Outbreak of Covid-19 has a great impact on personal and financial lives of Canadians and the homeowners are experiencing financial hardship to pay mortgage payments on time.
Canada’s leading banks, the government and the Canada Mortgage and Housing Corporation (CMHC) had stepped in with a relief to home owners that they can defer their mortgage payment for up to 6 months.
What is mortgage deferral?
A mortgage deferral is a mutual understanding & agreement between you and your mortgage lender to suspend your monthly mortgage payments temporarily. It is not a forgiveness of the mortgage obligation, means that interest will continue to accumulate and will be added to your debt
The mortgage deferral can be helpful when you are facing a financial difficulty due to COVID-19.
Note: You will still be responsible for paying mortgage insurance premiums and property tax installments, if applicable.
Are you eligible for mortgage payment deferral?
Everyone has a different need so the lenders will consider it on a case-to-case basis.
Please ensure to consider all the factors involved and then apply it with your lender as you are not automatically approved for this option of deferral payment.
Depending on individual’s situation, the lender may not approve more than 1or 2 payment deferrals.
Note: Don’t assume anything before you reach out to your lender.
Will the deferred payments get waived off?
The mortgage payment deferral agreement does not waive off the amount you owe and you will have to resume payment according to the revised payment schedule.
Note: The interest for the deferral period will gets added to the outstanding mortgage balance & this will affect your total outstanding balance.
Do I need to repay the deferred amounts?
Yes, you’ll have to repay the amounts of the skipped payments including both principal and interest which may increase your monthly mortgage payment.
How much will your mortgage deferral cost?
There is no fee to defer your mortgage payment. When you defer mortgage payments, the interest on the deferred payment will be added to your outstanding mortgage balance and interest is charged on that amount, means your mortgage balance will increase.
Different lenders may calculate this differently, it is important to contact and consult with your respective lender or bank to confirm how your payments will be affected.
Depending upon the lender, you can pay the accrued interest at the end of the deferral period or add the unpaid interest to your mortgage balance. If you choose to add it to your mortgage balance, your payments will be higher after the payment deferral period and your future monthly mortgage payment may increase.
Example of Mortgage Payment Deferral Scenario -
For a mortgage balance of $300,000 amortized over 25 years at a 3% interest rate, Monthly payment = $1,419.74
If the payment is deferred for the first 6 months, the interest portion will be added to the mortgage balance of $300,000 at the end of the deferral period of 6 months for remaining 24 ½ years - New mortgage balance = $304,472.16 New increased monthly mortgage payments = $1,460.73
Does mortgage deferral affect your credit?
It will be too early to say as how the mortgage payment deferment will reflect on your credit report.
Please make sure to check your credit reports (Equifax & Transunion) thoroughly for any errors.
Is it right for you?
If you are in a financial crisis because of COVID-19 and you are not sure about paying your next mortgage payment - make sure to contact your lender / bank or a licensed mortgage professional to decide if a payment deferral is the best available option for you.
What else can you do?
Here are some of the options that may be available to you in this
1. If you have a good payment history with the lender, you may be approved to skip payments for up to one month. Its lender / bank specific and not all products will allow you to defer payment so need to check your lender or a licensed mortgage professional.
2. Get a home equity line of credit (HELOC) as it will allow you to take out money secured by your home at favorable interest.
Every family’s financial situation is different so evaluate every option before you decide and be upfront in contacting your lender or bank or mortgage broker before you miss a payment.
The payment deferral is for people who will struggle to make their next mortgage payment & the purpose is to give them a short term financial relief due to reduced income.
If you think you won’t be able to make your next mortgage payment, it’s important for you to take quick action.
Contact your bank or a licensed mortgage professional immediately before you miss any payment.
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