Why Falling Behind on Payments Could Cost More Than You Think
For Canadian homeowners, a mortgage is often the largest financial commitment they will ever take on. Yet, many Canadians find themselves falling behind on payments due to job loss, rising interest rates, high debt loads, or unexpected life events. While it may be tempting to let a few payments slide and “catch up later,” the reality is that allowing your mortgage to fall into arrears can lead to a cascade of financial and emotional consequences.
In this blog, we’ll explore what it means to be in mortgage arrears, the true costs associated with it, and how you can protect your home and financial future before it’s too late.
What Are Mortgage Arrears?
Mortgage arrears refer to missed payments on your mortgage loan. Most lenders will consider your mortgage in arrears if you’ve missed one or more payments, but serious consequences typically begin after 90 days of non-payment. At that point, the lender may begin legal action to recover their money, often leading to power of sale proceedings or foreclosure in some provinces.
Being in arrears can also trigger fees, damage to your credit score, and even legal costs if the lender initiates enforcement actions.
1. The Financial Costs of Falling Into Mortgage Arrears
a) Late Fees and Penalties
When a mortgage payment is missed, most lenders will charge a late payment fee—often ranging from $25 to $100 per occurrence, depending on your contract. If multiple payments are missed, these fees can quickly add up and worsen your financial situation.
b) Default Interest Rates
Some lenders apply a default interest rate if your mortgage goes into arrears. This is often several percentage points higher than your original rate, meaning you’ll pay more interest until the account is brought current.
c) Legal Fees
If your lender has to initiate legal proceedings (such as Power of Sale or foreclosure), the associated costs are passed on to you. Legal fees can easily range from $2,000 to over $10,000, depending on the complexity of the case and how long the process takes.
d) Administrative Charges
You may also be charged additional fees for things like property inspections, appraisals, and administrative efforts to collect overdue payments.
2. Long-Term Credit Consequences
Falling into mortgage arrears doesn’t just affect your current financial situation—it can have lasting impacts on your credit report.
a) Credit Score Damage
Mortgage arrears are reported to credit bureaus like Equifax and TransUnion in Canada. A missed payment can lower your credit score by 50 to 150 points, depending on your credit history. This drop can impact your ability to get:
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Credit cards
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Car loans
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Future mortgages
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Rental applications
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Even job offers (in some financial sectors)
b) Difficulty Refinancing
A low credit score makes it harder to refinance your mortgage, which is often one of the best solutions for homeowners in distress. If you do qualify, it may be with higher interest rates or private lenders who charge more.
3. Emotional and Psychological Costs
Financial problems are one of the leading causes of stress, anxiety, and depression among Canadians. Mortgage arrears can create:
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Sleepless nights worrying about losing your home
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Strained relationships with your spouse or family
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Shame or embarrassment that prevents you from seeking help
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A constant fear of receiving a notice of sale or eviction
The emotional toll of being in arrears can be just as devastating as the financial consequences, especially if you feel like you’re dealing with it alone.
4. Legal Action and Risk of Losing Your Home
If your mortgage arrears are not resolved, the lender may initiate Power of Sale (in Ontario and most other provinces) or foreclosure (primarily in Alberta and BC). Here’s what can happen:
a) Power of Sale
In a Power of Sale, the lender gives you notice (typically 35 days) to bring the account current. If you don’t, the lender can sell the property without your consent to recover the mortgage balance and associated costs. Any remaining funds are returned to you, but only after all legal and admin costs are deducted.
b) Foreclosure
In foreclosure, the lender goes to court to assume full ownership of your home. You lose all equity in the property, and the lender can sell it without owing you anything.
Both outcomes result in the loss of your home and may leave you still owing money if the sale doesn’t cover your full debt.
5. Opportunity Cost: Lost Equity and Financial Future
Falling into arrears puts your home equity at risk. If you’ve spent years paying down your mortgage and building value, that equity could be lost in legal fees and a quick sale if you don’t act quickly. In many cases, homeowners in arrears could have:
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Used a home equity loan to catch up on payments
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Worked with a mortgage broker to refinance into a better solution
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Negotiated with their lender to temporarily reduce payments or defer them
By delaying action, you risk losing tens or even hundreds of thousands of dollars in home equity.
How to Avoid Falling Into Mortgage Arrears
If you’re struggling financially, the worst thing you can do is ignore the problem. Here are proactive steps you can take:
1. Speak to Your Lender Early
Most lenders are more flexible than you think. You may be able to:
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Request a temporary deferral
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Set up a payment plan
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Switch to an interest-only period
2. Contact a Mortgage Broker
A mortgage broker can evaluate your situation and look at refinancing options, even if your credit is bruised. They often work with alternative lenders and private mortgage companies that specialize in helping people with arrears.
3. Consider Debt Consolidation
If your mortgage arrears are tied to high credit card debt or other loans, consolidating your debts into your mortgage could lower your total monthly payments and make it easier to stay current.
4. Review Your Budget
Sometimes, a few small lifestyle changes—canceling subscriptions, reducing discretionary spending, or finding temporary income—can help you get back on track.
Final Thoughts: Don’t Wait Until It’s Too Late
Falling behind on your mortgage doesn’t mean it’s the end of the road, but delaying action increases the risks and costs significantly. The true cost of mortgage arrears goes far beyond missed payments. It can jeopardize your credit, your mental health, and ultimately, your home.
At LendToday.ca, we understand that life happens. We help Canadian homeowners navigate mortgage arrears with custom refinancing solutions, debt consolidation plans, and access to alternative lending when traditional lenders say no.
📞 Need Help Now?
If you’re behind on mortgage payments or worried about falling into mortgage arrears, don’t wait until you receive a legal notice. Contact LendToday.ca today for a free, no-obligation consultation. We’ll help you explore your options and keep you in your home.
