This has been a trying time both emotionally and financially for many people who may have seen their income reduced or eliminated entirely as a result of the COVID 19 pandemic. Mortgages are often the largest bill you have to pay each month, and therefore can be particularly worrisome. Most mortgage lenders are on board with offering “assistance” to those who need it, but should you take it? What if your mortgage is coming up for renewal. Do you have a reason to worry? In this blog, we will cover only the basics of mortgages in the COVID 19 world and the various options to consider including mortgage deferral. Call us if you have any questions or concerns about new or existing mortgages.
Mortgage Payment Deferral
In March 2020, mortgage lenders and banks began to allow borrowers to defer their mortgage payments for up to six months. It happened at a time when a lot of people were facing job uncertainty and much of the financial relief coming from the government to help businesses keep their employees was not yet in place. What was missing in the bank’s announcement was that mortgage deferral would come with an additional cost. Many homeowners were surprised to learn that while they were receiving relief from their payment, interest continued to incur which lengthens the total amortization of the mortgage and also increases the total cost of borrowing. Ultimately, the mortgage deferral option is helping many Canadians who are out of work, but because of the significantly increased cost to the borrower, we recommend it only be utilized as a last resort. Before making a decision it is important to discuss your options with your trusted mortgage broker.
Pausing Accelerated Payments
One option to consider may be to simply adjust your mortgage payment frequency and type to make it more manageable. Making accelerated bi-weekly or weekly mortgage payments help you pay down your mortgage principal faster and this can be a great option for people that are paid regularly, bi-weekly or weekly, by their employer. However, if you are out of work or self-employed, changing your payment frequency for even a short time to ‘regular monthly’ may help by slightly lowering your monthly mortgage cost and improving cashflow.
Property Tax Relief
Many municipalities are allowing interest-free deferred property tax payments. This can save hundreds of dollars per month and help with cash flow for the short term. While you will eventually need to pay your property taxes back up to date and may incur additional interest costs, the costs will be significantly lower than deferring your mortgage payment. For example, the interest on annual property tax of $3000, $5000, even $10,000 a year will be significantly lower than the interest you’ll incur by deferring your payment on a mortgage balance of $300,000, $500,000, or even $1,000,000.
Lower Interest Rates
Borrowers with variable interest rate mortgages will benefit from reduced interest rates, in most cases, causing their mortgage payments to drop. The Bank of Canada quickly cut the prime interest rate by a total of 1.5% as the economy began shutting down. That meant that by the beginning of April, many borrowers had seen a similar drop in their interest rates, translating to lower mortgage payments. Also, fixed rates have decreased significantly over the past six months so we recommend looking into switching your mortgage to get the lowest rate possible and help with lowering mortgage costs. Contact us today to see if this is possible.
Refinancing, Re-amortizing, or adding a Secured Line of Credit
While considering all of your options it may be the best decision to refinance, re-amortize, or add a secured line of credit to your mortgage. To do this, you need to “income qualify” however it’s worth having a discussion with your broker about the pros and cons of these options before making a decision.
Renewing a mortgage requires a much less rigorous approval process than applying for a new one. If your mortgage is up for renewal and you are currently unemployed you still should have nothing to worry about (as long as you are in good standing with your lender). Changes to employment status happen all the time and people don’t lose their homes over it. The downside of having to renew with your existing lender is that you do not get to shop around for the best mortgage rate or term available.
Get in touch with HW Advantage if you are concerned about your ability to make your mortgage payments or to qualify for a mortgage renewal. You may have more options than you know about, and we are here to help by phone or virtual appointment.