Mortgages are loans provided to buy a home. These are secured against the property and are paid over a long period of time. You then have full ownership once it has been paid in full plus interest, but mortgages can become a major concern for people struggling financially.
In this guide we’ll explore mortgage debt in detail, including what it is, how people fall into debt to mortgage lenders, and what your options are if you’re struggling with your monthly mortgage payment.
Mortgages are secured loans that are often essential when buying your home. Not many people can afford to buy a new home outright. Instead, you make a down payment on the property (also known as a deposit) and pay the rest in monthly payments to the lender over an extended period of time – usually more than a decade.
According to Canadian mortgage statistics, there was a hike of 33% in new mortgages issued by banks in the last quarter of 2020, in spite of the uncertainty caused by the pandemic.
Mortgage debt is incurred when people purchase a house with funds borrowed from a lender. This means that your monthly payments will need to be made on time in order to continue owning this property.
Mortgage debt has been on the rise for some time now, caused by a multitude of supply and demand factors in the housing market.
House prices have doubled within the past decade, resulting in the demand for buyers to borrow more to fund their homes, and the pandemic-driven housing boom is causing demand to rise even further.
Interest rates have been low for years, making it cheap for people to borrow money, but ever rising rates and changes to the economy can often be a factor for many as they watch their mortgage payments going up and up.
An article posted by the Star Business Journal showed that the debt ratio between income and debt level seems to be in an ongoing cat and mouse chase. Income has risen be 1.1 % while household credit market debt rose by 1.2%, meaning that the more people earn, the more they seem to borrow.
In 2017, Statistics Canada stated that the volume of household credit market debt increased to 167.3% of attuned household disposable income and the total household credit market debt amounted to approximately $2.029 trillion in the final financial quarter of 2016, with mortgage debt making up 65.5% of this.
A mortgage is secured against your home, so missing payments is not something you want to do. Below are just a couple of the consequences if you fail to make your monthly payment.
Naturally, anyone who struggles to pay their mortgage payments is undoubtedly going to experience financial hardship. This could range from having to cut back on certain luxuries that you feel you can live without to ending up with no money left to pay your priority bills.
For most, your house comes first so in most situations people have to forgo certain bills in order to keep their home, often leaving them no choice but to take out loans, overdrafts or a credit card just to get them to the end of each month. This can cause people to fall into a downward spiral of owing more money than they have coming in.
It is well known that financial troubles often cause the break down of relationship. If you co-own a home with your partner or a family member, financial struggles can lead to repeat arguments. This will often result in the topic becoming taboo and the problems escalating.
A survey released by SunTrust Bank showed that 35% of participants said that finances were the main reason they were suffering strains in their relationship. Having to cut out luxuries to afford your mortgage repayments can also lead to spending less time with the people you love because you simply cannot afford to.
When a homeowner defaults on their mortgage payment it could signal to the lender that this individual is unable to repay their debts and as such they will need to take possession of the property at some point in the future.
When you default on your mortgage it will stay on your credit report for six years and the negative effect that this has will be felt in most areas of your life where a good credit score is required.
For instance, if you go to rent an apartment and do not have a good credit score then you may find it difficult to rent from a landlord. In fact, some landlords will not even consider your application if you have a low credit score.
In general, when lenders see that someone has defaulted on their mortgage they view them as an individual who is likely to make more mistakes in the future and this impacts whether or not they will be approved for a loan and what the interest rate of that loan will be.
If you are having financial struggles relating to your mortgage, the signs below will likely be all too familiar to you:
If you are unsure of where to go next, your mortgage provider may be able to offer you some help. Companies such as Genworth offer a ‘homeowner assistance program’ to guide you and help you keep your home whilst you sort out your finances.
The fear of losing your home can be draining. The following are some steps you can take to try and gain back control of your finances.
Even though it can be tempting to ignore all of those envelopes filled with bills that stack up on a daily basis, it’s important not to bury your head in the sand and hope they disappear completely. When you first notice a problem with repayment, take immediate action by getting ahead on some smaller payments to see how much progress you can make before resorting to defaulted payments.
Speak to your mortgage provider to discuss options to see if there is any wiggle room and try and bring your payments down to ease the stress you are under. Another thing you can do is consolidate all bills so you are only making one payment each month, but keep in mind doing this could mean you’ll end up paying more than necessary due to fees and interest rates associated with consolidating debts.
You might want to consider contacting the Financial Consumer Agency of Canada (FCAC) for additional help if you feel overwhelmed. The FCAC exists to protect consumers and promote financial education. They may also be able to provide money management advice to help you budget.
If you find yourself in a situation where you are unable to repay your mortgage then you need to contact your lender as soon as possible, but if your finances are getting out of hand, it may be a good idea to get debt advice.
Mortgage arrears can impact your life massively, but here at A Fisher & Associates our main goal is to help relieve your stress. Our non-judgmental experts will work with you to find the solution that will work best for you.
For free debt advice from a friendly advisor, give us a call today on 416-842-0040 to find support.
Fill out the form and arrange a call back with one of our debt advisors.
We will then run through all of the options available to you and advise you on which is the best option for you
We will then help you put the debt solution in place that will help you get back on track
