Missing payments is serious — here's exactly what happens and what you can do.
Most Canadian homeowners will never face mortgage default, but financial hardship can strike anyone. Understanding the default process — and your rights — is crucial if you ever fall behind on payments.
Your lender notes the missed payment. Many lenders charge a late payment fee (typically $20–$50). Interest continues to accrue. Your credit bureau file may be updated after 30 days.
Your lender will typically reach out by phone, mail, or email. This is the time to respond and explain your situation. Most lenders have hardship programs and prefer to work with you rather than begin legal proceedings.
If payments remain missed, the lender will send a formal demand letter requesting immediate payment of arrears plus fees. Your credit score begins to be impacted. Legal processes may be initiated if no resolution is reached.
In most provinces, the lender begins formal legal proceedings to take possession of the property. In Ontario and most common law provinces, this is typically a Power of Sale proceeding. In Quebec, it's called a Forced Sale (Délaissement).
Depending on the province and court backlogs, the lender may take possession of and sell the property. Proceeds go to pay the mortgage balance, legal fees, and costs. Any surplus goes to the homeowner.
Canada uses two main legal remedies for mortgage default, depending on province:
If your mortgage was insured (CMHC, Sagen, or Canada Guaranty), the insurance pays the lender when you default — not you. However, CMHC then has the right to sue you for the shortfall. The insurance protects the lender, not the borrower. You remain legally liable for any deficiency after the property is sold.
The earlier you act, the more options you have:
Most lenders have mortgage deferral or modification programs for borrowers facing temporary hardship. During COVID-19, major banks allowed 6-month payment deferrals. Similar programs may be available during personal hardship. Lenders generally prefer to work with you rather than go through costly legal proceedings.
If your rate is the problem, refinancing at a lower rate can reduce your payments. Even moving to a B lender with a longer amortization may make payments manageable.
A voluntary sale almost always produces better results than a power of sale. You control the timing, the listing agent, and the price. A forced sale typically nets significantly less than market value.
If you have equity, a HELOC or refinance can provide cash to service the mortgage while you get back on your feet.
Mortgage arrears are reported to the credit bureaus. The damage compounds with each missed payment:
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