The COVID-19 pandemic has caused financial stress for many Canadians. Job loss or reduction of income has made it difficult for people to meet their debt obligations—especially mortgage payments. Canadian banks have responded to the issue by offering mortgage payment deferrals. Before you rush to complete your application, make yourself aware of the facts and alternatives.
What is a Mortgage Payment Deferral?
A mortgage payment deferral allows you to skip your mortgage debt obligations. You can skip payments for a specified period. Keep in mind that mortgage payments don’t go away, but you defer them for a while.
The Cost of Mortgage Payment Deferrals
Many people are experiencing a reduction or loss of income due to the COVID-19 pandemic. One financial relief option is mortgage payment deferrals. However, this option is not free. Mortgage payment deferrals will alleviate your debt obligations in the short term. But in the long run, you could owe more, due to two factors.
The first factor is interest is still accruing on your mortgage. This means you will need to pay interest on deferred payments. Because mortgage payments are so large, this could cost you a lot of money.
The second factor is future payments will increase. If you defer a payment, you’ll need to pay the remainder of your mortgage within the same time frame. This means your payments will increase. You could extend your amortization period. However, this might involve refinancing.
The cost of mortgage payment deferrals is cumbersome. However, you may have to make a sacrifice for your finances. Consider your financial position before applying. Your bank will recalculate your mortgage payment amount after your payment deferrals.
Prime Rate Cuts
The Bank of Canada announced a decrease to the overnight rate of 0.5% on March 27th. In conjunction with two other rate cuts in March, the overnight rate is currently 0.25%. The big Canadian banks have passed these interest rate cuts through in full. They have done so by dropping their prime rates for the most part. As of April 7th, prime rates are sitting at 2.45%.
The Big Canadian Bank Mortgage Payment Deferrals
The big Canadian banks have implemented mortgage payment deferrals to assist their customers. If your bank isn’t listed below, don’t worry. Visit your bank’s website to determine what financial relief is available. Alternatively, you can call, email, or chat online with your bank.
Royal Bank of Canada (RBC)
You can apply for a mortgage payment deferral with RBC through their online banking tool. Simply select your mortgage account and click “skip a payment.” RBC has not provided any criteria for qualification at the moment.
Toronto-Dominion Bank (TD)
TD is allowing its customers to defer mortgage payments for up to six months. You can apply for a mortgage payment deferral by logging into EasyWeb. You can also use a calculator tool, determines how much your mortgage payment deferral will cost you. TD hasn’t offered criteria for eligibility for mortgage payment deferrals.
Bank of Montreal (BMO)
BMO is offering up to six months in mortgage payment deferrals. You can apply by sending a request through BMO Online Banking. At the moment, BMO does not have criteria for mortgage payment deferral eligibility.
Bank of Nova Scotia (Scotiabank)
Scotiabank is allowing mortgage payment deferrals for up to six months. You can apply for a mortgage payment deferral online with Scotiabank. Below is the criteria to qualify for mortgage payment deferral:
- Mortgages that are in default may not be eligible for mortgage payment deferrals.
- You can apply for relief for your principal residence and up to three other mortgages.
- You, or anyone else in your family, have experienced loss or reduction in income due to COVID-19.
National Bank of Canada (NBC)
You can apply for a mortgage deferral with NBC for up to three months. You can apply online with NBC. If you need a deferral of longer than three months, you can contact NBC at 1-888-286-8799. NBC has not provided criteria for eligibility. However, you will not be eligible under these circumstances:
- You’re applying for a payment deferral on your first or last mortgage payment.
- Your mortgage and All-in-One line of credit linked together. However, you can use your line of credit to meet mortgage obligations.
- A progressive disbursement loan.
- A mortgage where the balance and deferred interest exceed the original loan amount.
Canadian Imperial Bank of Commerce (CIBC)
CIBC is offering mortgage payment deferrals for up to six months. CIBC has not provided eligibility criteria at the moment. You can apply for mortgage payment deferrals online with CIBC.
Mortgage Payment Deferrals Alternatives
Mortgage payments are usually the most significant expense for people incur every month. If you don’t want to bear the cost of mortgage payment deferrals, you can use financing instead. A personal line of credit or home equity line of credit is a great alternative. Lines of credit tend to have flexible repayment terms and low-interest rates.
Another alternative is financial support from the government, namely the Canada Emergency Response Benefits (CERB). These benefits provide you $2,000 per month if you qualify. The additional support options are on the Canada Economic Response Plan. Apply if you think you are eligible.
Research other financing options that could alleviate your debt obligations as well. You can speak with your bank advisor or a Consolidated Credit specialist. These parties will help you discover more alternatives to mortgage payment deferrals, particularly if you want to avoid the cost.
We’re Here to Help
The solution to your short term financial issues could be simple. It may be as simple as creating a budget or discussing strategies with a professional. If you’re feeling overwhelmed by the changes resulting from COVID-19, we are here to help. Reach out for a consultation today!