Posted: 1 Jan '22

Can a Mortgage Loan Halt a Foreclosure?

Can a Mortgage Loan Halt a Foreclosure?

If you have missed several mortgage payments, you have likely received a letter from your lender threatening you with foreclosure. Losing your home is undoubtedly catastrophic, and you should take all reasonable measures to prevent it. You can refinance the mortgage or take a mortgage loan for foreclosure. 

Unfortunately, you may not qualify for a mortgage with a regular bank because you're behind on your current mortgage payments, which consequently lowers your credit score. On the other hand, a reverse mortgage or a mortgage loan for foreclosure will have more flexible credit qualifications. However, taking out a loan has its disadvantages. For example, if you take a mortgage loan for foreclosure, the interest rate and associated payments will likely be higher, but a good mortgage broker will have an exit strategy to get you back into a normal mortgage as soon as possible.

What option is better for you? Read on to find out or call us today to learn more.

Refinancing to Stop Foreclosure 

Mortgage refinancing pays off your current mortgage and signs you up for a new mortgage. Since the new lender pays off your missed payments, you can keep your home. Usually, refinancing is an opportunity when you have at least 20% equity. 

However, lenders are more likely to approve refinancing if you have a stable income and have built up substantial equity in your home. Also, refinancing is contingent on your credit score and report. As soon as you miss a mortgage payment, your lender reports your delinquency to credit reporting agencies in Canada, which means your credit score lowers. 

Using a Mortgage Loan for Foreclosure 

If you can't qualify for refinancing, a mortgage loan for foreclosure is a suitable alternative. You can get a reverse mortgage loan based on the equity in your home and use it to update missing payments. However, it's still a loan, and it still accrues interest and is secured against your home. 

In Canada, mortgage loans for foreclosure work on several rules. First, if you want to use a reverse mortgage to stop foreclosure, the amount you can qualify for depends on your age, the value of your home, and your home's location. Second, you have to be at least 55 years, and if you are married, you and your spouse should both be at least 55. As such, these factors restrict many borrowers.

To find out how much you qualify for, an appraisal will be required on your home after you get your mortgage approval. You may also have to hire a lawyer to provide advice during the process. While the lender will handle most of the legal paperwork, it's best to have an attorney to represent your needs. A good mortgage broker can help you navigate all these different experts.

What's more, you may have to pay a fee to the lender to cover administrative expenses and closing costs. Lastly, you have to consider the interest rates on the mortgage loan for foreclosure. The rates can be fixed or variable. 

Mortgage loans for foreclosure stand out from conventional mortgages because of the funding and payment terms. The lender may wire the funds to you through a lump sum payment or a line of credit and increases the loan amount over time until the maximum loan limit is reached. 

Also, you don't have to make monthly payments to pay back the lender. Instead, you can pay back the loan when you sell your home. You can also pay back part of the loan and the interest amount annually, though it's not compulsory. 

However, in most cases, borrowers pay off the total amount when they sell their homes. This is because you can pay the loan from the proceeds of selling the house. However, some lenders charge a prepayment charge if you pay off the loan before the end of its term. 

Get Assistance with Foreclosure

If you have trouble paying for your mortgage, you can halt foreclosure with a reverse mortgage or mortgage refinancing. However, you can also consult a bad credit mortgage broker to find other options. Contact Dominion Lending Centres for a consultation today.

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