For some homeowners, the topic of mortgage payments is a difficult one. They may be confused about when they are due or what period their payments cover. Recent misunderstandings between two clients highlighted the importance of clear and calm communication. We’ll examine their situations and explain why mortgage payments were made arrears rather than in advance. Please note: For the privacy of our clients, we have changed the names in the story. This story is accurate. These case studies are meant to inform Canadians about mortgage payments, and when they should be made.
Agatha’s private mortgage confusion.
Agatha took out a one-year first private mortgage on May 31, 2023. She provided 12 postdated checks from July 1, 2020 to June 1, 2024. Agatha’s lender called her about paying or renewing the mortgage in April 2024. She was shocked. Agatha thought the maturity date was July 1, 2024. She argued with her lender about her last payment of June 1st covering an extra month. Agatha’s mortgage terms (19459005) : The payment made on July 1is for the entire month of May and not June. Don’t blame yourself too soon! Agatha wasn’t convinced by the lender despite their explanation. She only listened to her lawyer. Due to Agatha’s initial negative reaction to the offer, it was cancelled, and she had to find a new mortgage lender. Agatha was unable to afford the fees she incurred when refinancing her mortgage.
Arrears and advance payments: Understanding the difference
The mortgage payment is made in arrears. This means that the payment at the start of each month will cover the interest from the previous month. It is different than many other types of payments, which tend to be made in advance. It can be difficult to determine whether payment is due in arrears or advance. You can see some examples below:
For mortgages:Payments for the prior month are usually made in arrears. Car loans:Also, payments are made in arrears. Car leasing, insurance, and cell phone contracts: Most payments are made up front.
Mahi’s and Amir’s miscalculation of the renewal date
Mahi had a five-year mortgage that was due to renew on June 1, 2020. The new loan was arranged with another bank and the date of closing set for May 31st, 2024. The closing date was set for June 3, 2024. However, their previous bank collected the full amount on June 1, 2020. Mahi & Amir’s mortgage terms
Misunderstanding of payment
– Mahi believed the June 1 payment was for June, and she expected a large refund. Like Agatha she discovered that the June 1 payment covered May. The outcome of their case: It pays to stay cool.
In a similar situation to Agatha, she learned that the payment on June 1, 2020 covered May and not June. Mahi and Amir were initially confused by the concept of arrears, but after consulting our team as well as their lawyer they understood it. Mahi and Amir were able to avoid further confusion after this consultation.
Please note:The date of your mortgage adjustment is an adjustment made on funding day. This can cause confusion. If you are unclear on the mortgage terms, always check with your real estate lawyer or licensed mortgage professional.
Takeaways to remember
Double-check all mortgage paperwork and ask your lender about the structure of your payments. You can avoid confusion by understanding the schedule of payments. Do not let the timing of your mortgage payments stress you! Your mortgage, unlike your rent, is always paying for what has already happened, and not the future. Imagine it is catching up on your financial obligations, and not getting in front of them. Homeowners can avoid unnecessary confusion by understanding the details of their mortgage agreement. Always consult an expert to help clarify any doubts. Understanding and communicating these terms clearly will help prevent any misunderstandings, and maintain a good relationship with your lending institution.
