I lost my job, what happens to my mortgage?

In today’s challenging job market, it’s not uncommon for people to lose their jobs. If you’re a Canadian homeowner who has found yourself in this unfortunate situation, you may be wondering what you should do about your mortgage.

Luckily, there are steps you can take to protect your home and finances. If you've lost your job, or concerned you will in the future, and will have difficulty making your mortgage payments, there are things you can do to protect your home home. This article will help answer some of the most common questions about keeping your home if you lose your job.

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Should I stop paying my mortgage? (Answer: No)

Making sure you don’t fall behind on your payments is crucial. If you’re having trouble making payments, try to work with your lender to get them back on track. Contact your lender as soon as you know there is a problem. Even if you don’t think the issue will result in delinquency, it’s important to let them know you need help.

Your lender may be able to offer assistance, such as an interest-rate reduction, a payment deferral, or a payment forbearance. There may also be programs that can help you avoid foreclosure. If you stop paying your mortgage, you could enter mortgage default, which may make you ineligible for refinancing options that could be helpful in your situation. Moreover, failing to pay your mortgage could force your lender to take you to court and foreclose on your house. You may be able to get your home back by paying off the amount owed, but you may also owe your lender legal fees.

Learn how to avoid mortgage default & foreclosure →

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What if I can no longer afford my mortgage payments?

If you can no longer make your mortgage payments because of job loss or reduced hours, you may be at risk of a mortgage default and having your home go into foreclosure. When you miss two payments in a row, your mortgage lender can begin the foreclosure process. 

 If you find yourself in this situation, there are a few things you can do to protect your home and finances:

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1. Speak with your lender

When you’re out of work, it’s perfectly understandable to ask for help. Make sure you’re turning to reputable sources, such as government agencies and your mortgage provider.

If you can’t make your monthly mortgage payments, the Canada Housing and Mortgage Corporation (CMHC) recommends getting in touch with your mortgage lender. Depending on your lender, they may offer a number of ways to reduce the burden of your mortgage, such as deferring your payments, extending your repayment period, or switching to a fixed rate. 

Believe it or not, your mortgage provider wants to stick with you for the long haul, and will likely be willing to work with you to put together a solution. They are trained and equipped to work through any financial setbacks you may be facing.

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2. Take a payment “vacation”

Depending on your lender, you may be able to take a break from mortgage payments for up to four months at no penalty using what’s called a “payment vacation.” In order to be eligible for a payment vacation, you must have made prepayments that add up to the amount of mortgage payments you’d like to skip, up to a maximum of four months.

 The payments you do skip will be rolled back into your balance and will incur interest for the rest of the loan lifetime.

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3. Rent out your things

You can weather a job loss and pay your mortgage by generating rental income. This doesn’t have to mean moving out of your home. Depending on the size and amenities of your home, there are a number of flexible ways to access rental cash — just make sure you’re following local rules and regulations:

• Rent out your home while you’re gone: If you’re often on business trips or visiting family, you could generate income by renting your property on sites like Airbnb or Vrbo.
• Rent out a room: Instead of renting your entire home, consider renting out an extra room. Of course, as long as you’re comfortable doing that.
• Rent out space for extra storage: If you have idle space or an extra parking spot, you could rent it out on a site like Neighbor.
• Rent your pool, hot tub, and other amenities: If your home has a swimming pool, a hot tub, or a nice back patio, you could also rent those out from time to time through a site like Swimply. 

The rent you generate may not cover your entire mortgage, but it could put a reasonable dent in it. Consider this strategy in combination with others outlined in this article, such as loan deferral.

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4. Consider refinancing your mortgage

One way to reduce your monthly payments is by refinancing your mortgage to a longer loan duration. By lengthening your loan term, the amount you owed will be spread over a longer period, thus reducing your payments. 

Keep in mind, you will likely pay more interest over the course of the loan due to the longer amortization period, as well as pay fees associated with refinancing.

If you are able to pay your mortgage, but concerned that future rate hikes would make it impossible, you could consider refinancing to a fixed-rate mortgage to lock–in a rate. Again, there will be additional fees involved, but they may be worthwhile for the peace of mind.

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5. Pay off your mortgage using home equity, go payment-free

If you’ve built up a significant amount of home equity, lenders like Fraction (that’s us👋) will lend you enough funds to pay off your traditional mortgage.

Your old mortgage would be replaced with a new Fraction Mortgage which would not require payments for up to 5 years.

After you pay off your traditional mortgage, you may have some leftover funds from Fraction to make home improvements, consolidate debt, or supplement your income while you look for a new job. You can repay the Fraction Mortgage at any time, or switch back to a traditional mortgage once you’ve improved your financial position.

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6. Consider a reverse mortgage

If you’re 55 or older, you could look into reverse mortgages, as well. They come with a few more restrictions, but some benefits depending on your situation. You will not be required to make any monthly payments and the balance will be due when you leave the home; if you sell, move to a nursing home, or pass away. By this time, there’s a chance you won’t have any equity left to leave to your family. If you’re comfortable with that, this may be a viable option.

There are some key differences between your options, so it’s encouraged you compare them carefully to determine which is right for you.

‍Compare your options →

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Don’t panic, you have options

If you've lost your job or worried you will in the future, it’s important to get your financial ducks in a row. Start saving money, contact your lender to discuss options, and start looking for a new job. It’s also a good idea to stay in touch with your lender if you’re making reduced payments or receiving assistance. Let them know how things are going and how long you expect the reduced payments to last.

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Need a break from monthly mortgage payments?

With enough home equity, you may be eligible to switch to a Fraction Mortgage — a financing option with no monthly payments. Get your free estimate today.

Disclaimer: Information in this article is general in nature and not meant to be taken as financial advice, legal advice or any other sort of professional guidance. While information in this article is intended to be accurate at the time of publishing, the complexity and evolving nature of these subjects can mean that information is incorrect or out of date, or it may not apply to your jurisdiction. Please consult with a qualified professional to discuss your specific situation and confirm any information.