With Covid-19 induced lockdowns, people’s work hours were cut back and many individuals were laid off as businesses tried to make ends meet or had to close altogether. With these challenges came money problems, and with money problems came struggles to make mortgage payments on time. So, when the government encouraged brokers and banks to allow people to defer their mortgage payments, it seemed like a welcome relief.
A mortgage deferral is an agreement between you and the institution that holds your mortgage that allows you to delay paying your set fees for a specified period of time.[1] When it ends, you continue paying your mortgage off, in addition to the interest that has accumulated from the passing time.[2] Deferrals such as these help people avoid defaulting on their loans and protect against demerits on your credit score from missing a payment.[3] As of September, more than 750,000 loans had been deferred.[4]
The announcement came as a huge relief to many, but as people scrambled to try to obtain a deferral, many challenges were faced. When the announcement was first made, the logistics hadn’t been finalized. Questions involving who qualifies, how to apply, what documentation is needed, etc. were all questions the banks didn’t have the answers to.[5] Back in March 2020, people were reporting that they were facing delays on the deferrals, as well as confusion and outright denial was being exhibited by the big banks. Some people were even being turned down for having mortgages that were deemed to be too new to defer.[6] With credit checks required and undetermined timelines, the barriers to this relief were quite taxing on the people already feeling stressed and isolated from the pandemic.[7]
Eventually, these questions were answered, and the process now runs much smoother. In December, the Canadian Bankers Association said that around 90% of people applying for deferrals were getting them.[8] But now a new problem is arising. Though we are back in lockdowns for non-essential work and COVID cases are higher than ever, many of the deferrals are reaching or have reached the end of their 6-month period.[9]
There has yet to be a clear statement about what will be done as we head into another lockdown in Ontario. The main recommendation right now appears to be that, if you are still in financial trouble, you should contact your provider and request an extension. If that is not possible, it is also suggested that you potentially discuss refinancing your payments.[10]
Another pressing issue that has come to light is that, unfortunately, when people accepted the deferrals as the solution they needed, they didn’t know exactly what they were getting into. Not everyone is literate, let alone financially and legally literate. So as these deferrals came to a close, some people were shocked to find out that there was interest charged for the missed time. Others are finding out that one of the terms of their agreement was that the interest was being added to the principal sum so that a higher interest could be charged moving forward.[11]
The government has released a more comprehensive version of what can be expected from deferrals, which can be found at https://www.canada.ca/en/financial-consumer-agency/services/mortgages/mortgage-deferrals.html. However, they are only able to list possibilities; if you are having a hard time understanding the agreement that your bank/broker gave you, the best thing to do is to call your institution and have them explain the terms of your specific agreement to you.
As the government noted, it is up to your financial institution to determine how exactly they would like the deferred payment to be paid. There are three main ways that this is happening: “extending the mortgage amortization period, adding the deferred payments to your mortgage balance at the end of your term, [or] increasing your regular payment amount after the deferral period is over.”[12] Though each of these options can be problematic to certain people, it seems to be a relief that none of these main options are lump-sum payments, as was a concern when the deferrals were first announced.[13]
Though the deferrals were a blessing as they kept many people in their homes for the past six-months, they seem to have been a short-term solution to a larger problem. Going into the new year, our economy is not yet recovered and now people are being faced with trying to figure out how they will pay larger mortgage payments moving forward. Though it was a solution for some people, it was a solution that could cost them thousands of extra dollars over their lifetime.[9]
References
[1] Government of Canada. [2020, September 25]. Mortgage deferrals. Retrieved from https://www.canada.ca/en/financial-consumer-agency/services/mortgages/mortgage-deferrals.html
[2] Canada Mortgage and Housing Corporation. [2020, March 24]. COVID-19: Understanding Mortgage Payment Deferral. Retrieved from https://www.cmhc-schl.gc.ca/en/finance-and-investing/mortgage-loan-insurance/the-resource/covid19-understanding-mortgage-payment-deferral
[3]Caitlin Wood. [n.d.]. Can You Get a Mortgage Deferral Because of COVID-19? Retrieved from https://loanscanada.ca/mortgage/can-you-get-a-mortgage-deferral-because-of-covid-19/
[4] Pete Evans. [2020, September 10]. Canadians have deferred $1B a month worth of mortgage payments since pandemic began. Retrieved from https://www.cbc.ca/news/business/covid-mortgages-cmhc-1.5718894
[5] Aaron Saltzman. [2020, March 20]. Frustrated Canadians looking for mortgage deferrals from big banks facing delays, denials. Retrieved from https://www.cbc.ca/news/business/banks-rbc-bmo-td-mortgage-credit-coronavirus-covid19-1.5503478
[6] Ibid.
[7] Ibid.
[8] Canadian Bankers Association. [2020, December 23]. Focus: Fast facts on bank measures in response to the COVID-19 pandemic. Retrieved from https://cba.ca/fast-facts-on-bank-measures-in-response-to-the-covid-19-pandemic
[9] Courtney Reilly-Larke. [2020, September 22]. Your mortgage payment deferral is over. Now what? Retrieved from https://www.moneysense.ca/spend/real-estate/covid-mortgage-deferral-deadline/
[10] Ibid.
[11] CBC News: The National. [2020, April 10]. Canadians taking mortgage deferrals charged interest on interest. Retrieved from https://www.youtube.com/watch?v=TPiF6HUxUd0
[12] https://www.canada.ca/en/financial-consumer-agency/services/mortgages/mortgage-deferrals.html
[13] Douglas Hoyes. [n.d.]. What To Do if You Can’t Pay Deferred Mortgage Payments. Retrieved from https://www.hoyes.com/blog/what-to-do-if-you-cant-pay-deferred-mortgage-payments/
Author: Samantha Burton
