Bank of Canada Warns Homeowners Will Be Vulnerable Following COVID-19 Debt
A New Report Sheds Light On The Housing Market Over The Last Year
The Bank of Canada has published its 2021 Financial System Review. The review's purpose is to determine what factors affect financial stability among Canadians. It also identifies challenges within the country's financial system that it says "will need to be watched closely."
The review provides in-depth analyses on the experiences of homeowners from the start of the COVID-19 pandemic until now – and some of the report's messages warn that home owners have been left vulnerable.
Specifically, the review claims that many Canadian homeowners have taken on mortgages that are considerably large in comparison to their income. As a result, the review explains that unprecedented events, like a job loss, could hit these homeowners harder.
The report is paired with information pertaining to changes to homeowner data over the course of the pandemic. For example, total household debt has risen by four percent since last spring. It rose significantly after the housing market heated up last summer.
The percentage of 'costly loans,' or those that are 4.5x higher than the household's income, rose as well.
How a Change in Stress Rates is Addressing Debt Problems
According to the bank's report, the housing market is behaving similarly to that of 2016 – notably, a time followed by stress tests were implemented for mortgage applications in Canada. A stress test determines whether you would be able to afford a hypothetical mortgage if your circumstances were to change. Buyers must 'pass' the test in order to proceed with their mortgage.
Now, mortgage stress test rules are changing in Canada. According to the Office of the Superintendent of Financial Institutions, qualifying rates for stress tests will change on June 1. Following these changes, buyers must be able to afford whichever rate is higher: a rate at 2 percent above the contract rate, or 5.25%.
The federal government also announced that it would set the same standard for insured mortgages, hoping that buyers will be stopped from racking up debt.
Accompanying the announcement, Finance Minister Chrystia Freeland said that "the recent and rapid rise in housing prices is squeezing middle-class Canadians across the entire country and raises concerns about the stability of the overall market." She added that "maintaining the health and stability of Canada's housing market is essential to protecting middle-class families and to Canada's broader economic recovery."
April Data Shows Slight Dip In Fiery Housing Market
Home Sales Drop In Canada After Record-Breaking March
Data from the Canadian Real Estate Association (CREA) shows that the home sales dipped in April following a month of historically high sales.
The CREA, which represents realtors in Canada, released its April data on May 17. Most notably, the data shows that sales dropped by 12.5 percent across the country compared to sales in March. Additionally, most markets in Canada – about 85 percent in the country – saw drops.
March saw a boom in home sales in Canada, and experts suspect that it happened due to the unpredictability of life following the beginning of the COVID-19 pandemic last spring.
"While housing markets across Canada remain very active, there is growing evidence that some of the extreme imbalances of the last year are beginning to unwind, which is what everyone wants to see happen," said CREA chair Cliff Stevenson.
The pandemic has dramatically affected the real estate market. Normally, the market follows a predictable pattern: home sales rise in the spring, peak in the summer, and dip when fall begins. When the pandemic began, however, sales dipped almost instantly. They finally began to rise again in May – and March 2021 has been the busiest month on record.
With April 2021 showing signs of slowing down, it’s not clear yet whether the year’s peak came early or if sales will continue to fluctuate.
According to TD Bank economist Rishi Sondhi, “More months of information are required to assess whether the market still has some upward momentum, or if activity is indeed on a cooling path.” He added that sales may lower as interest rates rise and stricter stress test regulations are implemented.
Mortgage broker Samantha Brookes told CBC News that would-be buyers have stopped trying to find a home, causing the April drop.
“Buyer fatigue is real,” she said. “If you are putting in offers on 10, 20 homes, you're tired and probably thinking you are wasting your time right now […] because there's nothing in the price range for the average person right now."
Pricing data was also revealed in CREA’s report. The average price of a home in Canada reached $696,000 – an increase of 41.9 per cent from the average price in April 2020.
CREA notes that large markets like those in Toronto and Vancouver likely skewed the average prices. They suggest looking at the House Price Index, which functions similarly to the average price, but takes market relativity into account. The HPI rose 23.1 percent from last April.
As Canada’s hot housing market continues to make national news, experts are anticipating data recorded during May to determine what path the market is on.
Consider a Cottage … or a Vacation Home
Why Now is the Time to Invest in a Secondary Property
The COVID-19 pandemic has given all of us cabin fever. Especially with spring is upon us and temperatures warming, we’re all thinking about getting outdoors, feeling some sunshine on our faces, and breathing fresh air.
It’s the perfect time to consider purchasing a cottage, vacation home, or recreation property, especially if you’re working remotely. Why not work from a cottage, rather than from cramped quarters in an urban environment?
Imagine sitting by the water, swimming in a pristine lake, or casting a fishing line to catch some dinner. And, although we’ve been talking about warmer weather, there are pleasures to be had at a cottage or vacation home year-round: roaring fires in the fireplace or woodstove, hiking, cross-country skiing, and snowmobiling among them.
A cottage offers a wonderful escape from your daily experience – and it can also be profitable if you choose to rent it for all or part of a season. In addition, you don’t need to shoulder the entire financial burden yourself – you can share ownership with family or a friend
The Wilson Team of mortgage professionals will be happy to guide you through the ins and outs of shopping and buying a second property. Why not start reaping rewards now?
Types of Vacation Properties
Vacation homes are classified as Type A or Type B for mortgage purposes.
A Type A cottage property is usable year-round:
- Is essentially a second home;
- Has a full foundation (immovable);
- Is a four-season property with central heating and year-round road access;
- Is located in an area that has reasonable and demonstrated resale value;
- Has a well, municipal serviced or cistern for its water source. Water must be drinkable;
- Must, as a minimum, have a kitchen, 3-piece bathroom, bedroom, and common area;
- Must be zoned and used as residential, rural, or seasonal; and
- Is essentially a single unit.
A Type B cottage property:
- Requires a full foundation (immovable);
- Doesn’t require winterization;
- Doesn’t require year-round access;
- Doesn’t require a permanent heat source; for example, a wood stove, fireplace, stove, or heat blower is acceptable;
- May have a floating foundation (sitting on blocks);
- Need not have a potable water source – a lake water intake is acceptable; however, running water is required;
- Can have indoor plumbing that is chemical, portable, or a holding tank; and
- Access may be by boat only.
Valuing a Vacation Property
The amount of mortgage financing you require is dependent on the property’s value. The value of your vacation property is determined by an assessment, conducted every four years by the Municipal Property Assessment Corporation (MPAC). The newest assessment values were made available on Jan. 1, 2020.
If your property is a waterfront home, it will generally be more valuable than an inland cottage. MPAC will consider your property a waterfront lot if “it has direct access to a natural or man-made waterway such as a lake, river, channel or canal. Properties separated from the water by a right-of-way, private road or unopened road are also considered waterfront.”
Five key factors contribute to MPAC’s assessment and account for 85 per cent of the property’s value:
- Location;
- Square footage of living area;
- Property’s age;
- Lot dimensions; and
- Quality of construction.
Other considerations include the body of water your property is located on, the amount of water frontage you have, the shoreline composition, sanitary services, and water source.
Mortgage Eligibility for a Vacation Home
If you are planning to purchase a Type A property, you must:
- Have sufficient income to carry all debts, including carrying costs on your principal residence
- Have a minimum credit score of 650 as the primary earner
- Occupy the property yourself or have a relative live there rent-free
To cover down-payment costs, you may use funds given as a gift from immediate family members.
Mortgage Availability
A Type A mortgage generally covers up to 10 acres of property. Generally, a Type A buyer is eligible for:
- A conventional loan covering up to a maximum of 80 per cent of the property’s value
- An insured loan covering up to a maximum of 95 per cent of the property’s value
- The opportunity to purchase the property and refinance it
- A maximum amortization term of 30 years
If you are planning to purchase a Type B property, you must:
- Have a minimum credit score of 680 for all applicants
- Have no prior bankruptcy or judgments
- Make a down payment from your own resources – no gifts are allowed.
- Not use any third-party guarantors for qualification purposes
- Have sufficient income to carry all debts, including carrying costs on the principal residence
Mortgage Availability
A Type B mortgage can cover up to five acres of property and is only offered for properties valued at $100,000 or more. Generally, a Type B buyer can expect:
· An insured loan (Sagen) covering up to a maximum of 90 per cent of the property’s value
- An insured loan only, regardless of the loan-to-value ratio (LTV).
- To be prohibited from refinancing the property
- A maximum amortization term of 30 years
- A maximum loan amount of $350,000
Don’t Worry, Be Happy
This may all sound complicated, but it isn’t. It’s not much different than buying a principal residence. The Wilson Team of mortgage professionals can walk you through the process to ensure you understand the benefits, the costs, and all the details.
It’s time to dream big and explore the possibilities. If you’re working from home, that home could be among the trees or on the shores of a pristine lake. Give us a call at 613-440-0134 or email us: kelly@wilsonteam.ca. We’re here to lend a hand.
Spring Equals a Hot Ottawa Housing Market
Tips for Military & DND Personnel Relocating to Ottawa
As the weather heats up in Ottawa after a long, cold winter, so does the local housing market – pandemic notwithstanding. For military/Department of National Defence (DND) personnel relocating to the area or those simply looking for a new residence, the Wilson Team , Ottawa Mortgage Brokers offers you tips for thriving in this competitive market, along with basic information about travelling to the area.
There is no question that it has been a challenging year for military and DND personnel who are relocating, given the travel and quarantine restrictions that have been imposed at various times. Nonetheless, the Ottawa housing market remains robust. Realtors with the Ottawa Real Estate Board sold 964 homes and condos in January 2021, up 24 per cent from the previous January. Of these, 674 were homes and 290 were condominiums.
“We would have certainly seen higher sales numbers if there were more properties available because the demand is definitely there,” said Debra Wright, OREB president, in a news release.
Key Steps
If you plan to join the hunt, prepare yourself in advance by having your finances in order. Interest rates are low, so it’s a great time for military/DND personnel to enter the local housing market. Talk to a mortgage broker about the financing options available and get pre-approved for a mortgage, as there are so many mortgage contracts to choose from. Rates are important, but not the most important factor to consider when you are looking at military pricing. There are may things to consider, depending on the type of home, city you are moving to, mortgage penalties when you need to break the mortgage, what happens if you take the mortgage with you, and much more. All these mortgage contracts work differently, and we are here to protect your equity.
We work with the Big Banks that have DND special rate mortgages, but it is important to make sure that is your best solution. There is no one size fits all mortgage, and the wrong decision can cost you thousands of unnecessary interest costs and charges down the road if you are not properly advised.
The Wilson Team also provides a full assessment of your current financial structure and can offer many unique strategies that will allow you to be mortgage-free decades sooner. Mortgages can be so much more than just a debt. Mortgages have the power to turn into one of your greatest wealth building tools that will help you grow your savings 10xs faster than you anticipated.
In addition, you need to find a good realtor who understands the HHT process. From your posting message (even if you have not received it yet ) and all the way the closing date, you need the right professionals that can handle all of the intricacies that are involved, and of course help steer you to where you can find the other professionals when you come such as doctors, dentists, health and wellness and so much more when you come to Ottawa. We can provide you with the best Ottawa Relocation Real Estate Agents that have not only served in the military, but have also built a very successful real estate business and will ensure you are relieved from all stress.
Buying a home is already stressful enough. Leave the process to a team of professionals equipped to handle the details and provide you with sound advice that only comes from years of experience.
Furthermore, you’ll want someone with whom you feel comfortable and who has your best interests at heart. After all, buying a home is one of the biggest purchases you'll make, so you'll want the best guidance.
Location, Location, Location
Do some research on the neighbourhoods that might suit you or your family. It’s all a matter of preference. If the idea of living downtown appeals to you, consider Westboro, Wellington Village, Hintonburg, Ottawa South, and the Glebe. They are all walkable and lively neighbourhoods.
However, if you prefer the suburbs, you’ll get more square footage for your dollar. Stittsville is popular with military/DND personnel, given the variety of styles and sizes of the homes and its proximity to the National Defence Headquarters on Carling Ave. If you’re moving to Ottawa from a rural area, you might prefer some of the surrounding towns such as Kemptville or Carleton Place, where there is more greenspace available.
Gatineau, just across the border in Quebec, is also an option. Home prices are less expensive and subsidized daycare is a big draw, although taxes can be higher.
All of this adds up to one major suggestion: Do your homework if you are trying to go this alone, but give us a call to get that conversation going so you don’t have to do this all on your own. We have a comprehensive list of all the professionals you need, including lawyers, who you'll need to be in touch with throughout the entire process.
To get a peek, you can make your first stop the Ottawa Neighbourhood Study. You can also check a website focused on immigration, Moving2Canada.
Other Tips for Buying in a Hot Market
In a hot market, buyers are at the mercy of the sellers and are competing for a limited supply of properties. Here are some steps military/DND personnel can take to ensure they have a chance at the properties that appeal to them:
- Know Your Boundaries. Be aware of items that are up for compromise: finishes, colours ,and appliances can be changed, for example. Noisy streets cannot.
- Offer to Close Quickly. If you know the homeowner is in a hurry, offer to close sooner than the standard time.
- Get a Pre-Inspection. In a competitive market, owners won’t be willing to fix minor problems. If you plan to offer for a home and offers are due on a specific date, a pre-inspection can give you the information you need to steer clear or to make an appropriate offer.
- Don’t Skimp on Price. Don’t offer less than the list price. You may need to offer more than the asking price, given the competition. It won’t work in a hot market unless the property has been sitting more than a few weeks.
- Submit Pre-Approval and Proof of Funds. Date your pre-approval letter the same day you make the offer.
- Offer More Earnest Money. If you can afford to put more money down for your deposit, do so – if the seller is weighing multiple offers, this might have weight.
- Have Money in Reserve. With inflated housing prices, appraisals may not reflect your home’s high price tag, and your mortgage won’t be as large. Have money in reserve to make up the difference. Be prepared, which is why you should not work with a bank on this. You need someone who knows how to cover all the lenders, appraisal process, and structure if this happens.
- Stay the Course. Perseverance will eventually lead you to a home you’ll love. Don’t be daunted by losing out on bidding wars. Remain in the game.
DND House Hunting During COVID-19
Military personnel that are planning house hunting trips (HHTs) or Destination Inspection Trips (DITs) during the pandemic need to be aware of the Covid restrictions in the region they’ll be visiting and consider their safety and that of their families. Having a good Airbnb to stay at with a backyard, a full kitchen, and close proximity to grocery stores is a must if you are coming to Ottawa.
As this article is being written, Military and DND personnel travelling domestically to Ottawa and Gatineau have no need to quarantine, unless they show symptoms. Anyone travelling to Ottawa or Gatineau from outside the country must show proof of negative COVID-19 test taken no more than 72 hours before departure and will be required to be tested again upon arrival and to do a self-test 10 days into your mandatory 14-day quarantine.
Ontario operates on a colour-coded system of threat levels during the pandemic. As of Feb. 24, Ottawa is in the “Orange” level, which means most businesses are open but involves enhanced restrictions and enforcement:
- Indoor dining at restaurants and bars is permitted. Tables are restricted to 4 people maximum, the total number of guests allowed indoors is 50, establishments must close by 10 p.m., and contact information will be collected for the purpose of contact tracing;
- Museums can reopen for visitors;
- Performing arts centres and venues can operate with a maximum of 50 people per venue;
- Most public events and festivals have turned into virtual events or have been cancelled.
For the most up-to-date information, visit the Ottawa Public Health website.
Gatineau is also operating under an orange level, but Quebec restrictions may differ from those in Ontario. For the most up-to-date information, check the Gatineau website.
Ontario Real Estate Association Supports Relaxed Mortgage Rules
If the Ontario Real Estate Association had its way, it would be easier for people across the country to buy homes. However, given the current global preoccupation with the COVID-19 pandemic, the
implementation of one of OREA’s suggestions has been suspended and the others are likely to be set aside for consideration once the government can focus on issues beyond the pandemic.
In July, the chief executive officer of OREA, Wayne Hudak, a former Conservative M.P., wrote to Wayne Easter, the M.P. who chairs the standing committee on finance in the House of Commons to suggest
some key changes to federal mortgage rules as a “way of making home ownership affordable and accessible to Canadians.”
OREA, which represents about 78,000 Ontario realtors, advocated for three specific actions:
1. Supporting choice by restoring the option of a 30-year amortization period for people with insured mortgages;
2. Fixing the one-size-fits all mortgage ‘stress test’ by moving to a more flexible and reasonable mortgage stress test than the current one; and
3. Eliminating the stress test for careful savers renewing their mortgage with a different lender, allowing for greater choice in the marketplace.
“These restrictions in particular are unfairly disadvantaging home buyers, especially millennials looking to enter the market for the first time or young families looking to move up,” said Hudak in a news release. “Ontario realtors are continuing to fight for families who are having their dream of becoming home owners dashed by bureaucratic overreach in the mortgage market, outdated red tape and expensive regulations restricting housing supply and choice across the country.”
Research conducted by Navigator and OREA says that 60 per cent of Ontarians support the extended amortization period for insured mortgages, while 58 per cent of Ontarians between ages 18 and 34
support lowering the minimum qualifying rate for insured mortgages.
Recently, federal plans for the April 6 introduction of a new stress test for insured mortgages were suspended, given the financial challenges of the pandemic.
Providing a 30-year amortization period on mortgages for first-time buyers, i.e., those insured by the Canada Mortgage and Housing Corporation, is still on the table. The last time this was allowed was in
2012. Current homeowners who have uninsured mortgages and 20 per cent equity are already eligible for 30-year amortizations.
A 30-year amortization period for uninsured mortgages makes it easier for first-time home buyers to enter the housing market, because it lowers their potential monthly mortgage payments.
There has been no discussion yet of eliminating the stress test for uninsured borrowers who are planning to switch lenders.
“Once the social distancing requirements begin to ease and the infection numbers drop, the government will have time to turn its attention to other issues,” says Kelly Wilson, co-founder of the
Wilson Team of mortgage professionals. “Meanwhile, if you have any questions about these proposed measures or about mortgages in general, please don’t hesitate to call on us. We’re here to help.”
Lowering Payments and Freeing Up Cash During the Pandemic
Welcome to an uncertain time in global history! No one imagined that 2020 would be the Year of the COVD-19 pandemic and we’re all trying to cope. We at the Wilson Team of mortgage professionals hope you are staying healthy and taking proper precautions to remain safe.
We also want to talk to you about ways to reduce your monthly expenses and free up some cash for the days ahead. It’s especially important now, given all the business that are shuttered and the people who are losing their jobs as the economy slows.
Mortgage professionals have been deemed an essential service and we are here to lend a helping hand in any way we can. We are available by phone and you can read our blog and join our Facebook community to keep abreast of the economic changes and obtain practical information about financial issues.
If you’re in a challenging situation, we want to help. If you aren’t, this is probably a good time to re-evaluate all of your finances to determine where the gaps lie. So, stay in touch!
Relaxed Mortgage Qualification Rates Cancelled by Federal Government
As Canadians experience economic uncertainty during the COVID-19 pandemic, many prospective home buyers looked forward to one piece of relief that has since been cancelled.
Bill Morneau, the federal finance minister, announced in February that Ottawa was relaxing mortgage qualification rates for insured mortgages, those where the homeowner had made a down-payment of less than 20 per cent. The new policy was slated to come into effect April 6, a bright spot in a bleak landscape that was eagerly awaited by many clients of the Wilson Team of mortgage professionals.
However, then came the pandemic. The federal finance department had planned to set up a new benchmark interest rate for use in determining whether potential homeowners qualified for an insured mortgage. The benchmark rate would have been based on actual borrowing costs, rather than on the rates being advertised, making it more responsive to changes in lending interest rates. It would have been calculated at the weekly median five-year fixed rate from mortgage insurance applications, plus two per cent. The current stress test refers to the Bank of Canada’s average posted interest rate, or the mortgage applicant’s contracted
rate plus two per cent, whichever is the higher. Buyers seeking both insured and uninsured mortgages are subject to the current stress test.
In a statement, Morneau said, “For many middle-class Canadians, their home is the most important investment they will make in their lifetime. Our government has a responsibility to ensure that investment is protected and to support a stable housing market.” Unfortunately, after the Bank of Canada cut its interest rate by 50 basis points on March 13, the second
cut made by the bank in nine days, the Office of the Superintendent of Financial Insurance (OSFI) announced that the planned change will be suspended indefinitely. In addition, OFSI has suspended all consultations about the possibility of changes to a stress test for uninsured mortgages.
No indication has been given about when the change to the stress test will come into force. “Suspending the change to the stress test is a disappointment for many prospective homeowners,” says Kelly Wilson, co-founder of the Wilson Team of mortgage professionals. “During this precarious time, any type of financial relief is welcome news for buyers, and they will be even more frustrated if lenders’ rates don’t reflect the rate cuts made by the Bank of Canada.”
Despite the suspension of changes to the stress test, the Wilson Team is committed to helping prospective homeowners find the best possible mortgage rates during the pandemic.
“The real estate market continues to be active despite the pandemic,” says Wilson “and the Wilson Team is working diligently to ensure that our clients obtain the best mortgage rates possible given the regulations that are in place.”
How Much is Money Costing Me? Are Mortgage Deferrals Right For Me ? What Other options do I have ?
We hope everybody is doing okay and hanging in there! We wanted to highlight some quick pro tips that you can look into for your own situation to see if there are any changes that you can make to better help your situation until we all get through this on the other side.
We are trying to connect with every one of our clients every day to check in and see how you’re all doing, if there's anything that we can do to assist you and get your finances in better alignment. There has probably never been a better time to reevaluate your finances and figure out where you have some gaps and holes. We want to be able to close the gap and put you in the best financial position that you've ever been, so that when something like this happens, again, whether it be with a pandemic or even just a job loss or illness, that you guys are so well prepared to take this on financially, that you can weather any storm that comes at you.
In the video, we use a standard $400,000 mortgage, which is the average mortgage in Canada. We also use an interest rate of 3% and a 25-year amortization. We touch on the following topics:
Deferred mortgage payments
Re-Extend Your Amortization
Property tax deferral:
Accelerated Bi-Weekly to Monthly
Variable Rate Mortgage
If you are taking advantage of the deferred mortgage payment options, we have to recapture the money back within the end of the term – Example – you are one year into your mortgage term, you have signed a 5-year mortgage and you want to defer your payments for 6 months. That means that at the end of the 6 months, you will have 3.5 years left on your term. The banks/lender is then going to take the 6 months of non-payments and are going to collect it back over the next 3.5 years. With the mortgage example that we are using, your mortgage payment would go up approximately $300/mth for the next 3.5 years. Another option of repayment is by putting it at the end of the loan and can stretch it out over the amortization and your monthly payments could go up as little as $20/mth.
The second option is extending the amortization. This does require you to connect with your bank to see if they are offering this option. In this particular case; $400,000 mortgage, 3% interest rate, 25 year amortization, the monthly payment would be $2160. Now, if they want to re-extend their amortization back up to the 30-year temporarily, this would bring their monthly mortgage payment down to $1680 – that puts nearly $500 back into your pocket each month. If you have just bought a house and you have paid CMHC, you have not built up the equity in the property just yet, so you may not be able to take advantage of this option.
Another option that you have if deferring your property tax payments. You will need to connect with your city or township and see if they are allowing this at this time – it will be different for each township/city. If you are paying your property taxes twice in a year, you may be able to defer one of the payments or change your payment to one lump sum at the end of the year. If you pay your property taxes with your mortgage, you pay be able to set something up with your bank to hold off on that payment for now. Talk with your city, talk with your lender/bank and they may be able to help you out with this option.
You can speak with your lender and see if you are able to add money to your mortgage that you can use immediately. For example, if you take out $50,000 on your mortgage, that would put $50,000 in your pocket that you can use to pay down or off debts to eliminate monthly payments, use it to help out a family member, etc. With this option, it would increase your monthly mortgage payments by approximately $230/mth once it is stretched out on your amortization period. We just increase the amount - we don't re-extend the amortization, just increase $50,000. You can always lower the monthly amount if you make the amortization a little longer, but again, everybody has got a unique situation.
You can change your mortgage payments from accelerated bi-weekly to monthly. I know Canadians love paying off their mortgages. If you had the same scenario here, and you're on an accelerated bi-weekly and you wanted to drop it down to monthly, then you're looking at a reduction of your mortgage payment at $160. That frees up $160 a month just by going accelerated to monthly.
If you have a variable rate mortgage, one of the most exciting things that happened was that the Bank of Canada dropped their interest rates 1.5% in a matter of one month. This is huge for people that are on variable. If you're on variable rate, your mortgage payment dropped $300 a month as of April 1. Be sure you are paying attention to what that new monthly payment would be if you have anything wrapped around a variable rate for any lending.
We are encouraging you to connect with us through this. Even if you're not a client of ours, feel free to give us a call because everybody has a unique situation and we are happy to help you navigate your finances through all of this. We are here to help. It's about learning how to make your money work for you, and putting your money to work, and learning the best opportunities that you have in order to create more cash flow in the future to be able to reach your goals.
Let’s Talk Mortgages: The Details About Deferral
In the midst of the COVID-19, the economy is stalling and a lot of you are affected. Your cash flow or paycheques may have slowed or stopped altogether and you’re wondering how to keep a roof over your head or food on the table.
One easy way to cut back on your expenses during this crisis is to defer your mortgage payments. Yes, you heard me – and you’re reading it here in black and white! It may be contrary to everything you’ve ever been told, but the Government of Canada has made it possible for borrowers to defer their monthly mortgage payments – with the help of their lenders – for up to six months during this crisis.
Skeptical? Perhaps hearing it from the Canadian Mortgage and Housing Corporation (CMHC) will convince you (Link to https://www.cmhc-schl.gc.ca/en/finance-and-investing/mortgage-loan-insurance/the-resource/covid19-understanding-mortgage-payment-deferral) CMHC says, “Homeowners facing financial stress may be eligible for a mortgage payment deferral up to 6 months to help ease the financial burden.”
So, consider this a gift from your government and go for it! Even if you have the money right now, a deferral might be wise. You don’t know how the economy will behave in the coming weeks. Put the payment into your savings account in case you need it. Or, if you’re flush, you can use it to pay off high-interest credit cards instead.
As you proceed, here are 10 things you should know:
1. Your lender makes the call. A mortgage is a contract between you and the lender, so allowing for a deferral is their call.
2. Be proactive. You need to have approval for deferring a payment before one is missed.
3. Apply online. The major banks are being inundated by calls from worried homeowners, as well credit card holders. You may wait on hold for hours in order to get through to a live person. Making your application online is quick and generally painless.
4. Terms will vary. Each lender can decide how the deferral process works. Some may approve a six-month deferral right away; others may prefer a month-by-month process. Don’t fret – whether you have to be approved once or six times, it will still be worthwhile.
5. Interest will be applied. There’s no escape. You’ll still need to pay interest, although, now, it will be rolled into the principal later.
6. The pain will be minimal. The additional interest on each $100,000 in your mortgage balance will be about $175 over 3 ½ years – assuming your remaining mortgage term is 42 months. For a $400,000 mortgage balance, which is what an average Canadian has, that’s a total of $700 over the term of your mortgage, compared to the approximately $12,000 you’ll save by deferring your $2,000 mortgage payments for six months. There’s no comparison!
7. Your credit score should be safe. You may want to confirm this in writing, just to feel comfortable. However, RBC has reported that it is working closely with the credit agencies, who have said that “there will be no material impact on credit scores they calculate.”
8. Other payments are still required. Your lender is only responsible for your mortgage. You will still be required to pay your homeowner’s insurance and your property tax, unless holidays are declared on those payments, too. You’ll need to touch base with your insurer or your municipality to inquire about being late.
9. There are additional options. You can ask your lender to refinance your home at today’s lower rates; you can request restoration of your original amortization to lower your payment; you can ask for a reduced payment for a specific time period; or you can ask that a payment be held while your income is temporarily suspended.
10. Consider all your properties. You should consider deferring the mortgages on any property you own, including vacation homes or investment properties. Scotiabank, for example, will defer as many as four mortgages per client. Always keep in mind that deferred payments are not eliminated, erased or cancelled. You will still be required to repay the amount of skipped payments, both principal and interest. The CMHC notes, “The interest that hasn’t been paid during the deferral period continues to be added to the outstanding principal of your mortgage. This can affect the total amount you owe in accordance with the original payment schedule.” You will need to work closely with your lender throughout the deferral period to determine how repayment will work.
Remember: Staying in your home is your ultimate goal. Don’t let worries about a relatively small amount of extra interest prevent you from deferring your mortgage!
The Wilson Team is here to help you navigate your way through a mortgage deferral or a potential refinancing. Don’t hesitate to come to us with your questions and concerns.
Homeowner Assistance
COVID 19 And Your Mortgage.
Lenders and Insurers are stepping up to help Home Owners. The 3 default insurers which are CMHC, GENWORTH and Canada Guarantee have come to the table to offer deferral of mortgage payments up to 6 months for those who qualify for the assistance program if you have an insured mortgage. Please note that this is not about free money. This is about deferring mortgage payments or interest until the end of the term.
Please review the references that we have put together in a link below for homeownership assistance. This will also include contact information for each financial institution and customer service. Please note to contact the banks directly for your options.
Please be patient because there will be overwhelming congestion with the Banks and Financial Institutions. There is an announcement that will be made tomorrow with more information and we will continue to keep you updated and posted. We are still waiting to see what the plan is regarding non-insured, private and alternative loans.
If you do not qualify then we can always look at what it means to refinance your mortgage in order to get liquidity increase cash flow or lower the rate and extend the amortization.
This can be possible if you are still working and you have built equity in your home. Equity means that the value of your has gone up and your mortgage is less than 80% of the value of the home.
Contact us directly for more information.
Helping Homeowners In Need
Genworth Canada's Homeowner Assistance Program is designed to help homeowners who are experiencing temporary financial difficulties as the result of an unexpected life event, which may put their mortgage at risk. If your customer has a Genworth-insured mortgage, they might be eligible for our Homeowner Assistance Program at no cost. This program enables you to work in partnership with us to establish alternative arrangements to help your customers stay secure in their home when times get tough.
How we can help
Options available
We will consider a variety of solutions that may alleviate the temporary financial burden of the homeowner. Each situation is assessed individually to determine if a workout is possible, and what the ideal workout solution is. Some common options that can be considered are:
- Capitalize arrears
- Increase amortization period
- Partial or shared payment plan
- Deferred payments
- Restructure mortgage
For more information visit www.wilsonteam.ca
Here is the list of lenders and customer service numbers. You may find that some lenders already have a skip a payment option in the prepayment privileges.
- Alterna: 613-560-0100
- Bank of Montreal 1-877-895-3278
- B2B Bank: 1-800-263-8349
- Bridgewater Bank: 1-866-243-4301
- CHIP: 1-855-207-4110
- CIBC 1-800-465-2422
- CMLS: 1-888-995-2657
- Community Trust: 416-763-2291 x 513
- Desjardins: 1-855-688-2433
- DUCA: 1-866-900-3822
- Equitable Bank: 1-866-407-0004
- First National: 1-866-557-5509
- First Swiss: 416-227-2000 x 1016
- Fisgard: 1-866-382-9255
- Haventree Bank: 1-855-272-0050
- HomEquity Bank: 1-866-522-2447
- Home Trust: 1-877-903-2133 x 5901
- ICICI Bank: 1-866-726-0825
- IC Savings: 416-784-0200
- Laurentian Bank: 1-800-252-184
- Lendwise: 1-877-637-4911
- Magenta Mortgage Corp: 613-267-4434
- Manulife Bank: 1 877 765 2265
- Marathon: 1-855-503-6060
- MCAP: 1-800-265-2624
- MCC Centric: 1-877-943-0342
- Meridian: 1-866-592-2226
- Merix: 1-877-637-4914
- Optimum: 1-866-441-3775
- Pillar Financial: 1-877 279-2116 x 109
- Radius: 1-866-550-8227
- RFA: 1-833-228-5697
- RMG: 1-866-809-5800
- Royal Bank 1 800 769-2511
- Scotiabank: 1-800-267-1234
- Secure Capital: 905-709-8633
- TD Canada Trust: 1-866-222-3456
- Wealth One: 1-866-392-1088
- Westboro MIC: 1-844-729-5764
- XMC: 1-877-775-2970