The COVID-19 crisis has left many homeowners in Canada out of work or with reduced hours and stressed about how they are going to make their mortgage payments. Homeowners facing financial hardship may be eligible for a mortgage payment deferral for up to 6 months to help get through this unprecedented time.
What is a mortgage payment deferral?
This is an agreement between you and your mortgage lender to defer or skip a mortgage payment for an agreed-upon period of time. Currently, the Government of Canada is allowing deferred payments for insured mortgage loans for a period of up to six months. Once the agreed-upon period of time has elapsed your mortgage payments will return to normal. What is happening behind the scenes with your payment is that interest portion of the your mortgage payment is being added on to the balance of your mortgage. Interest is continuing to accrue. Upon mortgage renewal and/or when your mortgage payments resumes to normal you will see an increase in your mortgage payment amount. This is lender specific so please contact your lender for full details. You can make up the deferred or skipped payment(s) by making an additional payment(s) toward your mortgage. This policy can vary from lender to lender as well so it is best to make sure you contact your lender and obtain all relevant details before proceeding to skip or defer a mortgage payment.
Am I eligible to defer a mortgage payment?
Skipping or deferring your payment is at the discretion of your mortgage lender. They are the only ones who can provide you with an answer to this question so reach out to them directly if you are facing financial hardship. Even if your mortgage is not insured through one of Canada’s default mortgage insurers such as Canada Mortgage and Housing Corporation (CMHC) your lender may have a program available that can provide you with financial relief in the short term.
What are the options?
If you are in a position to be able to make your mortgage payments you should. As this is a program that is being offered either by your lender or through the Governmen of Canada directly the deferred payment will not have an affect on your credit. If you are facing financial hardship and do not reach out to your lender for options and your payment is missed this will negatively affect your credit and may limit your options in the future if you are considering refinancing, transferring your mortgage to another lender or purchasing a home etc. Having a missed payment can also have an impact on the interest rate you receive at renewal. It is all about being completely informed before you agree to defer your mortgage payment.
The Canada Mortgage and Housing Corporation mortgage deferral program will be available throughout the duration of the crisis. If you will be unable to make your regular mortgage payment it is important to take action sooner rather than later. Contact your mortgage lender or mortgage broker immediately before you miss a payment.
Do I need to repay the deferred or skipped payments?
Yes. Whether you make up for the skipped payments by applying additional payments to your mortgage at a later date or just roll with the mortgage payment increase when the time comes you will be paying for all of the deferred or skipped payments including both principal and accrued interest over the remaining life of the mortgage.
What about deferred mortgage payments for landlords?
Property investors with tenants who have stopped making their rent payments will also be considered and assessed by the same standard on a case by case basis dependent upon your lender.
Some provincial governments have introduced tenant relief programs. Rental property owners should encourage their tenants who have been impacted by COVID-19 to apply for these programs, if available. Ontario is not offering any tenant-specific support programs as of late March 2020. This may change as time goes on. Other emergency programs have been put in place by the Ontario government that can be utilized by tenants affected by COVID-19 to help provide additional funds which could then help to support their rent payments. Tenants and landlords should communicate with each other to ensure they come up with a plan that is suitable for both parties.
Other options could be available to you
Maybe after speaking with your lender deferring or skipping a payment is not an option that you want to take advantage of. Subject to qualification you could be eligible to refinance your mortgage to payout debts, provide additional cash on hand and/or increase your amortization (which would lower your mortgage payments and also increase the amount of interest paid over the life of the mortgage). As of late March 2020, lenders have not officially changed any of their underwriting guidelines. However, they are being more cautious with each file they are reviewing.
There are options aside from your standard first or second mortgage as well which can provide funds in your bank account within 48 hours from approved application. This option is fully open for repayment and can provide loan amounts between $4,000 to $40,000 with no appraisal or requirement to obtain a lawyer or pay legal fees. This solution is available to homeowners of principal residences and also accepts rental/investment properties with a loan to value ratio of up to 85%. If you are experiencing short-term cash flow problems this could be the solution to help you through or provide a buffer as the length of time COVID-19 will have an impact on us is unknown at this time.
Be Patient
These are difficult times and lenders are running at capacity trying to respond to customer inquiries and help borrowers who are impacted by this crisis. Many lenders are now offering online forms to help ease the wait times on the phone so also check their website for support.
I am here for you if you have any questions please feel free to reach out and I would be happy to help.
Please stay safe, we will get through all of this together.