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The coronavirus pandemic means businesses everywhere are closing. Everyone is affected and, as Canadians, our incomes are not secure. If you own a home, the biggest bill that’s worrying you is your mortgage right now.
Overwhelmed? Don’t worry, we have a list of steps. Follow along and we will show you the best ways to manage that mortgage payment in these uncertain times.
Since the COVID-19 crisis hit, we have heard so many confusing announcements. Terms like mortgage deferral, mortgage vacation, mortgage re-amortization, missing or skipping a mortgage payment, and more. We hear promises that we don’t need to worry about making our mortgage payments, but the reality is, it’s up to each lender, dependent on each mortgage contract and based on your unique situation.
In short, there is no one answer that fits everyone. There is no single set of rules or criteria, everything is on a case-by-case basis.
First, we will explain what some of the more common terms mean. Keep in mind that the different lenders (banks or other) may actually have different terms and fine print when it comes to these options. You will only get a final answer when you speak to them directly.
Mortgage deferral: We like to think of the word deferral as a category of options, because different lenders have such different policies and available options. A deferral is when you don’t pay your mortgage for a period of time (between one and six months) and the mortgage payment you didn’t make gets pushed to later. Over time, this increases the term of your mortgage, and likely the interest you will be paying too. This term is highly debated because there is no clear rule on how a bank can offer a deferral and under which terms. Deferral does not mean you just take a break from paying this month and start paying again next month.
Was that confusing? This video explains it very well – it’s worth watching.
Skip-payment: Some banks offer skip-a-payment options on some of their mortgages. This allows you to skip the payment (principal and interest) once every 12 months. The conditions are that you are not already in arrears (late in payments) and that the current mortgage balance and the payment you wish to skip cannot be higher than the original amount of the mortgage.
In this case, usually, there is no fee and your payments do not change during the term. Instead, the interest payment that was not paid gets added to the principal of the mortgage, which means, over time, you are paying extra interest on that interest. These options do not usually affect your credit if executed correctly with your lender.
Once again, these terms are not the same across all banks, they vary across types of mortgages and products as well as if the mortgage is insured or not.
Extended skip-a-payment: This option is similar to a deferral or re-amortization. In this case, based usually on exceptional circumstances. The same rules apply as above, but you can take up to 4 or 6 months. This option requires a credit check which will affect your credit score.
Mortgage re-amortization or recapitalization: This is similar to deferral, but very clearly indicates that interest is charged, whereas a deferral leaves the door open for the bank to offer more favourable interest terms or to be more creative.
Mortgage insurers (such as CMHC, Genworth and CG) typically have programs in place with the different lenders that can allow up to 4 months of deferral or capitalization, many of which have extended to 6 months. It’s important to understand what deferral/capitalization means. It is not a “mortgage break”. Instead, the lender takes the total amount of monthly payments that were missed and adds that amount back to the total mortgage balance. New mortgage payments are calculated, making the loan current. This is a measure that is helpful in a time of very tight cash flow, but it does result in a more expensive mortgage over the long term.
A mortgage deferral/capitalization is only allowed if:
The original insured loan amount is not exceeded.
The request to cap payments is received prior to Sept 3, 2020.
The bank/lender confirms the capitalization is being applied reasonably to help mitigate short-term financial difficulty resulting from COVID-19.
As you have seen in the other categories, deferring the payment might not be the best solution for you. If you have done the math and don’t think you can manage a deferred or skipped payment, there are other options and creative solutions. As these options are happening on a case-by-case basis, there is no rule book. Don’t stop at the first no and don’t be afraid to ask questions and to negotiate. See the following steps to learn how best to negotiate.
NOTE: These details, rules and conditions are changing very rapidly. Refer to your lender, the CMHC and the Government of Canada website for current info.
For starters, prepare to be on the phone for hours. Be courteous, the individuals helping you are doing their best in a new scenario they’ve never experienced before. The rules are changing daily for them and they are working around the clock to serve clients.
Have your documents ready, including your statements, original contract with the features of the mortgage you have.
Know your numbers: Identify how much you actually think you can pay. Don’t think of the mortgage deferrals as a free lunch option. Aim to pay as much as you can afford without overextending yourself. Find out how much you think you will be getting in benefits by clicking here and be prepared with that number
Play around with a calculator: A mortgage affordability calculator will help you understand how the different factors affect your payment terms. Taking this step will help you be more prepared for the conversations you will have with them.
Know your property tax numbers, home insurance costs, condo fee amounts and other associated costs. You will still be responsible for these if you take a deferral option.
Most banks don’t want to take over your house, so they are very willing to work with you to find alternate solutions. The sooner you get in touch, 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. Click here for a great resource showing the offering of each lender and contact info.
When it comes time for the call, try asking the following questions to make sure you get to know all of your options.
Please explain the options you can offer me as I am unable to make my full mortgage payments over the next X months.
What are the features already built into my mortgage product?
Please help me understand the affordability of the different options you are showing me
Will taking these options affect my credit score and require a credit check? Are they recorded as missed and/or late payments?
What are the next steps if I cannot make this month’s payment? At which point am I in arrears and what are the steps taken by the lender at that point?
Can I extend my mortgage amortization in order to lower my monthly payment
Can I miss a payment and add it to the balance and spread it over the remaining mortgage repayment?
Can I skip this month and repay in a few months to reduce the interest burden?
Can I have reduced payments over a set time instead of skipping payments altogether? (this will drastically reduce the increased interest you pay over the long term – you should try this first!)
Can I change the rate of my mortgage from variable to fixed? (This would protect you against a sudden rate increase, a good option if your budget is super tight and your income uncertain – ultimately this could increase your mortgage payments in the short term as variable rates are lower than any fixed rate you will be getting right now).
Access a HELOC: (home equity line of credit) if you already have one set up. It can give you access to cash at reasonable rates. It doesn’t really solve a payment problem, but it’s a viable short-term option to keep everything looking good on paper.-If you don’t already have a HELOC set up, it isn’t the best option in an emergency because it takes time, a detailed application and has high legal fees.
Try to get a break from your condo fees: Condo boards are not offering blanket breaks on condo fees at this time, but many of them are recognizing the challenge facing home owners and are willing to help. Start by identifying your condo corporation bylaws around fee payment. How many months of non-payment can you have before you are in arrears? What are the consequences and interest rates that apply? Armed with this information, you can ask to speak to the condo board and work with them to come up with a plan for payment that gives you extra time. Be prepared to show reasons why you require special consideration.
Refinancing your mortgage: If you are thinking about this, it might be a good option while your job is still secure and rates are low. Some analysts believe rates may go up in a few months. Want to avoid mortgage mistakes? Click here to learn more.
Credit: Do you have a line of credit with funds available? Your bank might consider extending the limits, waiving credit card limits and minimum payments and waiving fees for new enrollments to some services. Applying for new loans if you have a business is also possible right now. Generally, try your best to use your lowest interest sources of credit first.
Utilities: Utility companies are making different offers based on your region to either defer payments or reduce them. This also includes cell phones, cable and internet providers.
If you have a mortgage that you’re paying, say, 3.5% for and now you’re seeing rates that are much lower, you’re probably wondering if it’s better to switch out. Or maybe your mortgage is up for renewal this year. What should you do?
You’re right to ask the question, interest rates have been changing. For the third time this month, the Bank of Canada lowered its overnight rate, which is now 0.25%.
Why so many cuts? This is a move by the government to support individuals and businesses by:
Minimizing damage to the economy during COVID-19.
Ease the cost of borrowing and help people access credit
Help improve short-term funding options to help businesses
changes to the mortgage stress test that were due April 6th have been put on hold
Call your broker or bank/lender. They should be able to help you look at your agreement and terms to see if the decision makes sense. You are looking to see if the long-term savings of a lower rate are higher than the cost of penalties to break your mortgage.
It’s a tough decision, because we are in unpredictable times. General advice is, if your mortgage renewal is coming up now, to submit an application for renewal sooner rather than later.
For fixed-rate mortgages, rates are expected to go up in the short-term, so the sooner the application is filed, the lower the fixed-rate you can obtain. Once you get that fixed-rate, it’s yours and frozen in time until your next renewal.
NOTE: Legal and mortgage professionals were consulted in the creation of this article, however, the content presented here should not be construed as legal advice or financial advice. This article is for information purposes only.
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CMHC:1-800-668-2642
Genworth:1-888-436-9678
Canada Guaranty: 1-877-244-8422
**Any option available to you will only happen directly through the bank and lender, so contact your lender directly.
ATB: 1-800-332-8383
B2B: 1-800-263-8349
BMO: 1-877-895-3278
Bridgewater: 1-866-243-4301
CIBC: 1-800-465-2422
CMLS: 1-888-995-2657
Optimum: 1-866-441-3775
Equitable: 1-888-334-3313
Connect First: 1-403-736-4000
Chinook Financial: 1-403-934-3358
First Calgary Financial: 1-403-736-4000
First National: 1-888-488-0794
Haventree: 1-855-272-0051
Home Trust: 1-855-270-3630
HSBC: 1-888-310-4722
ICICI: 1-888-424-2422
Manulife: 1-877-765-2265
MCAP: 1-800-265-2624
Merix: 1-877-637-4911
National Bank: 1-888-835-6281
RBC: 1-866-809-5800
RFA: 1-877-416-7873
RMG :1-866-809-5800
Scotia: 1-800-472-6842
Servus: 1-877-378-8728
Street Capital: 1-866-683-8090
TD: 1-866-222-3456
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