There have been many stories on the news in the last little bit about a surge in jingle mail.
What is jingle mail you ask? It is when a homeowner is no longer able to make their mortgage payments due to a health issue, job loss or other life event so they choose to mail the keys to their mortgage lender thereby surrendering their home. The bank knows they have the house to do with what they will and the clients carry on unencumbered to deal with their life. The problem is that this is not how it works.
At all. You cannot step away from your mortgage obligations and the consequences of not paying the mortgage in this way. I do not care what Bob at the coffee shop told you his brother did, it is simply not true. Let’s look at this myth and debunk it.
So what can you expect exactly?
If you stop paying your mortgage, for whatever reason, the bank and the mortgage insurers have legal recourse to come after you.
I am not a lawyer and so I will not get into the particulars but you need to know that you are liable for the legal fees incurred by the lender to foreclose upon the property, any shortfall claim from the lender, the realtor fees to sell the home, and the loss on the mortgage.
These costs add up very quickly and are into the tens of thousands before you know it.
They can take legal action against you even after the house has been sold to a new person. Yes, you are responsible for them and you agreed to be so in the mortgage documents you have signed.
Another point to consider is this, once you have been foreclosed upon the chances of you getting another mortgage are next to zero.
The foreclosure will be reported on your credit report, to the bank and to the mortgage insurer if you had purchased the home with less than 20% down.
Lenders are not likely to lend you the funds needed to purchase when you were clearly unable to meet your obligations the first time.
So what should you do when life has left you unable to make your mortgage payment?
Talk to the lender BEFORE things get out of hand to see if you can come to an agreement. If you don’t get anywhere that route, call your mortgage default mortgage insurance provider directly. Remember that big insurance premium which was added to your mortgage?
It can come in very handy in this situation. Those companies do not want to see you mail your keys in as it is less expensive to help you now than it is to payout on a claim later.
The three companies who provide mortgage default insurance in Canada are CMHC, Genworth and Canada Guaranty. Each has their own policy for these situations, as do the lenders, but they can help in a variety of ways.
1. Capitalized arrears – occurs when the money that was past due on your mortgage, along with any interest and penalties you have acquired, is just tacked onto the mortgage balance that you owe.
2. Increased amortization – the overall length of the mortgage can be stretched which will reduce the monthly payments.
3. Partial or shared payment plan – they may reduce your costs to interest only payments or a reduction to an interest plus a small amount to the principle.
4. Deferred payments – your payments can be deferred up to six months.
5. Promissory note – the insurer can actually lend you the funds to catch up, often at 0% interest.
6. Assisted shortfall sale – if the worst comes to pass and there is no way for you to keep the home, the insurer can assist in a shortfall sale. The benefit of this is that it leaves you in the position that once you are back on your feet, you can be approved for another mortgage by the lenders AND the insurers.
It is very important to note that each lender and insurer are different in their policies so you may not be able to access all of these solutions. If you put more than 20% down you are not likely to call upon the assistance of the default insurance provider.
Call your lender, your mortgage specialist and your default insurance provider as soon as you think you may be in trouble.
There are also insurance companies out there offering job loss and disability insurance so consider those options while you are healthy and employed.
That’s all for this week. Until next time.
Pam Pikkert is a mortgage broker with Dominion Lending Centres – Regional Mortgage Group in Red Deer.