As interest rates continue rising, many Canadians are facing big hikes in their mortgage payments. Those with variable rate mortgages have felt the pinch come on slowly, while those with fixed rate mortgages are bracing for much higher payments on renewal.
In extreme cases, mortgage lenders are opting not to renew – and leaving borrowers on the hook for hundreds of thousands of dollars.
Also read: The mortgage renewal process
Are more people falling behind on mortgage payments?
The number of Canadians who are behind on their mortgage payments is actually lower than it was before interest rates started going up. According to data from Equifax, 0.15% of mortgages are overdue by 90 days or more, compared with 0.21% at the same time in 2021.
Despite this good news, alarms are starting to ring over forced sales. A report in the Toronto Star claimed a five-fold increase in the number of homeowners being forced out after falling behind on payments.
The change is likely not due to more people falling behind on their mortgages, but having fewer options to deal with it. Rising interest rates have pushed home values down, made it harder to qualify for financing, and extended the time it takes to sell a home. Where overextended homeowners could quickly sell for a profit in previous years, that’s not always the case anymore.
Other professional worriers are looking at the number of non-mortgage loans that are behind on payments. Excluding mortgages, 1.10% of Canadian loans are at least 90 days past-due, an increase of more than 25% since this time last year.
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When can my mortgage lender force the sale of my home?
Your lender has legal recourse to recover its losses if you fall too far behind on payments, fail to pay your property tax, fail to maintain adequate home insurance, or otherwise break the rules of your mortgage contract.
In Ontario, New Brunswick, Newfoundland and Labrador and Prince Edward Island, this is achieved through a process called power of sale. The rest of Canada uses a similar process known as foreclosure. Both of these processes involve the lender taking possession of the property and removing you from it.
What is power of sale in Canada?
Power of sale is the mortgage lender’s right to sell the property in question to recoup its financial losses.
Before exercising its power of sale, your lender will give you a notice and offer a limited amount of time – usually 35 days in Ontario and even less elsewhere – to correct the problem. If you still fail to meet the requirements, you’ll be evicted and the lender will sell the home. If any money is left over after everyone else has been paid, the lender will return it to you. Conversely, if everyone else hasn’t been paid what they’re owed, the lender can sue you for the remainder.
What is foreclosure in Canada?
Foreclosure is the mortgage lender’s right to take ownership of your home after you default on the mortgage.
When foreclosing on your home, the lender will serve you notice and ask the court for an order giving you time to remedy the problem. In most cases, you’ll have six months to meet the lender’s demands. After that period, the lender has the option to take ownership of the home or have it sold. If the lender elects to sell the home, it can sue you for any amount it’s unable to recover. If it elects to take ownership, your debt is considered to be settled.
Can my mortgage lender refuse to renew my mortgage?
In Canada, most mortgage terms are five years. While your amortization period (the time over which you pay off your mortgage) may be much longer, you will need to either pay off or renew your mortgage at the end of each term.
Also read: Mortgage term vs. amortization
Mortgage lenders have always had the option to refuse renewal and demand payment in full. This has been unusual in the era of low interest rates and typically limited to borrowers who have missed multiple payments during their term.
As interest rates have risen rapidly in recent years, lenders have started to take a more critical look at borrowers when their mortgages are up for renewal. Just like when you applied for your mortgage in the first place, your lender wants to be sure you have enough income to make the payments and aren’t carrying too much debt. They may do this by asking for updated proof of income, running a credit check, and asking for additional documentation.
Can the bank sell my home if they deny my mortgage renewal?
If your lender refuses to renew your mortgage, you’re responsible for repaying the entire balance in full when the term expires. If you fail to repay the mortgage, the lender’s right to foreclosure or power of sale survives the expiration of the contract and it can take steps to force the sale of your home.
My mortgage renewal was denied. What can I do?
If your mortgage lender has refused to renew your mortgage, you have options.
After you’ve explored the issue with your lender, your first call should be to a licensed mortgage broker. Mortgage brokers offer a free service to borrowers to help them navigate the process of getting a mortgage. Your mortgage broker will review your financial situation and potentially give you a few options:
- Renew your mortgage with your current lender. It’s possible that your mortgage broker will be able to negotiate a renewal with your current lender. This may require making changes to the terms of the mortgage, like extending the amortization period or making a lump sum payment to reduce the size of the mortgage.
- Renew your mortgage with a new lender. Even though your existing lender isn’t willing to renew your mortgage, you may still meet another lender’s criteria. This may also require making changes to your mortgage, like taking longer to pay it off or making a lump sum payment.
- Renew your mortgage with an alternative lender. Alternative, or “B”, lenders may be an option if you don’t qualify for a traditional mortgage. An alternative lender will likely charge a higher interest rate and demand stricter repayment terms in exchange for relaxing their income or credit score requirements.
- Sell your home. If you don’t qualify for a mortgage, or aren’t willing to accept an alternative lender’s terms, your best choice may be to sell your home on your own terms. If you have enough equity, you may be able to discharge the mortgage with some money left over to put toward your next home.
My mortgage will be up for renewal soon. How can I be sure I’ll qualify for renewal?
Your mortgage renewal is unlikely to be problematic as long as you’ve made your payments on time and there haven’t been any serious changes to your income or credit score.
If your income is lower than it was when you got your mortgage, Ratehub offers some useful tools for understanding what your renewal will look like. Our mortgage affordability calculator can help you determine whether you’re likely to qualify for a new mortgage when your current one expires. Our mortgage renewal calculator can help you get a sense of what your mortgage payments will look like after renewal at a higher interest rate.
If you’re worried that you won’t be able to renew your mortgage, contact a mortgage broker for advice as soon as possible. The more time you have to navigate your situation, the better.
The bottom line
Your mortgage lender can force you to sell your home – but only if you fall behind on your mortgage payments or can’t arrange financing to repay the loan. If you’re worried about your mortgage renewal, contact your mortgage broker right away to learn about your options and take control over your situation.