COVID-19 & Your Mortgage: 7 Common Homeowner Questions Answered

We have been fielding numerous questions from our clients and friends about how or if they should be looking at taking advantage of government assistance for mortgage deferrals, amongst other issues surrounding the COVID-19 pandemic. Our friends at JAM Mortgages have been so kind as to shed some light on these topics for us. Read on to improve your mortgage sense during COVID-19.

Many Canadians have heard of mortgage deferrals. How do I know if I am eligible for it?

COVID-19 has caused many Canadians to face uncertainty with their employment and income, creating stress and hardship in many households. 

The good news is that along with the Federal Government, the banks, credit unions and most every mortgage lender in Canada are helping homeowners by allowing them to defer mortgage payments for up to 6 months. 

Contact your lender directly to find out their policy and to see if you qualify for it. Most lenders now have online help to easily apply for, and set your deferral in motion. Many others require a direct call. Just keep in mind that many people are contacting their lenders and so the wait times may be longer than normal. 

Are mortgage deferrals interest-free?

The short answer is no, the interest deferred related to the regular mortgage payment will also accrue interest. So this is literally “interest on the interest. It sounds horrible but really doesn’t add up to that much over 4 to 6 months. The lenders will offer options on how to get your mortgage back on track. 

Extending the amortization back out the 4 to 6 months you deferred will keep your payment approximately the same. Alternatively, you can keep the amortization the same as before and increase your payments slightly. As always, you can make a lump sum payment to knock back the extra interest costs to bring your mortgage back to pre-deferral amortization.

The lenders will each have their own solutions, so it’s best to contact your lender directly. They should be able to let you know the options when you ask about or apply for the deferral.

Should I defer my mortgage payments during COVID-19? 

It depends on your circumstances. There’s no free lunch. Even though your payments are deferred, the interest that you would’ve paid just gets added on to your mortgage so when your mortgage comes up for renewal, the amount outstanding will be higher than if you would’ve just kept making your regular payments. So if you are able to keep making your payments, then continue to do so. 

If you already have an interruption in your income (or will potentially have an interruption in your income) then contacting your lender right away is critically important. Once set up, no ill effects to your credit rating will result. You can always restart your payments whenever you’d like, depending on your future situation. 

You don’t want to just miss payments, as this will hurt your credit rating and your good standing with your lender for years to come. 

Bank of Canada (BoC) lowers interest rates. What does that mean?

In order to try and stimulate the Canadian economy during the COVID-19 pandemic, the BoC has lowered their lending rates. This in turn means that banks, credit unions and mortgage lenders have also lowered their prime lending rates. 

This is great news. For those of you who have a variable rate mortgage or a line of credit, your interest rates are now lower than they were before. You need to check your mortgage agreement to see if your payment will drop as well, or if more of your payment is now applied to the principal. If the latter, then your principal balance is reducing more quickly, saving you years off of your mortgage and creating very significant interest savings for you! 

Should you lock in your variable rate mortgage? 

In most cases, the answer is NO. You chose the variable rate mortgage for just this reason, which was to ride the BoC rates and now it’s much lower so take advantage of it! It will most likely stay low for quite some time, so enjoy the ride. 

Fixed rates in the meantime have risen so staying in your variable rate mortgage is the best (for now). 

What about fixed-rate holders? 

That is a question that only a review of your mortgage can determine, as penalties can occur to break or change a fixed-rate mortgage. Let an expert help determine your next move. 

How can I reduce my overall monthly mortgage payments? 

This is a great time to review your mortgage and overall debt. Sometimes it is possible to combine credit cards and other loan debt into a more manageable payment (not to mention reducing your total interest) by using the equity in your home. 

Talk to an expert. They can help you see the best options and possibilities during COVID-19 to make your monthly payments lower, more manageable, and to help save you from high-interest costs. 

Your expert and friend in the mortgage business, Jam Mortgages.