depending on your province.

• Selling your home voluntarily or seeking early legal and financial advice can help you manage the situation more effectively.

Falling behind on your mortgage payments can be a daunting experience, especially with the complex legal framework surrounding mortgage defaults in Canada. Whether the cause is job loss, rising interest rates, or unexpected life events, it’s crucial to understand the consequences of non-payment and the options available to you.

Understanding Mortgage Defaults

A mortgage default occurs when you fail to meet the obligations of your mortgage agreement. This typically begins with missed payments, but can also include failure to pay property taxes or maintain required insurance. While one missed payment doesn’t immediately lead to legal consequences, repeated delays can put your home at risk.

Grace Periods and Late Fees For Missed Mortgage Payments

Most lenders provide a short grace period, typically 15 days, during which you can make your payment without incurring penalties. After this period, you may be charged late fees, and your missed payment might be reported to the credit bureaus, damaging your credit score. It’s a critical window of time to act and communicate with your lender.

Initial Lender Communication

After a missed payment, lenders usually contact you to discuss your situation. This could be through phone calls, emails, or letters. Ignoring these communications can quickly escalate the situation. Being proactive may open the door to flexible options, such as payment deferrals or restructured plans. If you ignore them, they may start legal action against you.

Legal Notice of Default

If missed payments persist, you’ll likely receive a formal Notice of Default. This document outlines the breach of your mortgage contract and provides you with a limited timeframe to bring your payments up to date. Failure to respond could result in your lender taking legal action against you and your property.

Foreclosure vs. Power of Sale

In Canada, lenders use one of two main legal processes to recover a home:

• Foreclosure: Common in British Columbia, Alberta, and Quebec. The lender takes ownership of the property through court proceedings and can sell it, keeping any surplus proceeds.

• Power of Sale: More common in Ontario and Nova Scotia. The lender sells the home on your behalf without taking ownership. After repaying the debt and legal costs, any remaining funds go to you. If the sale doesn’t cover the full amount, you may still owe the balance.

Credit Score Impact on Missed Mortgage Payment

Defaulting on your mortgage can significantly lower your credit score. The default can stay on your report for up to seven years, affecting your ability to secure loans, rent apartments, or even gain employment. The sooner you act, the better your chances of maintaining a good credit score.

Legal and Financial Consequences

In provinces that allow deficiency judgments, if your home is sold for less than the mortgage amount, the lender can sue you for the shortfall. This creates long-term financial liabilities and can worsen your financial situation.

Bankruptcy and Consumer Proposals

Filing for bankruptcy or entering into a consumer proposal may temporarily stop foreclosure proceedings. However, as a mortgage is a secured debt, it is not affected by bankruptcy or a consumer proposal. Bankruptcy may discharge unsecured debts, but usually not secured mortgage debt unless you surrender the property.

A consumer proposal may be beneficial if you are struggling to make repayments on your unsecured debts, such as credit cards. The consumer proposal would freeze interest and collections from creditors, and you would only need to make one monthly payment for all these debts. This may provide more room in your budget to make mortgage payments.

Government Assistance Options

Government-backed programs may offer temporary relief. For instance, if your mortgage is insured by Canada Mortgage and Housing Corporation (CMHC), you may qualify for deferral options.

Refinance or Mortgage Modification

Refinancing or modifying your mortgage might provide a long-term solution. This could involve extending the amortization period, switching from a variable to a fixed rate, or consolidating debt. You can consult with your lender or a mortgage broker to explore these options before you fall too far behind.

Selling the Property Voluntarily

If you foresee long-term difficulties, selling your home voluntarily may help you avoid the negative consequences of foreclosure or a power of sale. It allows you to repay your lender, along with unsecured debts like credit cards, and possibly retain some equity while protecting your credit score.

Avoiding Legal Action Through Communication

Staying in touch with your lender is the most important step you can take. Many lenders prefer to work out a solution rather than pursue legal action. Whether it’s a temporary deferral, restructuring the loan, or providing documentation of hardship, transparency can go a long way towards a resolution that works for everyone.

The Psychological Impact of Mortgage Default

Beyond the financial strain, the emotional toll of potentially losing your home can be significant. Anxiety, depression, and family stress are common. Seeking support from financial counsellors or mental health professionals is just as important as solving the financial issues.

When to Seek Professional Help

If you’re falling behind and unsure of what to do, consult a mortgage specialist or lawyer immediately. Understanding your legal rights, financial options, and timeline is critical to avoiding irreversible consequences.

Don’t Wait Until It’s Too Late — Get Help Today

If you're facing mortgage difficulties in Canada, the worst thing you can do is wait. Whether you're one payment behind or on the brink of foreclosure, there are solutions — but timing is key.

Contact the Litvack Group today for a Free Consultation. Our experienced team can help you understand your rights, explore your options, and develop a plan tailored to your unique situation.