Update: BMO, CIBC, National Bank of Canada, RBC, Scotiabank and TD Bank said late on March 17 they are allowing mortgage payment deferrals for up to six months as part of extraordinary measures to help borrowers struggling with the financial impact of the COVID-19 health emergency.
The coronavirus pandemic is causing workers across Canada to fret for their incomes. Whether you’re worried about the security of your office job, seeing reduced hours or expecting less income from your business or freelancing, the possibility of not being able to make the bills may have crossed your mind.
And of all bills, mortgage payments are the ones people are usually most worried about, according to Rob McLister, a Toronto-based mortgage broker and founder of rates-comparisons site RateSpy.com.
Many also resort to cash advances on their credit cards to keep paying their mortgage lender, he added.
Another very common and much less costly way to paper over temporary dips in income is to draw from a line of credit, if you already have one set up.
Lines of credit typically come with interest rates that, while higher than mortgage rates, are much lower than credit card rates. They also have flexible repayment terms.
That’s become especially popular with readvanceable mortgages that combine a mortgage and home-equity line of credit (HELOC), says McLister. With these types of loans, the amount you can borrow on the HELOC increases as you make mortgage payments.
Relying on HELOCs can lead to over-borrowing, and many borrowers don’t realize that, although this rarely happens, lenders can increase the interest rates or lower the borrowing limits on existing HELOCs or require them to repay their outstanding balance at any time, Canada’s federal financial consumer watchdog has warned.
Still, during a temporary cash crunch, HELOCs can come in handy, McLister said.
Other options
If you’re running out of options, you should call your bank or mortgage broker, McLister said.
Lenders are loath to foreclose properties and will usually work with the borrower to find a solution that will keep them in their homes, he added. However, it’s important to reach out well before you’re at the point where you’ll have to miss a payment.
“The earlier you call, the more willing the lender will be to work with you.”
Insured mortgages
For insured mortgages, there are a variety of tools that can help borrowers stave off default.
Possible solutions include allowing borrowers to defer or temporarily reduce payments, stretching out the mortgage term or amortization period, adding missed payments back onto the mortgages and lowering the mortgage rate.
Canada’s three providers of mortgage default insurance, the government’s Canada Mortgage and Housing Corporation (CMHC), as well as Genworth Canada and Canada Guaranty, which are private, all offer programs that help lenders work with struggling borrowers.
And all three insurers are stepping up efforts to help struggling homeowners amid the coronavirus emergency.
“The message that CMHC is putting out is just that no Canadian should default as a result of this health crisis,” said James Laird, president of CanWise Financial, an independent mortgage brokerage, and co-founder of Ratehub.ca.
Canada Guaranty announced on its website it’s ready to extend its Homeownership Solutions Program to allow the deferral of up to six monthly payments, up from a current limit of four payments.
Still, borrowers should understand there’s no skipping payments, McLister warned. Lenders typically add deferred payments back to the mortgage.
Similarly, with Genworth’s Partial Payment plans, lenders add the arrears to the total mortgage or to future payments once the borrower is able to return to regular payments, Jim Spitali, senior vice president of operations, told Global News via email.
In Canada, homebuyers with a down payment of less than 20 per cent must have mortgage default insurance.
Uninsured mortgages
There are options there, too, said McLister.
Many lenders offer mortgages with a skip-a-payment option, which generally allows borrowers to avoid making one or more regular payments per year without affecting their credit rating. (Here too, though, borrowers will eventually have to pay “skipped” payments.)
Flexible payment options may be special features attached to specific kinds of mortgages or standard offerings available on all mortgages, depending on the lender, McLister said.
Many major lenders, including BMO, RBC, Scotiabank, TD and Desjardins, advertise skip-a-payment options on their websites.
CMHC also recently said it’s considering “potential relief measures” for Canadians who can’t make payments on uninsured mortgages.