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(March 20, 2023)

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This post does not explain the process of mortgage foreclosure, but rather the timeframe that potentially leads up to it. In particular, the purpose of this article is to explore solutions to avoid foreclosing on your property.

What causes a foreclosure to happen?

If you guessed that missed mortgage payments cause foreclosures you are absolutely correct. However, what most people are not aware of is the lengths that most lenders will go to in order to avoid foreclosing on your property. They would much rather prefer to retain you as a mortgagee/client than to have to foreclose on your property (i.e. retaining it as a rental property, or selling it). Most lenders recognize the hardship that unexpected life events can bring and offer alternative solutions to assist you through difficult times. However, after a brief period of cooperation and assistance, a lender will expect you to get back on your feet and jump back into regular payment mode. If you are not able to reconvene with regular and consistent payments, lenders will likely then begin to execute the beginning stages of foreclosure proceedings.

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Are there any options to circumvent foreclosure proceedings?

Yes, there are several options available, and they all hinge on two things; EQUITY and REACTION TIME:

EQUITY: Lenders in Canada adhere to a maximum refinance threshold of 80% loan-to-value ratio. This means that your mortgage financing cannot exceed 80% of the (appraised) value of your property. There are options to secure financing for loan-to-values that exceed 80%, but they are very costly, and generally less available in the marketplace. In almost all cases, an appraisal is required to determine the value of your property.

REACTION TIME: It is critical to understand that hesitation to proceed with a mortgage refinance can lead to qualification ineligibility in the future (a declined mortgage application). If you are in the midst of financial hardship, you must be aware that your credit score is likely decreasing, and possibly at a rapid rate. The descent can be so significant and abrupt that by the time you formally apply for a refinance your application credentials will likely have degraded to the point where you can no longer qualify. With mortgage qualifications, time is always of the essence. The longer you wait it out, the more damaged your application profile can become. Stay ahead of the pending crisis and be proactive by seeking consultation with a mortgage broker, it is critical to know your options as soon as possible as the window of opportunity is likely closing in on you with every passing week or day.

Be proactive and explore options the instant you detect a financial crisis.

Depending on the severity and timing of your inquiry, your financing outcome will fall into one of the three following categories:

Top-Tier Refinance Solution:

*most likely pathway for highly proactive applicants who have inquired and applied for a refinance in anticipation of financial hardship

*standard qualification criteria (inside the box type of qualification)

*minimum beacon score requirements of at least 620 (personal credit score)

*maximum loan-to-value limits of 80%

*eligible for lowest market rates

*30-year maximum amortization

*1 to 10-year terms are available

Mid-Tier Refinance Solution:

*likely pathway for applicants who are currently experiencing hardship with personal unsecured credit (credit cards, etc), but are still maintaining their existing mortgage payments

*lenders with less restrictive qualification criteria (good for applicants with bruised credit or challenging income/employment disclosures)

*scalable solutions based on your credit score and income (no minimum beacon score requirement)

*maximum loan-to-value limits of 80%

*interest rates are typically 1-3% higher than Top-Tier lenders

*amortizations up to 35 years are available

*1-3-year terms are available

Bottom-Tier Refinance Solution:

*for applicants that require immediate action/intervention

*qualification criteria mainly based on your property equity and condition

*very little emphasis is placed on your credit score

*maximum loan-to-value limits are typically 75%, but can be as high as 80%

*interest rates are typically 3-6% higher than Mid-Tier lenders

*loan payments are typically interest-only, therefore no amortization is calculated

*terms generally do not exceed 1 year, however, they are mostly auto-renewable without re-qualification (provided you maintained good standing throughout your preceding term)

How does this all play out in the end?

If executed in a timely manner, a refinance can convert a crisis situation into a manageable and fixable outcome. Here are some tips to help keep you on the path of recovery once you have successfully completed the refinance:

To avoid a recurrence of financial hardship, it is critical to adopt new habits going forward. Identify your faults and shortcomings and make changes in your life to improve upon them, or eliminate them, outright.
Make a plan to transition to a higher-tier mortgage solution once your current one matures. You have likely come out of a crisis by signing on to a band-aid type of mortgage (short-term, high-interest rate) and as such, you must recognize that your new mortgage will also come due and require requalification to upgrade to a higher-tier mortgage. An experienced mortgage broker will offer valuable guidance on what you must do to prepare for your next mortgage once the current one reaches maturity…this is especially critical if you are coming from a crisis situation and have signed on with a private/2nd mortgage lender with high-interest rates.
Embrace your new mortgage and appreciate it for what it is, a reset. Avoid feeling shame or embarrassment, and instead, look onward and continue to focus on improving. Many crisis situations evolve into inspirational stories – let yours be one of them!

Want to explore your options? Call or text Marko right now at 604-800-9593, or Click Here to schedule a call to find out if any of the senior-focused solutions above are a fit for you.

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