Default, Delinquency and Arrears: What These Terms Mean

If you miss a mortgage payment, you might need a dictionary. You’ll encounter industry-specific legalese — like default, delinquency and arrears — as you work through your particular situation.

These terms might seem interchangeable, but they’re not, and it’s important to know the differences.

We’d prefer everyone stick with simple, user-friendly words, but, until then, here’s a guide to help you bushwack your way through the messages your lender might send if you miss a payment.

Delinquency

Your mortgage is delinquent when the payment is overdue.

Your mortgage statement has a payment due date — the date by which you must pay your scheduled mortgage payment in full. If the balance is unpaid after that date, your account is delinquent. Your account remains delinquent until you are caught up with your payments.

The timeline of what happens after an account becomes delinquent varies by lender. Many offer a grace period — 15 days is common — where you won’t face any consequences, as long as you pay the balance during that time.

Regardless of the reason behind the delinquency, it’s a good idea to contact your lender as soon as you can to explain the situation.

Delinquency and your credit score.

If you’re a few days late with a mortgage payment, but still pay it in full, you may not see a change to your credit score, according to credit monitoring company Equifax. That’s because lenders usually don’t report late payments to credit monitoring companies until at least 30 days after the payment due date. Even if they don’t report it, the lender may still charge a late fee.

Not all credit bureaus operate the same way, so the exact change to your score is hard to predict. Generally, the hit to your credit becomes more severe in 30-day increments. After 120 days, the lender can report it as “bad debt.”

Default

Your mortgage goes into default if you do anything to break the mortgage contract.

An unpaid mortgage bill can lead to default. You’re technically in default the moment the payment due date passes by. But lenders typically prefer to work with delinquent borrowers to bring the account back to good standing rather before taking legal action. This might mean setting up a repayment plan or renegotiating the terms of your mortgage.

In the context of missed payments, a practical definition of default could be the point at which a lender pursues legal action. The deadlines and penalties each lender uses for missed payments can vary.

The foreclosure process — where the lender repossesses your home and resells it to recover the balance of the mortgage — is the final stage of the default process. This step usually doesn’t begin until 120 days after nonpayment.

Missing payments is not the only way a borrower can default on a mortgage. Each mortgage contract spells out the conditions to remain in good standing. Not following any one of them can lead to default. For example, attempting to transfer the title without permission or failing to pay property taxes or home insurance premiums could all result in mortgage default. Your lender will notify you if you’re in default or at risk of default.

Mortgage default insurance

When you buy a home, you might be required to buy mortgage default insurance if you don’t meet minimum down payment requirements.

Mortgage default insurance is a one-time purchase, though you may add it to your mortgage principal and pay it off over time. It stays in effect until your mortgage is paid off. Unlike most insurance products you encounter — auto insurance or property insurance, for example — mortgage default insurance does not provide you, the buyer of the policy, with any benefits. Instead, it protects the lender in the event you default on your mortgage.

Some homeowners choose to buy other mortgage insurance that is specifically designed to cover mortgage payments, including paying off the mortgage balance completely in some cases, in the event of death, illness, disability or job loss. This insurance, for which you make monthly payments, is never required.

Arrears

Mortgages that are delinquent for more than 90 days are in arrears.

For context, 0.2% of mortgages in Canada — about 10,000 out of 5 million — were in arrears as of August 2024, according to the Canadian Bankers Association.

The bottom line

If you’re experiencing financial difficulties, contact your lender as soon as possible. Lenders can explain what options you have, which in some cases include assistance programs that can help bring your account back to good standing.