The least we can say is that Monica, 35, and her partner, Martin, 36, are going through a bad time. Rising mortgage rates, water infiltration and a failed attempt to start a business conspired to sink their finances.
Common-law partners for 10 years, they are the parents of three young children aged 3 to 8. The two oldest go to the neighborhood school, but the youngest attends daycare, which causes monthly costs of $600.
“We own a house in a suburb quite far from Montreal. Our mortgage is $447,000 and we each have a financed vehicle. It’s essential for getting to work and dropping off the children, because there is no public transport in our region,” explains Monica.
Recently, a water infiltration problem in their property led to costly work. Additionally, Monica’s attempt to start her own business was not successful and resulted in additional debt. “Fortunately, I found a job and with family allowances, I receive $3,800 per month. My partner is a truck driver and earns $3,500,” explains Monica.
But this monthly amount of $7,300 is not enough to cover all their expenses, which amount to $6,500, plus the minimum payment on their credit cards of $1,800 per month. The couple used their cards to make up for the shortfall, rising interest rates and the cost of living. Monica and Martin now find themselves in a bind with balances of $40,000.
A mortgage that goes up instead of down
The straw that broke the camel’s back? Renewing their mortgage in July 2024. “The couple had taken out a variable rate mortgage with fixed payments. The sharp increase in rates in recent years created negative amortization because payments were not enough to cover both interest and principal. As a result, the balance of their mortgage increased every month instead of decreasing, for a total of $3,000,” explains Pierre Fortin, president of Jean Fortin et Associés. Added to this is an amount of $6,000 which comes from payment deferrals requested by the couple in recent months due to their financial difficulties.
To fill this $9,000 hole, the institution granted them a personal loan, which represents additional payments of $300 per month, while their mortgage payment also increased from $2,500 to $2,950.
Untenable financial situation
Currently, the couple cannot consider selling their house because the mortgage balance exceeds the value of the house and water infiltration problems would mean the sale would be at a loss. However, their financial situation is untenable and the spouses are no longer able to make the minimum payments on their loan and their credit cards.
“They came to meet us and after discussion and review of their budget in order to reduce their expenses as much as possible, we suggested that they make a consumer proposal to their creditors, at the rate of $250 per month for Monica and $200 for Martin, over a period of 60 months,” specifies Pierre Fortin.
This proposal will include credit card and personal loan debts ($49,000 in total) and will significantly reduce their budget. They will now be able to pay their new monthly mortgage payment and meet current expenses without going into debt.
