6 Canadian Mortgage Deferral Facts.
On March 18, the Big-6 Canadian banks announced mortgage relief for Canadians due to the COVID-19 crisis.
Here is the official statement:
“Effective immediately, Bank of Montreal, CIBC, National Bank of Canada, RBC Royal Bank, Scotiabank and TD Bank have made a commitment to work with personal and small business banking customers on a case-by-case basis to provide flexible solutions to help them manage through challenges such as pay disruption due to COVID-19; childcare disruption due to school closures; or those facing illness from COVID-19,” the statement reads. “This support will include up to a six-month payment deferral for mortgages, and the opportunity for relief on other credit products.”
Here are 6 facts to consider regarding mortgage skip payments or mortgage deferrals.
1) Lender Contact
Canadians will have to contact their lender’s customer service lines to get answers on mortgage deferrals or payment skips. The Federal Government, mortgage insurers and lenders have decided to provide 6 months mortgage payment deferral to alleviate the financial burden of job loss or hours being cut back due to COVID-19.
Certain lenders may roll out online portals to deal with incoming requests.
Lenders will process mortgage client requests on a case by case basis.
As rosy as these deferral options sound, I can tell you with certainty that this is not mortgage forgiveness. These are mortgage deferrals and skips. Lenders are going to make sure that they do not lose money while taking on the increased risks associated with deferrals and skips for thousands of Canadian mortgage customers…unless, of course, the government decides to bail them out too…
A mortgage deferral means you and your lender have agreed to stop your mortgage payments for an amount of time. It’s a temporary measure.
3) What’s a Deferral mean?
When you defer a payment, the interest accrued on your loan during the deferral period will be added back to the principal amount of your mortgage. Yes. You guessed it. On a deferral of over one month, the lender will be adding interest on top of interest charges for those payments deferred. In essence, the lender has loaned you additional funds and is charging for those funds. Like I said, this is definitely NOT mortgage forgiveness.
“The interest that hasn’t been paid during the deferral period continues to be added to the outstanding principal of your mortgage.” – CMHC
A mortgage deferral STOPS payments. You will have to repay the missed principal and interest costs. Also, these deferrals apply solely to your mortgage. They will NOT alter regular payments such as property taxes, strata fees or life/disability insurance.
4) Mortgage Adjustment
If a your mortgage has a 25-year amortization or shorter, you can consider lengthening the amortization up to 30 years. This amortization extension will decrease your monthly mortgage payment. On the flip side, your loan will take longer to pay off and will cost you more in interest.
A mortgage adjustment LOWERS your payment amount.
5) HELOC access – as a safety valve only.
Home equity lines of credit are a relatively cheap source of borrowed funds, are quite easy to arrange, have no requirements as to what funds can be used for and are generally easy to arrange.
Since the prime rate drop by half a percentage point a few days ago (prime rate is now 2.45%), this option has become more affordable.
6) Watch your Credit Score
Mortgage deferrals should NOT affect your credit score. With that being said, it will be very important for Canadians to really monitor their credit score over the next year, especially those that chose to proceed with a mortgage deferral. Why? Equifax and TransUnion are big private monopoly organizations and they often screw up. I’ve seen too many mistakes on bureaus during my years in this industry. Monitor your credit score!!
IMPORTANT – If you are in a position of NOT being able to pay your mortgage (insured or uninsured) or other loans, PLEASE CONTACT YOUR LENDER. If you are unable to make a payment but are in communication with your lender, they will work with you to figure out a plan. This will help maintain your credit and relationship with your lender.
Be well. Stay healthy. Thank you very much for reading. Please share 🙂
PS – I’m always available if you have any mortgage related questions. Contact me HERE.
If you’d like some handy tips on how to save money when you buy your next house, Check out the free Huber Mortgage Home Buyers Guide HERE