The mortgage deferral is among a number of recently announced relief measures geared to assist Canadians who are feeling the financial impact of COVID-19. With many industries and businesses suffering a serious slow-down, if not a complete dead stop, Canada’s big banks released an announcement two weeks ago offering mortgage payment deferrals of up to six months, to help carry homeowners through this difficult time. The program has certainly appealed to many Canadians.
What the banks are saying?
“Bank of Montreal, CIBC, National Bank of Canada, RBC Royal Bank, Scotiabank and TD Bank have made a commitment to work with personal and small business banking customers on a case‑by‑case basis to provide flexible solutions to help them manage through challenges such as pay disruption due to COVID‑19; childcare disruption due to school closures; or those facing illness from COVID‑19,” the Canadian Bankers’ Association said in a release two weeks ago. Since that time, the CBA has reported almost 500,000 mortgage payment deferrals or “skip-a-payment” passes have already been approved or are in the process of approval. Furthermore, the six big banks have seen deferrals on more than 10 per cent of the mortgages in their portfolio.
Despite the popularity of the program, there are still many questions swirling around about what it is, if there are any loop holes, and how it may affect your credit rating.
What is a mortgage deferral?
A mortgage deferral is intended to help people experiencing financial hardship, such as unemployment or the current COVID-19 crisis. Since the mortgage agreement is between you and your lender, so too are the terms of the mortgage deferral. CMHC says that typically, the agreement states that you and your mortgage lender have agreed to pause your payments for a specified amount of time. Once the mortgage deferral period ends, your payments return to normal and the missed payments — including principal and accumulated interest – repaid.
What happens to your missed mortgage payments?
CMHC points out that a mortgage deferral does not “erase” or reduce your mortgage amount. At the end of the mortgage deferral period, you will have to resume payment according to your regular payment schedule. “The interest that hasn’t been paid during the deferral period continues to be added to the outstanding principal of your mortgage. This can affect the total amount you owe in accordance with the original payment schedule,” CMHC says.
Am I eligible?
Connect with your bank or mortgage professional to discuss the options available to you. CMHC says the COVID-19 Mortgage Payment Deferral program will be ongoing, and homeowners can apply at any time during the crisis.
How are the deferred funds repaid?
The details of your repayment depend on the lender and your specific situation. CMHC says the interest on your mortgage that hasn’t been paid during the deferral period will continue to accrue. When your payments resume, the amount could be based on the total amount owing at that time, in accordance with the original payment schedule.
If you think you won’t be able to make your regular mortgage payment, contact your lender immediately before you miss a payment.
If you need further assistance, don’t forget we are always just a phone call away, 416-913-1089.