With wide-spread layoffs, reduced hours, and general job insecurity, thousands of Canadian households have been thrown into a financial tailspin by the coronavirus pandemic.
In one recent news report, Hamilton homeowner Kim Petrie – whose three grown children have all lost their jobs – summarized mounting concerns when she said, “There’s a lot of uncertainty, fear, without knowing how long this is going to go, or how long can we sustain it.”
The average monthly mortgage in Canada is $1326. And with property taxes, insurance, utilities, and possibly condo fees to keep up, you’re not alone if you’ve been wondering how you’re going to manage your mortgage payments during the COVID-19 crisis.
Deferring your mortgage may be the solution
Late last month, Canada’s Big Six banks (RBC, TD, BMO, CIBC, Scotiabank and National Bank of Canada) made the welcome announcement that they’d be allowing eligible customers to defer their mortgage payments for up to 6 months.
You may qualify for mortgage relief if:
- Your mortgage account is in good standing
- You’ve lost work or been directly impacted by COVID-19
- You’re facing financial hardship
Right now, there’s no deadline for applying to have your mortgage payments postponed. Before you do, however, you should be clear on how a mortgage deferral works.
What is a mortgage deferral?
The first thing you should know about mortgage deferrals is that they’re temporary. A deferral is an agreement between you and your lender that lets you skip your mortgage payments for a specified period of time.
The second thing you should know is that not only will you be required to repay skipped amounts in full once your mortgage payments revert back to normal, interest will continue to accrue on your outstanding balance.
Mortgages of Canada CEO Samantha Brookes has said that mortgage deferral plans are a great idea if you really need one to get through the pandemic. But they should be considered a last resort, since you’ll likely be responsible for added interest, fees, and deferral charges.
Her best advice?
“If you need it take it. If you don’t need it, then find other means to make it work.”
Prepare to be patient
Despite the financial relief they promise, some homeowners have been frustrated by confusion, delays, and outright denials while attempting to take advantage of a mortgage deferral.
Down to a single income in Dartmouth N.S., Evan McFatridge says his wife called the Bank of Montreal a couple of weeks ago to see what kind of help they could get. “She was told that our mortgage was too new to qualify for a deferral.”
Other homeowners, meanwhile, have reported:
- Spending hours on the phone
- Being asked to supply countless details about their job situation, income, assets, and liabilities
- Having to wait while their applications went through a credit review
Still, as of early April nearly half a million Canadians – or 10% of Big Bank mortgage customers – had applied to have their mortgage payments deferred.
And according to the Canadian Bankers Association, approved deferrals will leave some $663 million in the collective pockets of homeowners each month.
Financial challenges we face going forward
Given that mortgage deferrals aren’t a permanent financial solution, hundreds of thousands of Canadians will probably be forced to play catch-up on skipped mortgage payments once the coronavirus dust settles.
So it’s hardly surprising that many homeowners believe the government should be freezing mortgage and interest payments outright.
As one concerned forum user commented, “I’m not convinced that mortgage deferrals will be enough to help Canadians. If we simply defer our mortgages, it will only increase our debt load and we’ll have to pay more money later. That may prove too much financially, and we’ll still lose our homes.”
While this challenge plays out, home sellers and buyers alike are having to face some hard facts:
- The Canadian real estate market has experienced a 30% drop in home sales
- Mortgage rates haven’t been dropping as much as they probably should
On the bright side, industry observers expect the housing market to rebound strongly once the virus has been beaten back. And if you’re in line for a new home in the meantime, you may be able to take advantage of a strong buyer’s market.