Since the banks announced that homeowners struggling in the COVID-19 pandemic could defer mortgage payments for up to six months, more than a million Canadians are reported to have tried to take up the offer.
But with phone lines jammed, and websites unable to process applications that are assessed on a case-by-case basis, many homeowners looking for a deferral or seeking answers have had little success.
Confusion reigns over what makes a homeowner eligible for an emergency deferral, how the program works, whether interest is payable and whether deferring payments will affect credit scores. Unfortunately, with the situation changing on a daily basis, and lenders forced to make up rules as they go, it has been impossible for most people to get any information.
To clear up some of these issues, Glacier Media Real Estate spoke with five mortgage experts who offered their insights and advice on some frequently asked questions.
As long as the proper arrangements are made in advance, your credit score should not be affected. Atrina Kouroshnia, mortgage broker with Dominion Lending Centres, says, “I don't think deferring payments will have the same impact as [it did] before, as it's a global [pandemic] and, especially if your job is affected, you are making a proactive choice.”
Peter Kinch, best-selling author and award-winning mortgage broker, agrees, “I do not see a situation wherein this will have any impact on your credit score.”
The number-one most important thing? Never assume that you’ll be able to get the deferral and simply not pay your mortgage when it’s due, as this will damage your credit score. “The worst thing would be to just skip your payments,” warns Kouroshnia.
Angela Calla, also with Dominion Lending Centres, cautions, “If you miss the payment without an agreement or your lender does not approve you, it can impact your credit score and could significantly increase your cost of borrowing at renewal. Each borrower should confirm with the lender before they agree to the deferral.”
How can I get through to my lender?
For those trying to make such arrangements but having trouble getting through, Calla says it’s important to give the banks time. “Unless you have a payment due in the next five days [that you can’t pay], they ask that you delay calling at this time [due to overwhelming call volumes]. Email is preferred, or some lenders have portals they have created to assist with this. Look at your lender’s website for updates.”
Alisa Aragon, also with Dominion Lending Centres, recommends speaking first to your mortgage broker, if you have one. “Lenders are experiencing an overwhelming amount of calls and it is very hard to get through. If people have questions, it is best that they talk to their mortgage expert, as we are getting information from most lenders and we might be able to answer their questions faster.”
Should I apply, and would I be approved, for a deferral?
Once you’ve managed to get through to your lender, you’ll likely only be approved for a payment deferral if you’ve lost income due to the COVID-19 pandemic, say the brokers.
If you’re still working and can afford your mortgage, don’t attempt to get a deferral. Not only will you likely be wasting your time and that of the overstretched lenders, the program should only be used as an emergency last resort. That’s because deferring payments will cost you more money in the long term (see “How would a mortgage payment deferral work?” below).
Only those truly unable to pay their mortgage right now, due to lost income from the pandemic, should apply. “The deferral program is really for homeowners that are experiencing financial hardship due to the COVID-19 virus,” says Aragon. “If you are still employed and earning an income, then lenders will not be assisting those borrowers at this time. This program is for people that really need it.”
For those who feel they meet the requirements, it’s worth applying, and each application will be assessed on a case-by-case basis. “It also depends on the lender,” adds Aragon. “Each lender has its own requirements on what has to be provided.”
Landlords may not get approved for a deferral with some banks, even if their tenants can’t pay rent due to lost income, according to Calla. “Deferrals are not being approved on rentals at this time [March 25],” she says. “If/when they are, it will come with additional costs for the landlord, once determined.” However, Calla has an update of this information as of March 26, with the news that Scotiabank is now allowing deferrals regardless of occupancy, and other banks may follow suit.
One relief for landlords is that tenants unable to pay rent due to lost income can now apply for the new $500-a-month rent supplement, to be paid directly to their landlord via BC Housing, which was announced March 25. However, the accompanying temporary ban on evictions may mean leave landlords without options if tenants don't pay their rent at all.
If I were approved, how would a mortgage payment deferral work?
Make no mistake, a mortgage payment deferral is an emergency, temporary measure that will cost you more in the long term, caution the brokers. What’s more, the longer you defer payments, the more it will cost you, as interest will be payable at your contract rate during the deferral period, and will add up.
Kinch explains, “Your principal and interest payments do not have to be made for a period of [up to] six months. However, the banks will accrue your monthly interest payments and add that amount onto your current mortgage balance. As such, after the six-month deferral period, you will have a larger mortgage balance and your monthly payment will be adjusted accordingly to compensate. So you end up with a cash-flow break today, but you’ll have to make up for it in six months. To be clear – this is a ‘deferral’ not a ‘loan holiday’.”
Kinch’s colleague Jonathan Barlow adds, “Every lender will be different in how they manage it. Ones with deep pockets may allow for the deferral to continue until renewal, when they simply renew with the higher balance. Others may structure a repayment plan. Again, this is untrodden ground for the lenders, so they will all approach it differently.”
Calla says, “You are responsible to pay the deferral [interest] taken on the remaining payments on the term with most lenders. This is why it’s approved only for those who can’t make a payment due to not having the financial means. Everyone’s amounts per month and total interest cost will be different based on mortgage amount, rate and term remaining.”
What if my mortgage is with a monoline lender?
The Big Six Canadian banks, plus some credit unions such as Vancity, have been vocal about offering their mortgage payment deferral programs to those in need. But many Canadian homeowners have their mortgages with alternative specialist mortgage lenders, also known as monoline lenders. So are they offering the same payment deferral program?
Barlow says, “Monolines are supporting the deferral program as well, but because they are single service providers (mortgages only), their monetary base is much smaller. So they will be much more strategic about who they offer it to. They’ll certainly ask more questions, but you’ll likely get a much better plan and collaboration from them.”
As with all mortgage types, for more information about deferring payments, go to your lender’s website and talk to your mortgage broker before braving the long hold times on the customer service lines.