No homeowner ever wants to think about foreclosure – the process of losing your home when you default on the mortgage. But if you have already missed several payments with your mortgage lender, you have probably already been forced to consider the possibility. So, how do you stop it?
Your first option is to refinance your mortgage. This is simply getting rid of your old mortgage and replacing it with a new one. This can be a good option if the new mortgage will give you a lower interest rate meaning you’ll pay less on the new mortgage; of if you can obtain a cash-out option. This latter choice will give you cash at the end of the refinance, which you can then use to help pay off the debt that’s due.
In Canada you can also get a 2nd mortgage to help pay your overdue mortgage payments. Typically a home equity loan is a better choice than a HELOC for this situation, because you’ll be given a large lump sum of money at once instead of using a revolving line of credit. Home equity loans are also the better choice today because these loans come with fixed interest rates – clearly the better deal with interest rates currently at historic lows.
If neither of the above options are good choices for you a pre-foreclosure sale may be your only option. This is simply selling your home before it is foreclosed on. Before you do this you’ll need a real estate agent that’s very familiar with these types of sales, and you’ll also need to speak with your lender to let them know you’re selling the property. Also let them know that once it sells you’ll be able to pay off the mortgage entirely. While this option will not let you stay in your home, it will look better on your credit record, as a foreclosure is one of the worst things to appear on it.
Some suggest filing for bankruptcy as an alternative to foreclosure, but this is not generally a good option. Filing for bankruptcy is one of the only things that looks worse on your credit report than a foreclosure, because it erases all (or at least most) of your debt entirely. Even worse, a bankruptcy will not release you from your mortgage contract unless the lender has agreed to repossess the home. If you’re going to go this route, you might want to think about just allowing the foreclosure to happen, and rebuilding your credit history from there.