Dear David,

We purchased our home in 2022 when interest rates were low and the market was moving quickly. We felt like we had to buy or risk being left behind. We paid over asking in a bidding war, but had been saving for years and made a 20 percent down payment. My partner works part time from home, which has been wonderful for our family, but our mortgage is coming up for renewal and higher payments will make things very tight. We’ve heard of people handing their keys back to the bank and walking away with the property being sold under power of sale. Is this a realistic option? – PINCHED

DEAR PINCHED: Please avoid making drastic decisions when you likely still have options available. You did a lot of things right when you bought your home in 2022. You saved for years and made a substantial down payment. The market was aggressive at the time, but having 20 percent down likely gives you more flexibility than someone who purchased with little equity.

Tackle this problem now instead of waiting until your mortgage renews. Speak with your current lender, a qualified mortgage broker, your realtor, and possibly your financial advisor about what renewal might look like with different rates and terms. Ask if you can extend the amortization, adjust the payment schedule from bi-weekly to monthly, consolidate other debt, or consider other short-term relief options.

You also need to understand what “handing keys back to the bank” actually means. In Ontario, if a homeowner stops making payments, the lender may proceed under power of sale to sell the property to recover the mortgage debt, but that doesn’t mean the borrower is free and clear. Legal costs, penalties, interest, missed payments, selling costs, and other expenses may be added along the way, and if the property sells for less than what’s owed, the lender can still pursue the borrower for the shortfall. 

Even if there’s enough equity to cover the debt, you lose control of the timing, process, pricing, and outcome of the sale, and the long-term damage to your credit is serious. A default or power of sale can affect your ability to borrow, rent a home, lease a vehicle, obtain credit, or qualify for another mortgage for years to come. 

You need a clear picture of your household income, expenses, equity position, mortgage options, and worst-case scenarios. Is this a temporary squeeze, or a permanent affordability issue? Making lifestyle changes to reduce expenses or having your partner take on more hours will have far less long-term impact than damaging your credit.

PRO TIP: Sometimes selling your home is the right decision, but selling it on your own terms is much different than waiting until the bank gets involved. A planned sale allows you to protect any equity, preserve your credit, and move into a more affordable situation while maintaining control. Act early, ask hard questions, and make a plan before the bank, the renewal date, or missed payments start making decisions for you. #Advice #AskDavid #TheNegotiator 

David is a top-selling Broker in Kitchener-Waterloo Region. He works personally with you when selling or buying your home. Moving? Get it right. Ask David today! Call or text 519-577-1212.