What you need to do to protect your credit
It happens easily, especially when an unexpected event impacts your life, like job loss, illness, divorce or death of a spouse. One day you’re managing to pay your mortgage and balance your budget, and the next day you are scrambling to make ends meet and unable to service your debt.
While you may already be aware of what happens to your credit report and to your credit rating when you miss a few payments on your credit cards or installment loans, what do you know about your mortgage and its relationship to your credit? Can’t Pay Mortgage this Month? There are consequences to consider before you skip that payment.
For instance, when it comes time to negotiate your mortgage term at renewal, you can expect that your lender won’t be lenient on your interest rate if you missed multiple payments, because you have become a higher risk client. What a higher interest rate will do is increase your payments. If you are having trouble paying now, think ahead to what might happen to your financial situation if your payments increase? And on top of that, your lender may even refuse to renew your mortgage, which could place you in even more hot water.
There is a common perception that the most destructive act you can unleash on your credit reputation is to declare bankruptcy. It’s not. Letting your house go under foreclosure creates a slippery credit slope that it is difficult to climb out of. If you have a foreclosure in your credit history, it would be extremely difficult to ever qualify to own a house again – or at least it will take a very, very long time.
Think about it. A mortgage loan is usually a substantial amount of money. If you’ve shown that you can’t manage it (even if it’s not your fault), your perceived risk goes up, regardless if you’re back on your feet with great credit when you re-apply for a mortgage. Worst case, you’ll be turned down indefinitely. Best case (and this is not really a best case) you’ll be subject to higher interest rates than the general borrowing population.
It only takes three consecutive missed mortgage payments to move you towards foreclosure.
What should you do?
So, what if you are facing the prospect that you won’t be able to make your payments? Act now. Right this minute.
“Despite best intentions, the reality is that sometimes people find themselves unable to make their mortgage payments. Sadly, this is often due to circumstances beyond their control, when life events have created a drop in their household income.” says Jeff Schwartz, executive director with Consolidated Credit Counseling Services of Canada.
“The key is to be proactive and contact your lender immediately to try to work out alternatives. Trying to work it out proactively can go a long way to help preserve your credit.”
Talk to your lender
If you know that you can’t make your mortgage payments, talk to your lender about your options. They might be able to adjust the amortization of your loan (making for lower monthly payments). You might be eligible for other programs as well. Some lenders will let you skip a payment without penalty, or “take a break”, especially if you’ve been in good standing up until now. You won’t know if you don’t ask.
Are you saddled with debt and are nervous about being able to make your mortgage payments? You have options. Call one of our trained credit counsellors or check out our free online debt analysis tool to get started.