The COVID-19 pandemic, with all the uncertainty surrounding it, is a cause for concern for a number of reasons. If you have had to go into self-isolation and as a result lost hours at work, you may be worried about how you are going to be able to make your mortgage payments.
The Role Of The Government
The Federal Government will support Canadians through the COVID-19 crisis by protecting jobs, but unlike Italy, it has yet to freeze mortgage payments.
Instead, the government has taken measures to make it easier for Canadians to work with their mortgage lenders. This includes a move to free up options for banks. While Canadians already have a wide range of options for managing their mortgage through times of hardship available to them, these measures will help make it even easier for Canadians to get through this difficult time.
The Role Of The Mortgage Industry
On March 18, 2020, six of Canada’s largest banks announced that they would allow mortgage payment deferrals of up to six months. These banks included RBC, TD, BMO, Scotiabank, CIBC, and National Bank.
In addition to this, all of Canada’s big banks matched the emergency rate cut from the Bank of Canada, by dropping prime rates by 0.50%.
What To Do If You Think You May Miss A Mortgage Payment?
If you think you will be unable to make an upcoming mortgage payment, the first thing to do is to reach out to your lender BEFORE you miss the payment. Your mortgage lender will discuss your options and come up with a plan that works for your financial situation.
What Else Can You Do?
If COVID-19 has you concerned you will not be able to make your next mortgage payment, there may be other features of your mortgage that can help. Here are some options that could be available to you:
1. Built-In Mortgage Features
If you find yourself in financial hardship, many mortgage lenders have a term that will allow you to skip or “defer” a payment. The terms will be different from bank to bank, but the general provision is that as long as you have a history of making your mortgage payments on time and do not use this feature more than once a year, for up to one month, you could be approved to defer payments.
However, there are some disadvantages to this option. First, your mortgage will continue to accumulate interest and you will end up making the original payment, plus extra interest, over the remainder of your mortgage.
Secondly, If you choose to defer a mortgage payment, you will also continue to be responsible for your property tax and other requirements mandated by your lender, like maintaining home insurance and keeping the property in good repair.
All of the Big Five Banks have mortgage products that allow you to skip a payment, and some monoline lenders do too. However, not all their products allow you to defer a payment. It would be wise to check in with your mortgage broker or your lender for more information on payment deferral options.
2. Home Equity Line Of Credit or HELOC
A HELOC is a revolving line of credit that allows you to take out money secured by your home with interest and repayment terms.
Presently, the best HELOC rate in Canada is prime minus 0.50%. Since rates started rising in 2017, the Prime Rate is at its lowest point. Additionally, HELOCs also have repayment terms that are flexible and usually only require you to pay the interest you accumulate each month.
If you already have a HELOC, you can withdraw money to make your mortgage payments while you are not receiving income. As long as you make your minimum payments, and have the ability to repay your HELOC in the future, it’s a good short-term option to keep everything on track.
If you do not already have a HELOC, this may not be the best option in an emergency. Just like a mortgage, applying for a HELOC takes time and requires a detailed application process. You will also have to use a real estate lawyer, which can cost a minimum of $1,000. Also, It can take six weeks or more to complete the process and get your money.
3. Negotiate a solution With Your Lender
Mortgage lenders are reasonable people who would prefer to help you keep your home and avoid default if possible. If COVID-19 has left you in financial hardship, call your mortgage broker or lender and ask about alternative options.
Here are two creative solution options:
- Deferring payments: You may be allowed to get an extended period of time to defer payments. CMHC-insured mortgages may defer mortgage payments for up to six months if you have been affected by COVID-19. Mortgages not insured by CMHC could also be eligible for longer-term deferrals but that would be up to the individual lender to determine.
- Extending amortization: You can reduce the monthly payments by increasing the length of time over which the remainder of your mortgage is paid off. This option may be especially attractive if your mortgage is mostly paid off and you only have a few years left.
Dominion Lending Centres NasaKasa
At Dominion Lending Centres NasaKasa we are here to help you if you have been affected by COVID-19. We will help you to understand exactly what your options are and will walk you through it every step of the way.
Let us work for you by calling 905.997.7001 or emailing us firstname.lastname@example.org now. You can also visit the Dominion Lending Centre’s COVID-19 web page to stay updated with the latest information on mortgage financing