Mortgage Debt

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Mortgage Loan Strategy

Mortgage debt can occur when you stop paying your mortgage because you can no longer afford to do so. If you find yourself in mortgage debt, your mortgage lender could sue you and you could be forced to sell your home.

Depending on what type of mortgage you have, your debt repayment or debt consolidation loan strategy will differ. In Canada there are two types of mortgages: Conventional and high ratio.

Conventional Mortgages

Conventional mortgages are typically provided by a bank or other financial institution. This usually means that you have made a minimum down payment of 20% on your homes total cost. If you are unable to pay your mortgage and are forced to sell your home, your lender is able to pursue you for any shortfall if the proceeds from sale of the home aren’t enough to repay the mortgage.

High Ratio Mortgages

If you have a high-ratio mortgage, you might be binded by some non-traditional mortgage terms.

In Canada, mortgage insurance is required under the Bank Act Law for those who put down less than a 20% down payment on a property. This means that if you purchased a home with a high ratio mortgage you also had to purchase mortgage default insurance. If you have gone into mortgage debt and are unable to repay the mortgage after the sale of your home, the lender will submit a claim to the mortgage insurer who will then pursue you for the money you owe.

Getting Out of Mortgage Debt

If you need to get out of mortgage debt, it can be possible to negotiate a settlement with your mortgage insurer. This is the recommended course of action if mortgage debt is your only debt. Otherwise, debt consolidation is a good option if you are struggling with other debt repayment issues.

Often, personal guarantees from third parties are required by lenders for additional security. If you are unable to repay your mortgage debt after selling your home, the lender can call on your guarantor to repay the outstanding balance.

If you have an insured mortgage and are unable to make a mortgage payment and know that you will quickly fall behind on your payments, you can call the Canada Mortgage and Housing Corporation (CHMC) for help and mortgage debt-specific advice.

Mortgage Debt & Filing for Bankruptcy

Home equity is the difference between your property’s value and what is still owed on the mortgage and other encumbrances (like outstanding property taxes or liens). If you have filed for bankruptcy, your licensed insolvency trustee will determine if there is any equity in your residence. If there is equity in your residence and you want to stay in your home after you have filed for bankruptcy, you will be required to pay the equity to your licensed insolvency trustee during your bankruptcy.

If you cannot pay into your bankruptcy estate the amount of your equity in a reasonable amount of time, your licensed insolvency trustee will be forced to sell your home in order to obtain the equity for your bankruptcy estate. Another alternative to bankruptcy is to file a consumer proposal. This will prevent you from filing for bankruptcy and losing your property and prevent you from losing your home.

Generally, if you have a good track record of paying your mortgage, your mortgage company will likely allow you to renew your mortgage during and after bankruptcy. The reason for this is because the bank would rather you renew your mortgage and continue to pay the principal amount and interest rather than having you sell your property and losing out on the potential for future profits.

If you would like more information about mortgage debt, debt consolidation, a consumer proposal or filing for bankruptcy, please contact Dana MacRae Licensed Insolvency Trustee today. You’ll be able to get your life back on track and stop worrying about debt problems!

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