Canadians have been celebrating the latest announcement regarding mortgage payment deferrals. This is one of the many programs being offered in conjunction with the Federal Government in an effort to slow the economic impact of COVID-19. But is a mortgage deferral right for you?
What does deferral mean?
To defer means to postpone to a later date. This means, you are postponing six months of mortgage payments. This is not a forgiveness of making those payments all together. This means, that at some point in the future, the principal and interest payments of your mortgage during the six month period, will be due. Also, with most lenders, the interest will continue to compound over those six months as well.
Is deferring your mortgage payment right for you?
Before jumping on the band wagon of this initiative, we recommend you ask a few questions and examine your overall financial picture.
Is the six month mortgage payment deferral being offered by my lender for my property? If I’m a landlord, do I qualify?
How exactly does it work? What is required from me? Are there qualification rules?
How will those deferred payments be charged back to me? Will there be a balloon payment when I sell my house or will I need to make up those payments at the end of six months? What are the repayment terms?
Do I have the option to only defer principal payments and keep making interest only payments?
Is there a difference between a skip payment and a deferred payment? Can I use my skip payment option in conjunction with or instead of the deferred payment?
If you decide to take advantage of the payment deferral option, keep these key points in mind:
Every lender will review a request for deferral directly with the client and on a case-by-case basis.
The sooner you get in touch with your bank, the more options you will have available.
Don’t wait until the second or third month of trouble before reaching out.
Be honest and open with your situation.
“Banks will be reviewing all requests for mortgage deferral on a case-by-case basis, working directly with our clients to provide relief from financial stresses due to COVID-19. However, the banks did not offer a blanket guarantee that mortgage deferrals will be interest-free” Shane Ferrao a Mortgage Broker with YourMortgageYourWay.ca explained.
The mortgage insurance companies such as CMHC (Canada Mortgage and Housing), Genworth and AIG, have several other default management tools available which include: payment deferral, loan re-amortization, and other special payment arrangements. All assistance options will be considered on a case by case basis. For a complete contact list of banks and mortgage lenders visit: https://yourmortgageyourway.ca/blog/keeping-you-informed-covid-19/
“Mortgage deferrals are a step in the right direction to helping Canadians who have been laid off temporarily and are wondering how to manage their mortgage payments. But it is important to understand the implications of choosing this option.” Said Taz Rajan Community Engagement Partner at Bromwich+Smith. “We wouldn’t want to see this option simply delay the financial issue rather than provide some relief to Canadians. This means, Canadians need to take the time to understand the terms – it is not a skip payment. It is a deferral down the line.” Read more about your options at www.bromwichandsmith.com.
These are challenging times on many levels, and new programs and resources will continue to be shared. Let’s take a deep breath, ask the right questions and take calculated action steps. We are in this together! We are open and ready to assist you over the phone.
We are open and ready to assist you over the phone.