On Wednesday 18th March, six of Canada’s largest banks announced they would be allowing mortgage payment deferrals of up to six months. These included RBC, TD, BMO, Scotiabank, CIBC, and National Bank. The banks also announced they would offer “opportunity for relief” on other credit products.
As of April 3rd, over 500,000 requests for mortgage deferrals had been processed or completed. From what we’ve heard many people are having trouble getting in touch with their lenders during this time, as a result of the increased demand for their services and lenders are reporting they are overwhelmed with the increased volume of requests.
There is a lot of misinformation circulating regarding mortgage deferrals. It’s critical to do your research and understand the facts.
The deferral is an agreement between you and your lender. Typically, the agreement indicates that you and your lender have agreed to pause or suspend your mortgage payments for a specified period of time and it’s a temporary measure.
After the agreement ends, your mortgage payments return to normal and the missed payments including principal and accumulated interest are to be repaid according to the terms of the deferral agreement.
A mortgage payment deferral allows you to skip a mortgage payment – for up to the equivalent of six monthly payments.
Please note that no lender will forgive your mortgage payment. The mortgage deferral offer is a pause on mortgage payments. This means that interest will continue to accumulate and be added to your debt. You still pay the money you owe, with interest, Just more slowly.
Deferring mortgage payments means that you are not paying your mortgage principal and interest will be capitalized (i.e., added to the outstanding mortgage balance) on each payment due date.
Deferrals actually mean that the interest accrued from each deferred payment will be aded back into the principal balance of the mortgage. This means that you are charged interested on top of interest for those payments that were deferred and borrowers are simply postponing — not skipping — payments. This will make a difference in how much you end up paying in interest over the life of the mortgage:
However, if you do not want a higher payment, they can extend the amortization period. This requires an application and a full credit review. Note: a mortgage application will not affect your credit score. What will affect your score, is if you don’t take action and advise the lender you will be late on your mortgage payment. Call your lender and let them know that you are unable to make your mortgage payment or have suffered employment loss.
The bottom line: from what we know, the deferral is not mortgage relief or an interest-fee holiday, it is simply the ability to skip a payment for a specific period of time and will be added to the outstanding balance of your mortgage.
It’s important that you understand this and take it into consideration when determining if this is the right solution for you. Lenders are working with clients on a case-by-case basis.
This financial relief program is being administered on a case-by-case basis to individuals whose mortgages are in good standing. The program will be available until at least June 30, 2020.
It is critical to do your research and get clarifications prior to signing on for a mortgage deferral.
A lender-approved deferment isn’t counted as a missed payment and won’t appear on your credit score. According to TD bank’s website, Mortgage payment deferrals will not impact a customer’s credit bureau if the account was in good standing at the time of the deferral and remains in good standing.
In a recent Toronto Star article, Richard Moxley, author of “The Credit Game: Rules Every Canadian Must Know to Win,”says that the onus is on lenders to ensure that the borrowers’ credit scores don’t take a hit during these challenging times. He cautions that the deferred payment can show up as a late payment on the Equifax and TransUnion report. According to Moxley, this is because credit reporting agencies don’t qualify the information they receive. The only thing that matters is how the lenders’ systems report deferred payments to them – as late payments or not. Much of this data, Moxley says, is generated automatically and as of March 30th 2020 at the time this Toronto Star article was printed, many of the lenders’ computer systems haven’t been adjusted to reflect the general availability of deferred-payment arrangements during COVID-19, despite being prompted by Equifax.
Rental property investors will also be eligible and considered by the lender on a case-by-case basis.
According to TD bank’s website customers who are landlords of a rental property with four units or less are eligible for the same mortgage payment deferral relief available to residential mortgage customers. For landlords with five units or more, the bank is currently working through solutions.
Property investors with tenants who have stopped making their rent payments will also be considered and assessed by the same rigorous standards by lenders. The Ontario government has introduced several financial assistance programs that can offer tenants some relief. Rental property owners can also encourage their tenants who have been financially impacted by COVID-19 to apply for these programs.
The mortgage deferral program is designed for people who NEED it and not for those who WANT it. If you are employed and working you will not qualify for a mortgage deferral. Speak to your lender. Each lender will work on a case-by-case basis to determine the qualification for a mortgage deferral or extension, whichever the case may be.
This post is written by Madiha Khan, founder of Toronto Condo Investment and Sales Representative with Century 21 Atria Realty.
