Missed Mortgage Payments in Canada: What Happens and What to Do

What a missed payment and default actually mean

The Financial Consumer Agency of Canada (FCAC) describes mortgage default as not following the terms of your mortgage agreement, which can include missing a regular payment. Your contract spells out what counts as default and what the lender may do about it, so pull it out and read the default section. It often covers more than missed payments, such as unpaid property taxes or letting your home insurance lapse.

Payment problems usually come from a change in circumstances: a job loss, illness, separation, a business slowdown or a renewal at a much higher rate. FCAC also points to rising rates as a trigger, whether through a renewal with much higher payments, higher variable-rate payments, or reaching a trigger rate where your payment only covers interest.

A single late or missed payment typically leads to fees for the returned payment and a call or letter from your lender. Repeated missed payments are what move a file toward legal action. The gap between those two stages is where you have the most options.

The typical timeline after you fall behind

There is no single national timeline, but the sequence is broadly similar across lenders. In the first weeks, the lender tries to collect: it may retry the payment, charge fees and contact you. FCAC expects federally regulated lenders to watch for early signs of default and proactively contact borrowers who are at risk, and to offer information on relief options.

If missed payments continue, the lender will send a formal demand for the arrears or for the full balance, depending on your contract. In British Columbia, for example, Clicklaw notes that lenders usually do not start foreclosure until about two or three months of payments have been missed, and that a demand letter stating the amount owed comes before court proceedings.

After that, the lender begins the enforcement process that applies in your province, either power of sale or a court-supervised foreclosure or sale. Even then, you typically keep the right to bring the mortgage current or pay it off for a period of time. The earlier you engage, the more choices remain; once a sale is complete, they are gone.

Power of sale versus foreclosure

These two terms are often used interchangeably, but they describe different processes.

• Power of sale: the lender uses a right in the mortgage, and in provincial law, to sell the property after giving the required notices. It generally does not require the lender to take ownership through the courts. The sale proceeds pay the mortgage and costs, any surplus goes to you, and you may still owe any shortfall.
• Foreclosure: the lender goes to court, and the court can ultimately transfer ownership of the property to the lender. In practice, courts often oversee a sale rather than handing over title, and a judgment may let the lender pursue you for any shortfall.

Which tools are available, how long each stage lasts and whether you can be pursued for a deficiency all depend on provincial law and your mortgage contract. That is why legal advice in your own province matters as soon as you receive a formal notice.

How the process differs by province

Ontario: lenders generally rely on power of sale under the Mortgages Act. The law requires a minimum period of default before a notice of sale can be sent and a further notice period before the lender can sell. During that time you can usually pay the arrears and costs to stop the process. Because the process is mostly out of court, deadlines can arrive quickly, so read every notice carefully and get legal advice.

British Columbia: enforcement goes through the courts. According to Clicklaw, the lender files a petition, you have 21 days to file a response, and at the first hearing the lender asks for an order nisi, which sets a redemption period and includes a personal judgment for the amount owed. The default redemption period is six months, though the court can shorten or extend it. The court may then grant conduct of sale to the lender or, more rarely, an order absolute that transfers the property to the lender.

Quebec: the lender, called the hypothecary creditor, must first send a prior notice of the exercise of its hypothecary rights and register it. Éducaloi explains that for an immovable such as a house, there is a 60-day period from registration of the notice before the creditor can generally act, and that you can stop the process by paying what is owed, plus the creditor's costs, before the property is taken in payment or sold. The creditor must also prove to the court that you failed to meet your obligations.

Other provinces and the territories use their own mix of court-supervised foreclosure, judicial sale and power of sale, with different timelines and rules on shortfalls. A local lawyer, notary or legal aid clinic can tell you what applies to your home.

Relief options lenders can offer

Lenders have a range of tools to help borrowers through a rough patch, and FCAC's guideline on mortgages in exceptional circumstances sets expectations for federally regulated lenders to offer relief suited to your situation. Common options include:

• Payment deferral: payments are delayed, usually for up to four months according to FCAC, and must be repaid later.
• Amortization extension: stretching the remaining amortization lowers your payment but increases total interest. FCAC's example shows a $300,000 mortgage at 5% costing about $173,130 in interest over 20 years versus $276,386 over 30 years.
• Special payment arrangements: temporarily reduced payments, with the shortfall recovered over the shortest affordable period.
• Capitalization: adding missed payments and certain charges to your balance, which raises later payments.
• Interest-only payments, skip-a-payment features, or a blend-and-extend of your rate and term.
• Waived prepayment penalties or internal fees, for example if you need to sell or make a lump-sum payment.

If you hold optional mortgage or credit insurance, check whether you can claim for job loss, illness or disability. FCAC notes these benefits typically start after a one- or two-month waiting period and are paid for a limited time. Before accepting any relief, FCAC expects lenders to disclose in plain terms your new balance, total cost, amortization, payment and rate, and to get your express consent.

What to do if you are falling behind

Call your lender before you miss a payment if you can, or as soon as possible after. FCAC advises that borrowers who explain their situation quickly have more options available. Have a realistic picture ready: your income now, how long the problem may last and what payment you can actually manage.

Then work through your finances. Build a bare-bones budget, cut discretionary spending and pause non-essential savings contributions. If other debts are part of the problem, a non-profit credit counselling agency can review your situation at low or no cost and may help you prioritize the mortgage over unsecured debts.

If you receive a formal demand, notice of sale, prior notice or court petition, get legal advice right away and respond before any deadline. Missing a response deadline can let the process continue without your input. Be wary of anyone who offers to rescue your home in exchange for signing over title or paying large upfront fees.

If the numbers simply do not work, selling on your own terms is often better than a forced sale. FCAC describes a sale by borrower plan, in which your lender gives you time, typically 90 days or less, to sell at fair market value. A seller in control usually gets a better price and pays fewer enforcement costs. Where debts go well beyond the mortgage, a licensed insolvency trustee can explain whether a consumer proposal or bankruptcy makes sense.

How missed payments affect your credit and your future

Missed payments that are reported to the credit bureaus can lower your credit score and stay on your report for years, which makes renewing, refinancing or borrowing more expensive. FCAC's guideline says federally regulated lenders should not report agreed-upon missed payments that are part of a relief plan to the credit bureaus, which is another reason to arrange relief formally rather than simply stop paying.

Relief measures themselves have costs. Deferrals and capitalization leave you owing more, and stretching your amortization adds interest over the life of the loan. If you use them, ask your lender for a plan to get back on your original schedule once your situation improves. Our guide to how amortization works shows how much a longer schedule can cost.

Finally, plan your renewal early. FCAC expects lenders, at renewal, to ensure terms suit borrowers who are in difficulty. Compare options a few months before your term ends rather than signing whatever arrives in the mail.

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