Can’t Make Loan Payments in Canada? - What to Do

There are actually quite a few options out there for those in Canada who can’t make their payments. While many of these solutions are only temporary, they’re often available just long enough to help you get back on your feet. Let’s take a look at some of these options. 

Not Being Able to Pay Your Mortgage in Canada

If you’re unable to pay your mortgage, you are at risk of losing your home since it’s considered to be a secured loan. If you’re in this situation, the best thing you can do is contact your lender. They’ll be able to let you know if you’re able to defer your mortgage, have insurance that will cover your payments depending on your situation, and even see if you’re able to refinance and be able to make your payments more manageable. 

While there are options to help you cover these mortgage payments, like we mentioned above, many of them are only temporary. Once all options are exhausted, you could be at risk of a foreclosure or a power of sale. By the time you’ve reached this point, though, you’ve likely also incurred late fees and penalties on your mortgage. 

How to Qualify for Government Mortgage Assistance in Canada

While there isn’t assistance available through the government to help you when you’re unable to make your mortgage payments, there are other options available. Let’s take a look at what they are. 

Renegotiating Your Mortgage

If you’re having trouble making your current mortgage payments, you may be able to renegotiate the terms in order to make it more affordable. If you have a variable mortgage and rates are increasing, then you can lock in a rate before they increase. You can also choose to renegotiate to take advantage of lower rates. You can even choose a blend and extend mortgage which also allows you to take advantage of lower interest rates. 

Another option for reducing your mortgage payments is a blend to term mortgage. With this type of mortgage, you will keep your mortgage term, but pay the new interest rate until the end of your mortgage.

For example, say your current mortgage is 5 years at 7%, your new interest rate is 5.2% and you have 2 years left. In this case, you would pay 5.2% instead of 7% for the next 2 years. This will reduce your overall payment amount as well. 

Utilizing Mortgage Features

Within your mortgage contract, there are certain features that you can take advantage of to help when you're unable to make your payments.

Prepaying and Reborrowing: This means that if you’ve made any principal payments, known as repayments, you may be able to borrow that money to pay your mortgage. There may be some fees involved with this option, though. 

Skip Payment Feature: Banks have different names for this particular feature, but essentially it means that you can skip a certain number of mortgage payments per year and you can choose to use them whenever you like. The specifics are based on your banks policies. 

Home Equity Line of Credit

While using a Home Equity Line of Credit can be a risky way to pay your mortgage, in a pinch, it can really help you out. However, it’s important to keep in mind that this type of line of credit allows you to tap into your home's equity, meaning that it’s secured to your home. Since this is a secured line of credit, the bank can lower your limit or request repayment atany timee. 

Credit Insurance Claim

Depending on the reason you’re unable to pay your mortgage, you may qualify for mortgage or life insurance that will help you with your mortgage payments. Depending on your coverage, you could be eligible if you’re injured, have an illness or disability, or have lost your job through no fault of your own. However, you do need to pay attention to the policy stipulations to see if you qualify. Here are some things to look for.

Stipulations: When it comes to credit insurance claims for your mortgage, there’s often a time limit of how long your able to be on the claim from when you qualify. There’s also usually a monthly capped amount as well. This means that you may only be covered for the partial amount or only a portion of the time that you’re off. 

Missed Payments: You will also notice when you apply, it’s harder to get approved if you’re already delinquent. There are also consequences that will affect your payments while your receiving the claim, if your become delinquent. If you’re having issues while receiving the benefits, it’s best to vist your financial institution and make arrangements. 

Mortgage Payment Deferrals

Most mortgages will allow you to defer your payments a few times a year. However, for some mortgages in Canada, you can only make so many deferrals for the lifetime of your mortgage. The average total amount of time that you can defer your mortgage for is 3 months. However, because you deferred, this amount is then added onto the end of your mortgage, so you still have to pay it.

Some banks will also allow you to negotiate extended deferrals periods. In these cases though, the deferral is allowed up until a certain amount instead of an amount of time. One the amount has been reached you will need to start making your payments again. 

Amortization Extension

Another way you can reduce your mortgage payments is to extended your amortization period, also known as the entire life of your mortgage. If your amortization period is currently 25 years, then you can extend it by 5 years to 30 years and reduce your overall payments. However, the overall interest costs on your mortgage will be more. 

Not Being Able to Make Your Personal Loan Payments

Unless you are falling behind on your student loans, the Government of Canada can’t help you. The best option you have is to contact your lender and explain the situation. They can help you manage your payments, invoke any insurance that you have, and skip any payments that you could be eligible for.  Not doing so could result in your debt going into collections. For a car loan, it could get repossessed. 

As for student loans, if you’re unable to make your payments, there are two government programs that can assist you. These programs are the Repayment Assistance Plan and the Repayment Assistance Plan for Borrowers with Disabilities. 

Repayment Assistance Plan

With the Repayment Assistance Plan, also known as RAP, you can have a portion or all of your payments for Canada student loans covered, which is calculated based on your wages and family size. You’re eligible to apply for RAP as soon as you start repaying your student loans or anytime thereafter. However, you will have to reapply every six months to remain eligible and keep your affordable payments.

What It Covers : If you qualify for RAP, then the program will cover any of the interest owing on the federal part of the loan that reduced payments are unable to cover. Once you’ve been using Rap for 5 years, or it’s been 10 years since you finished school, the program will cover principal payments and any remaining interest that is still owing. In most cases, the maximum amount of time you can stay in this program is about 15 years. Keep in mind that loans after April of 2023 have interest free status. 

Getting Another Loan: If the RAP program has already made at least the first payment on the one loan you already have, and you want to return to school, even for full-time studies, you won’t be able to get another loan. However, once you have met the repayment terms and the balance of your loan, you will then be able to get another Canada student loan. 

Repayment Assistance Plan for Borrowers with Disabilities

The Repayment Assistance Plan for Borrowers with Disabilities, or RAP-D, is similar to RAP in that it will help you make your payments. However, the amounts that RAP-D covers are a little bit different. It will cover both the principal and interest that reduced monthly payments are unable to cover. This amount will continue to be paid as long as you stay eligible and until the full balance is paid. Most students with this program can remain on it for up to 10 years after they finish school. 

Not Being Able to Make Your Credit Card Payments

Not being able to make your credit card payments in Canada can lead you down a pretty slippery slope. The first step if you find yourself in this situation is to contact the credit card company. They’re usually pretty accommodating with credit card debt if you’re upfront with them. 

The problems start to occur when you miss three months of minimum payments in a row. These missed payments can start incurring late fees and penalties, and even have your account closed. However, you can often still negotiate with the company itself until they decide to pass off the debt to a debt collection agency. 

Once you start missing any credit card payments at all, they really start to damage your credit score with the credit bureaus as well as remove you from good standing with the company. If you end up with a collection agency due to the debt, then you may want to speak to a licensed insolvency trustee about a debt repayment plan or a consumer proposal. 

These options can help you erase the negative debt from your credit report and start to rebuild your credit score. Based on your financial situation, a trustee can also renegotiate the loan terms, reduce the charged interest, and protect your assets. 

Provincial Rules for Loan Non-Repayment

When it comes to non-repayment of loans, there are different rules in every province. No matter the debt, there’s a statute of limitations in every province. This is how long the debt collection companies have to bring legal action against you for not paying a debt. After that time period, all threats of legal action are just threats; they can’t be acted on. Let’s take a look. 

Even though a creditor technically shouldn’t sue you once the statute of limitations is up, it has been known to happen. In this case, you just prove the statute of limitations has passed, and they won’t win. All you need is proof of the last date of payment on the loan. That said, there are some actions that will reset the statute of limitations. 

Resetting the Statute of Limitations on a Debt

Just talking to a collections agency regarding a debt isn’t enough to restart your statute of limitations. You’re able to talk to them and get information regarding the loan. However, there are still certain things that will reset it. These include:

• Making a partial payment or a promise to pay the debt
• Agreeing to a settlement plan or payment plan
• Making more charges on the account
• Admitting the debt is yours, whether it’s in writing or recorded

Requesting proof of debt from the collector or getting their information won’t restart the process. However, it’s important to note that just because the debt falls off your credit report is no longer inside of the statute of limitations, it doesn’t mean the collector has to stop contacting you. Technically, they can contact you until the debt is paid. 

Is Bankruptcy a Good Idea?

If you’re in debt with a lot of lenders and financial institutions, then a last resort option may be bankruptcy. Bankruptcy can wipe your slate clean, but it can affect you greatly if you have assets. However, the details of the bankruptcy depend on your finances, your everyday expenses will also make a difference. It’s not recommended that you declare bankruptcy unless you have no other choice. 

Final Thoughts 

While it can be very stressful if you’re unable to make your loan payments, that doesn’t mean that there aren’t things you can do to help yourself. The first is by protecting yourself with insurance. If you have insurance on your loans, credit cards and mortgages for the rare occaision you can’t make your payments, use it. Not only will you be getting your money’s worth, you’ll also be able to reduce your stress. 

If insurance isn’t an option for you, before you panic, the best thing you can do is have a conversation. Ultimately, lenders want their money so if they’re able to make some arrangements with you to ensure that they receive their money, well then they’re going to be happy. It can also reduce the extra fees and collections you would get if you didn’t report your situation to the lender.