Sandra Fry: Addressing your non-mortgage debts will make it easier to navigate or avoid foreclosure altogether
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A mortgage is a loan secured by a property, meaning that if you fall behind on payments for your first mortgage, HELOC or any type of second mortgage, the lender can take steps to recover what is owed, potentially forcing the sale of your home.
If your home is worth more than what you owe, including property taxes and legal fees, you might have enough equity to buy another home. However, if your home sells for less than what you owe, you could be sued for the difference.
To manage the foreclosure process and stay in control of your situation as long as possible, maintain active communication with your lender and/or lawyer. This involves responding to notices, attending hearings if necessary and getting your affairs in order to either qualify for new financing or to be ready to move when the time comes.
Don’t avoid communicating with your lender if you can’t make your payments. They are the best ones to advise you about payment-deferral options, hardship programs through your mortgage insurer (for example, Canada Mortgage and Housing Corp.), refinancing or what else you might be able to do.
If you have equity in your home, be aware that once the foreclosure process begins, legal fees will be added to what you owe, potentially reducing or eliminating your equity if the lender sells your home. To avoid this, contact several real estate agents to determine your home’s market value. Calculate what you would net from the sale to see if it would provide a fresh start or if it would lead to another unaffordable housing situation.
Scaling back your spending can be a challenge, but losing your home is even more difficult. If your debt payments, excluding your first mortgage, consume more than about 25 per cent of your take-home pay each month, that’s considered significant. Before you think about selling your home, paying off your HELOC and moving your mortgage to a more affordable property, get help managing your other debts first.
Ultimately, any efforts you make to address your non-mortgage debts will make it easier to navigate or avoid the foreclosure process altogether.
Sandra Fry is a Winnipeg-based credit counsellor at Credit Counselling Society, a non-profit organization that has helped Canadians manage debt for more than 27 years.