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.