Lose your job? Don’t lose your home!
Losing your job can be devastating, particularly if your mortgage payment takes a significant portion of your pay cheque.
And if your partner is still employed, paying your mortgage can be tough when your total household income is suddenly cut in half. According to a recent study by Manulife, four in 10 homeowners couldn’t last three months if they were laid off from work. But, take heart – you do have options!
First, write out a list of whatever money you do have coming in or whatever funds you have in savings. Then take inventory of your monthly expenses. Prioritize your bills, with your mortgage payment at the top of your list. Consider your mortgage payment as part of your living expenses, over and above other payments such as department store cards and credit cards. So many people avoid this step, but you need a good financial snapshot so you don’t run up unnecessary debt.
Call Your Bank
Contact the mortgage lender right away, before you even know if you’re going to miss any payments. Explain your situation to them and if you believe you can’t afford your monthly payments, be honest and frank with them. Be forthright and ask for a break – perhaps a lower payment and interest rate. Your banker may be able to arrange mortgage “forgiveness” in the form of a skipped payment or waiving a portion of your principal. Keep in mind that they’re not obligated to provide assistance, but in the long run would like to keep your business.
Keep a Paper Trail
Take pictures, scan or photocopy all documents related to your job loss and other financial documents as backup to your current financial situation. Just as you keep careful track of papers related to filing your income tax, keep documents that substantiate your financial status to back up your job loss claims. Lenders are wary of fraudulent claims, so arm yourself with current paperwork.
While you wait to see if you are successful in your request for mortgage relief, arrange to withdraw funds from your emergency savings account, GICs and as a very last resort, your RRSPs, bearing in mind there will be an immediate tax penalty and perhaps more once you file your annual tax return. The tax hit and any penalties incurred are preferable to handing the keys to your home back to the bank. Take a part-time job while you look for another position, even if it’s not up your alley. Depending on the circumstances surrounding your job loss, you may qualify for employment insurance while you look for work.
Become a Landlord
Is there any part of your home that you can rent? A bedroom to a student, a suite in the basement to a young person starting out. If things get dire, can you live with parents, friends or relatives and rent out your entire home? Decide what your priorities are, and if keeping your home is one of them, sharing might work for you.
Just as you worked hard to buy your home, you likely sacrificed to purchase a boat, trailer, art or other items. Again, it comes down to priorities. Could you live in a less expensive home or move to a new neighbourhood?
If You’re Still Working, Start Planning
Be proactive and create a financial plan now. Put a three-month supply of income in savings as an emergency buffer. Start making privilege payments which may stand you in good stead with your banker. Often you can take a four-month mortgage vacation if you’ve put in extra funds ahead of time.