Is A Mortgage Deferral Right For You?

mortgage deferral

Mortgage Deferrals During COVID-19

With the recent federal business closure directives and layoffs, many people are looking for ways to adjust their budgets to decreased income the closures have caused.

The federal government CERB program and the EI coverage may help. You can check their website to see what funding will help your family in this trying time.

If, after crunching the numbers, you still come up short, what actions can help you get by until life returns to normal?

Financial consultants are suggesting, if it is possible, you should still make your payments. Use savings and available credit lines before deferring your mortgage.

Many banks are deferring credit card payments and interest on credit cards and credit lines or allowing clients just to pay interest payments. The deferred payments will still have to be paid. Be aware if you defer the interest, you might need to pay all the deferred interest with your first payment when the deferral ends.

Mortgage Deferral Considerations

Mortgage expenses

It is crucial to get all of the facts from your lender before you agree to a mortgage deferral.

If you can’t afford to pay your mortgage payment, lenders are offering people the ability to defer their mortgage payments due to the current financial conditions.

What Is A Mortgage Deferral?

The team at The Mortgage Group Calgary explains that mortgage deferrals allow you to take a break from your scheduled principal and interest payments for an agreed-upon time. The interest continues to accrue and will become part of your mortgage balance.

First Steps

If you have been affected by COVID-19 and can’t make your mortgage payments, the first step is to contact your mortgage provider to discuss options. Most institutions have an email address as well as an online deferral request, as the phone lines have been hectic.

You must take a copy of that first email contact explaining you need assistance because of the COVID-19 crisis. In the email, include the mortgage ID information and the reason you cannot pay. For example, if you were laid off from work, fell ill with the virus and are in isolation, you are looking after children, or your business was forced to close. Then if the bank does not get back immediately, you have a record to the date of your notice.

Banks and Financial Relief

financial support

Most institutions will not be reporting to the credit bureau(s) at this time and understand that this is a challenging time for their customers. They will probably waive or refund the non-sufficient funds [NSF] fee for missed or stopped payments at this time. Meanwhile they are also taking time to assist customers individually.

“Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia and three other large lenders announced plans on March 17 to provide financial relief to Canadians impacted by the economic consequences of COVID-19.  Mortgage deferrals are among the measures introduced.

Customers in good standing who have been impacted by the pandemic can apply, with deferrals available for an indefinite period and no deadline to apply,” said Mathieu Labreche, a spokesman for the Canadian Bankers Association, stated in a Bloomberg news interview.

Term Choices

So discussing the arrangements for the deferral, ask how the payments and insurance fees. Be sure to get the terms in writing.

Some choices of terms to consider are:

  • To make your monthly mortgage & interest payments on a different timeline
  • Pay just the interest & move the mortgage payment to the end of the policy. Add them to the amount of the overall mortgage and extend the mortgage term.
  • Defer both, where the payments and insurance attach to the back of the mortgage. This again increases the amount of the mortgage and interest you will pay & extends the time it takes to pay it off.
  • Some banks will average the deferred interest increases into the mortgage payments over the term of the mortgage when the deferral ends.

Case By Case

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Rules for each bank are changing as the crisis lingers. Most mortgage companies are offering deferrals based on a case by case basis.

Labreche said that banks have processed over 213,000 requests in the last week, so they are moving quickly through applications. Still, you may need patience and persistence with the process.

There is stress on both sides of the phone line, so ask what suggestions they have to help your situation, or schedule a phone appointment to discuss your options. Sometimes it is frustrating because the agents are unaware of new developments offered by the bank. Some banks will refuse a deferral due to delinquent payments in the past and others are asking for a full credit check.

Monitor Your Credit Rating

credit report

Your credit rating might be affected, so it is good to check to see if it has gone down. Credit rating notices are a computerized process. A deferral might automatically flag your credit rating. Equifax wrote about the impact on credit ratings and the COV19 crisis. If your score goes down, the credit bureaus suggest that it is due to COV19. It will help you in future banking/lending discussions.

Working Together

teamwork financial support

It is important to note that everyone is struggling with recent events. Still, Canadians are good at supporting one another in crisis. Seek out the community and charitable resources in this time of need if you need them. Keep in contact with friends and family.

Alberta Health Services has phone resources and online material on its website for non-financial issues.

Talking to a money manager might give you other financial survival information. The Credit Counselling Society offers some excellent emergency budget management tips and online workshops.

The Mortgage Group Calgary team is an essential service and are adhering to social distancing requirements for the protection of their clients and staff. We cannot work directly with the bank on your mortgage deferral process. However, our brokers can help you if you are considering remortgaging or refinancing your mortgage. Give us a call at 403 571-8142 or email us at [email protected] to arrange a phone consultation.

The Difference Between Mortgage Specialists

Mortgage broker

Navigating how to apply for a home or commercial mortgage can be confusing and overwhelming. It’s why you need useful information to pick a trustworthy person to lead you through the process of acquiring your financing.

When you buy a home, you have the choice of applying for a mortgage through a Canadian banking institution or mortgage broker. But what is the difference between the two?

Bank Mortgage Manager

The bank mortgage manager works for the bank. Given they are a bank employee, they will be representing the bank’s interests first when extending you a mortgage contract. They may require you to be a customer of their bank. The bank’s mortgage manager only accesses products and mortgage funds available from that bank for your mortgage application. They can offer a range of interest rates and terms under the parameters dictated by the bank. 

Having a mortgage with a regular banking institution may make it easier to refinance to one of their products or change terms of the loan in the future. The bank’s rates and penalties for a bank mortgage may be higher than other lenders. Bank mortgage managers may deny residential and commercial mortgages if the applicant doesn’t meet criteria under their lending terms. For example, bad credit scores or unusual payment arrangements.

Various banks have different terms and interest rates. So, it is up to the customers applying for mortgages to get information to make an informed decision. 

Your bank mortgage manager will rarely refer you to another lender unless you don’t meet any of their conditions.

The majority of Canadians are still using banks as their primary mortgage lenders. The reason may be that they have already established a working relationship with their bank. Sometimes the process can be smoother, as the bank has access to all the financial data for the applicant.

Some people who have built a relationship with their bank may opt to go that route. They feel confident because the main banks have a long-standing history of lending, backed by government assurances.

Mortgage broker

A mortgage broker is a licensed professional who works with many banks and other lenders to obtain the best mortgage for you. They can get you into a mortgage agreement with a bank, but also have other lending options available. Because of the options to choose from, they may get you approved even if other lenders deny you. 

Mortgage brokers usually take a 1 or 2% commission on the mortgage from the lender on finalized contracts. This payment generally comes from the lender and is not an out of pocket fee for an applicant. If fees in the contract are too pricey, terms can often be negotiated to lower them. 

The mortgage broker’s search scope includes a wide range of financial institutions and lenders, like credit unions and independent lenders. They collect information from you and try to find the lender that best fits your mortgage needs and terms.

Looking outside the traditional lenders can be very helpful to people with poor credit, or other reasons banks declined their application. Mortgage brokers do the legwork of sifting through various lenders’ terms and interest rates and present options to you. 

They may include established banks in the line-up of lender choices. A mortgage broker will go over all the information so that you can make an informed choice. Often a broker will work flexible hours and adjust schedules after banking hours to meet client needs. 

They will negotiate the terms of your final choice with the lender, possibly saving you money. A mortgage broker’s expertise in the field helps them help you with terminology and negotiating tactics. 

Be aware that the final mortgage contract is just between you and the lender.

Helpful resources

As with all legal documents, clients should read the final negotiated contracts carefully before they sign.

Anyone dealing with mortgages, whether it is your bank or mortgage broker, has to be licensed with the Real Estate Council of Alberta. It is important to check into this before you retain their services. Some fraudulent mortgages have left people with a severe financial loss. Financial lenders are also regulated and monitored by the federal government. 

The Alberta government licenses financial lenders and a list of licensed lenders can be obtained at your local registry office, or checked on the Alberta government website.

 

If you would like a free consultation with a Calgary mortgage broker, our licensed and professional staff at The Mortgage Group will be happy to answer any questions.