While the world may seem like it’s completely different than it was a month ago, I wanted to shed some light on the mortgage situation.
If you’ve been required to go into self-isolation or have been laid off from work, you are probably questioning how you’ll make your next mortgage payment. In this blog post, I will share what the government is currently doing for homeowners during the COVID-19 outbreak and my advice on the current situation.
What is the Federal Government of Canada doing in regards to mortgages?
The Government of Canada has promised to support Canadians through the coronavirus outbreak. The Canada Mortgage and Housing Corporation (CMHC) and other mortgage insurers offer tools to lenders that can assist homeowners who may be experiencing financial difficulty.
These include payment deferrals, loan re-amortization, capitalization of outstanding interest arrears and other eligible expenses, and special payment arrangements.
With the help of CMHC and other insurers, the Government of Canada is providing increased flexibility for homeowners who are in need of mortgage deferrals.
CMHC and other insurers will allow lenders to allow payment deferral beginning immediately. You can read more about this in Canada’s COVID-19 Economic Response Plan.
What is the mortgage industry doing during COVID-19?
On March 18th, six of Canada’s largest banks announced they’d be allowing mortgage payment deferrals.
The Bank of Canada announced on March 27th a cut to the target overnight rate of 0.5%. This is the third cut in March.
How long are mortgage deferrals being allowed for?
The Bank of Montreal, CIBC, National Bank of Canada, RBC Royal Bank, Scotiabank TD Bank and most other lenders have all agreed to allow mortgage payment deferrals for up to six months.
How does this process work?
The deferrals are happening on a case by case basis. Currently, the lenders are going through an overwhelming amount of phone calls about deferrals. If you’re still working or if you have savings, I would suggest that you continue paying your mortgage and not to contact your lender at this time.
If you are in need of a deferral, you will have to contact your lender. It’s important to note that call times will most likely be longer and it may take a couple of tries to get a hold of them. Then, you’ll explain your case and either be granted the deferral or not.
As of this time, most lenders will prefer an email or submitted form on their website requesting the deferral. Most lenders will have a COVID-19 response on their website and make known how they prefer to be contacted.
It may take up to a week for your lender to get back to you about the deferral.
Do people get charged interest if they defer?
If a deferral is granted, the payment is deferred. The interest that you would have otherwise paid is added to the mortgage, which means you will essentially be paying interest on the interest.
Why should someone continue paying their mortgage even if they could get a deferral?
If it’s possible to pay your mortgage, you should pay your mortgage. By doing this, you will be saving money in the long run. Those who defer payments will have those payments added to the end of their mortgage. Those who are able to pay their mortgage will pay off their mortgage in their allocated time allotment.
Do all homeowners quality for mortgage deferrals?
While COVID-19 has affected a lot of people, not everyone will qualify for mortgage deferrals. If you’ve lost your job or are in self-isolation and your income has been disrupted, you will likely qualify.
Like I mentioned above, it is approved case-by-case. Lenders do understand what’s going on because of the coronavirus and will be trying to do all they can to help homeowners during this time.
Are all banks affiliated with this six-month deferral option?
I believe that every lender will have their own policies, which is why you will have to contact the lender you have your mortgage through. When you contact them, they will explain what they offer during this time.
As noted above, most lenders will have a section on their website detailing what they are doing for clients and the preferred way to contact them.
Do you have to take the full 6 months?
Not everyone who is granted the deferral will be granted the full six month period. And, even if you are, you may not want to defer for the entire six months You can resume your payments sooner. Remember, this is not payment forgiveness for homeowners. This is a deferred payment, which means you will still be making the payment, just at another time.
Does a payment deferral affect your credit score?
Payment deferral shouldn’t affect your credit score, but this is not something I can guarantee. Once you are granted a deferral, I would highly recommend getting it in writing from your lender. Be sure to ask about your credit score.
This will be based on a per lender situation. Mistakes can happen, especially during a time like this, so having everything in writing is essential.
Can you access funds through your home equity line of credit?
A home equity line of credit (HELOC) is a line of credit that will let you take money out secured by your home. If you currently have a HELOC, you can withdraw money to help make your next mortgage payment. You will still have to pay back your HELOC in the future, but it is a short-term solution for someone who doesn’t qualify for the 6-month mortgage deferral.
Is there anything else a mortgage broker can do to help during this time?
If you’re worried about future payments, you can reach out to me at Mortgage Okanagan. As a mortgage broker, we can go through possible solutions to ensure you feel comfortable with payments and future situations. Whether it be a refinance or extension on your amortization to lower payments, there most likely are options to ensure that you’re comfortable with your mortgage payments.
Contact me with any questions.
It can be scary not knowing if you’ll be able to make your mortgage payments. That, on top of the current COVID-19 situation, is a lot to worry about. Try your best not to stress and contact me with any questions. I would be happy to answer any questions and help ensure you feel comfortable with your payments.
The world is currently going through this traumatic time together. With that being said, lenders understand the stress and worry that homeowners are feeling. The Government of Canada is doing all that they can to ensure that Canadians remain safe during this time, and I believe that homeowners will get through this.
While the coming months may involve a lot of social distancing, we are in this together. Don’t hesitate to reach out with any questions or concerns you may have.