Deferring your mortgage now, is it a good idea?
We have received countless calls from clients due to the uncertainty created by COVID-19. Some of our clients have lost their jobs, or taken unpaid leave or are working from home on reduced salaries. A few of our clients who own rental properties now face tenants that cannot afford their rent anymore. Our clients wanted to know about the mortgage payment deferral option which allows clients to freeze their mortgage payments, so they won’t have the large housing cost during this critical time. Our clients asked for our advice: whether to use their “skip a payment” option right now or wait and see how things unfold.
“Skip a payment” option with the federal banks
The calls came in, because of the big bank’s announcement made on March 17, 2020. The six federal banks: TD, RBC, BMO, Scotia Bank, CIBC and National Bank posted a joint statement recommending the use of the ‘defer payments’ option. They indicated that Canadians who are experiencing financial difficulty due to the coronavirus outbreak can apply for a 3-6 months term of No Mortgage Payments. These applications will only be accepted by the banks if the client is in good standing with their mortgage and has no problematic history paying it other than that there will not be any other qualification process. Clients were advised to apply over the phone for immediate relief or online if the matter is not urgent. Mortgage payments deferral is offered on all types of properties and even on rentals or vacation homes.
“Skip a payment” with other lenders
The case is slightly different with regards to the medium-size lenders, trust companies and credit unions. Some of the medium-size lenders already sent out a memo that mortgage payment deferral will be offered mainly for homeowners who lost their jobs due to COVID-19. It won’t be immediately granted to clients who went on unpaid leave. Others mentioned that clients will be able to defer payments for a maximum of 3 months. With some lenders one can defer only mortgage payment on their primary residence and not on their investment property. As we can see the policies are diverse.
What is my cost and is it recommended at all to defer now?
If you lost your job or your income has been compromised, we highly recommend deferring your mortgage payments with your lender. Under the deferral plan, payments are skipped for 3-6 months. The interest will be added to the mortgage’s balance. Please note that payment deferral will not affect your credit score at all.
Yes, it means that you’ll pay slightly more in interest on your mortgage but considering the current circumstances it’s a small price to have. We believe that the focus should be in creating certainty for your family and safe cashflow to go through the unknown. Paying the additional interest, would be a very small price aimed to achieve a much bigger result- your well-being and your family’s peace of mind.
Your next move
If you find yourself in a rough situation, call us. We’ll review and advise you on your options. Since the lenders ask clients to talk to them directly, and payment deferral is given on a case by case basis, we won’t be able to call the lender on your behalf, but we will be with you along the way.
Recently we learned that the banks are swamped with hundreds of thousands of phone calls. Saying that, 213,000 requests to defer payments have already been processed. I highly advise using the on-line option if offered and not wait 4-8 hours for a bank rep to answer your phone call. We encourage you to act now. As mentioned, you are more than welcome to talk to us. We are here, working with you to help you go through these times.