Mortgage Payment Deferrals - Tips & Advice
Updated: Jun 5, 2020
It may be possible for you to defer up to six months of mortgage payments to help offset the impact of COVID-19 on your wallet. In the first month of shut down 1 million Canadians lost their jobs, and 670,000 people immediately deferred their mortgage payments - about 14% of the largest lenders' loan portfolios.
Whether you have already deferred or are still making a decision, here are three helpful tips for a successful payment deferral. But first: five key questions to ask before making this important decision.
ASK THE RIGHT QUESTIONS
How long will your emergency savings last, and does it make sense to withdraw from investments? Do the hard math and slash unnecessary expenses to figure out your “burn rate”. Deferring payments could help to reduce stress, improve cash flow, or give you more “financial runway” for the months ahead. It's easier to hope for the best when you have a plan for the worst.
Is your mortgage default insured with CMHC, Canada Guaranty, or Genworth? It may be possible to defer 1-6 months of mortgage payments, however insured mortgages (usually less than 20% downpayment) are more likely to offer 6 months. Speak with both your lender and insurer to before making any decisions.
What does your mortgage payment consist of? Your payment can have up to 4 components: principal + interest + property tax + health insurance. Principal and interest can be deferred but you’ll likely still need to pay tax and insurance if applicable. Make sure you understand exactly what's being deferred so that you can meet any continuing obligations.
How many years do you have left on your mortgage? If you’re near the end of the amortization, less of your payment will be interest so it will cost comparatively less to defer. If you’re near the beginning (usually 25 or 30 years) about 50% of your payment is interest - it will cost more to defer but you should also have more time to pay it back. Confirm with your lender exactly when and how this will be calculated.
Have you made prepayments, or are you making accelerated weekly or biweekly payments? If the answer is yes, instead of (or in addition to) deferring, you may be able to miss/skip payments or reduce your mortgage payments. Ask your lender about these commonly available, more cost-effective options.
Try to be the nicest person the lender corresponds with in their day. Most deferral requests are on a case-by-case basis, and showing consideration can only help to strengthen or fast-track your case. Some major lenders received 100,000 phone calls the first week deferrals were announced. The representative processing your request has an increased workload, and may also be struggling with their own family or financial concerns. If time is of the essence, check to see if an online deferral option is available, because that will likely be the faster option.
Be proactive and transparent with any creditors. They have a vested interest in your financial success, so there is a good chance they will work with you to find a reasonable solution. However, every lender is different and deferrals are not guaranteed, so have documentation ready to prove financial hardship. Whatever agreement you come to with your lender, stick to it. A missed mortgage payment on your credit bureau should be avoided at all costs and will impact future lending options.
Document everything. Expect that errors may occur, and correct them ASAP. There are relatively few lender representatives processing extremely high volumes of deferrals (a brand new program) with technology that was not built to handle such requests. Get everything in writing and keep copies. Take ownership of the process: check your bank statement and have any incorrect payments or NSF fees reversed. Mark your calendar to check your credit bureau 1-2 months after the deferral period ends, to make sure missed payments weren’t inadvertently reported.
HELP IS AVAILABLE
The Canadian government has asked lenders to be compassionate, so help is available for those who truly need it. This is everyone’s first pandemic and we will get through it together. But remember, knowledge is power - so help yourself by asking the right questions and being strategic.
If you’re unsure about your mortgage options, I’m here to help. Connect with me on social @laurenpye.ca or email me for a free strategic financing review: firstname.lastname@example.org. Thanks for reading, stay safe and be well.