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What Happens to your Mortgage in the case of Fire

I’ve been talking with different lenders over the last week and as I said before they all have different guidelines for what happens. There are two scenario’s that have occurred in Fort McMurray, the one we all dreaded and your home is gone. The second is your home is still standing and you are unable to return until the evacuation order is lifted.

There are two terms to be aware of when talking to your lender, accrued and deferred.

Accrued interest is the term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, but not yet paid or received. Basically its interest you owe on your mortgage that is been added on because of the deferred payments.

The term deferred payment is an arrangement in which the borrower is allowed to start making payments at some specified time in the future. So when your lender says that they have deferred payments they are saying that you don’t have to make a payment for x amount of months but that they may add them to your mortgage at the end. Depending on your situation I am hearing anywhere from 30 days to 120 days at this point.

Scenario One: Your home has burned or damaged so that it is not livable.

  1. The lender may offer you deferred payments while the insurance claim is sorted out on your home. You may choose to continue to make payments if you can or it can be accrued and added back onto your mortgage at the end.
  2. If the customer decides to rebuild then yes they will have to continue the mortgage payments unless they choose to defer them and have them added to the new mortgage amount.
  3. If the insurance is enough to just pay out the mortgage, what happens to the lot? Once the bank is paid in full we release our Lien on title, so you would own the lot free and clear (assuming nothing else is on title). We can then proceed with a construction mortgage should you decide to rebuild.
  4. What if the insurance isn’t enough to pay out the mortgage?   You can rebuild the home — As long as the home has equal of more value than the previous home they can continue with the mortgage payment.Option 2 is look at selling the land, the insurance combined with sale of land may be enough to payout mortgage.  Again each circumstance is different, also depends upon if there is a buyer for the land.

Scenario Two. Your house is still standing and livable.

  1. The lenders are offering different lengths of deferred payments to clients for this scenario, it would seem that as the fire continues to burn that they will need to adjust the amount of time for each scenario. Again deferred payments are the same as above and are still owed to the lender.
  2. Your insurance company should be offering you emergency money as are many of the emergency associations to help you survive this ordeal.

Contact: Len Lane, Phone: 780 700 8766, Email: len@brokersforlife.ca

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