What Happens if You Can’t Pay Your Mortgage in Canada

Being a homeowner takes serious financial discipline. This is especially true in the Greater Toronto Area, which features some of the strongest property values in Canada. Although most homeowners are smart about their personal finances, sometimes external factors can throw a wrench into things. 

For example, rising interest rates, international trade talks, and other economic uncertainties have made it increasingly difficult for many Canadians to keep up with their mortgage payments. Not to mention, personal events like divorce, separation, or job loss can also create immense financial stress, making it harder to manage housing costs. 

Unfortunately, falling behind on your mortgage can have significant consequences. Luckily, there are usually solutions available if you find yourself in these circumstances – as long as you don’t wait too long to take action. 

In this blog, we’ll look at what happens if you can’t pay your mortgage as a Canadian homeowner, and what some of your options may be to resolve the situation. 

What Happens When You Default on a Mortgage?

A mortgage agreement isn’t just your ticket to a loan. It’s also a legally binding contract. As a homeowner, you have distinct responsibilities outlined in your mortgage agreement. If you fail to fulfill one or more of these responsibilities (such as missing too many payments), it’s known as defaulting. 

When you default on your mortgage in Canada, your bank or lender has the legal right to take action against you and your home. This could mean evoking the power of sale or initiating the foreclosure process, causing you to lose your home. 

What is Power of Sale?

If you default on your mortgage and are unable to catch up, the most likely outcome is a power of sale scenario. So, what does that entail? Until your mortgage is paid off, your lender has the right to step in and sell your house if you default on it. This is known as the power of sale. 

When a lender enforces the power of sale, they will prepare, list and sell a property with little (if any) input from the owner. Once the house sells, the bank receives the amount of money owed to them and any remaining proceeds are given to the original owner.

Power of Sale Vs. Foreclosure?

Although both processes allow a lender to sell your house, power of sale and foreclosure are two different things. In a power of sale transaction, the bank can sell your property, but they don’t legally own it. So, any extra funds left over from the sale (once the debt is paid off) are passed back to you, meaning you retain some equity. 

In a foreclosure sale, the lender assumes full ownership of the property. Even if the property sells for more money than is owed to them, the bank has no responsibility to share the remaining proceeds with the homeowner, and they usually don’t. 

Looking for catch all advice on selling a house? Read these related blog posts.

• How to Purge Your Home Before Selling It
• Can a Power of Attorney Sell a House?
• Do You Need to Stage Before You Sell?

How to Stop Power of Sale in Ontario

If you find yourself behind on mortgage payments, immediate action is crucial. Even if you haven’t received communications or warnings from your lender, you’ll want to get in touch with them as soon as you can. 

While nothing is guaranteed, most lenders will offer some degree of leniency for homeowners facing financial uncertainty. Depending on your circumstances, they may be able to offer mortgage adjustments or alternative repayment plans, allowing you to avoid a power of sale scenario. 

Can I Sell My House to Avoid Power of Sale?

Yes – and in some cases, this could be the best case scenario. 

In times of financial stress, it’s important to be realistic about your circumstances. Sometimes, catching up on mortgage payments simply won’t be possible, even with some leniency from your lender. 

In cases like this, the best thing to do is sell your house (on your own) before the lender takes over. When you take control of your home sale, you’re more likely to get a higher return than if you let the bank sell for you. After all, the bank only wants to recoup what is owed to them in as little time as possible. 

Get Expert Support 

If you’re thinking, “I can’t afford my house anymore, and I don’t know what to do.” The Lino Arci Team is here to help. As experienced real estate agents in the Greater Toronto Area, we’ve helped hundreds of homeowners protect their equity and investment across a wide range of economic and market conditions. No matter your circumstances, we provide compassionate yet straightforward support to ensure you get the best outcome possible. 

Should you need to sell your property, we can help you capture the best return possible, so you have a strong financial foundation for your move. Plus, our selling guarantees can provide you with unrivalled peace of mind in an uncertain market. Get in touch with our team today. 

Think you may need to sell your home? Our team is proud to offer industry-leading support for our clients. Call 416-571-2724 to get in touch or email us at info@arciteam.com.