What you need to know before you default on your mortgage

Right now there are many people facing tough times with the economy. Whether it is a layoff or cutting back of income at work. Or maybe a death in the family and you were not prepared with adequate insurance. There are numerous factors that can cause you to fall behind on your mortgage payments and/or debts. Most recently I read an article about how people are walking away from their mortgages. That in Alberta there is no recourse for mortgages that are not insured so you can hand in your keys and not deal with it. It's important to know that this is not entirely true.

If your mortgage is insured then you are definitely 100% liable for that mortgage. If you try to walk away the insurers can come after you personally for the loss. The good news about having an insured mortgage is that they all have programs that are in place to keep you in your house. The last thing an insurer or lender wants is for you to go into default. It is not the desired outcome for anyone. It is extremely important that if something happens and you see yourself falling behind that you contact your mortgage broker BEFORE you start missing payments. Your mortgage broker can work with you to contact the insurer and get them working on solutions for you. The insurers will work with you and the lender to come up with a way to stay in your house and not go into default. This ranges from postponing payments to facilitating a quick sale. Do not wait until you are already behind as credit can be very hard and time consuming to repair. It is also harder for the team to come up with options when you are behind on your mortgage already. Call somebody before it's too late. You have options.

In the case where you do not have an insured mortgage it is still important to act before you fall behind. If you foreclose on a mortgage in Canada the chances of getting a new mortgage later is slim to none. Lenders do not lend to people that have already foreclosed on a property in the past. This can happen in a few different ways. Contact your lender once you know times are getting tougher and you may go into default. The lender may not have the same options as they would with an insurer backing them but they would hopefully still be willing to work with you. Doesn't hurt to make the call. Another option is to call your mortgage broker and work with a private lender. Good private lenders deal with these situations all the time and really help people in desperate situations. They have multiple options that they can go over to keep you liquid and in your house. Rates and fees are higher but better than the alternative. The third thing I stress well before you get to this point is to access the equity in your property while you can. If you have a couple of thousand dollars in your home without a home equity line of credit or something attached to it, that equity which you own is not accessible. If you place some sort of mortgage product on it now, while times are good then you have access to this money at any time. If you wait until you need it, you are probably too late. The great thing about a HELOC is that you only pay interest on the amount you have out so it can sit there until you need it.

For more information on this program or any other mortgage related topics, please do not hesitate to contact me anytime.

This article is in the category: General.

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