Nearly half a million big-bank customers in Canada are getting to defer their mortgage payments amid the coronavirus pandemic, the Canadian Bankers Association (CBA) said on Friday.
The country’s six largest lenders, taken together, have deferred more than 10 per cent of the mortgages in their portfolio so far, according to the report. RBC, TD, BMO, CIBC, Scotiabank and National Bank of Canada said on March 17 they would allow eligible customers to postpone mortgage payments for up to six months. In addition, Canadians have also been accessing pre-existing skip-a-payment options that usually allow for one payment deferral per year on certain mortgages.
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The CBA estimated the deferrals approved so far are leaving roughly $663 million per month in homeowners’ pockets, based on Canada Mortgage and Housing Corporation data indicating the average monthly mortgage payment in the country is $1,326.
Still, Canadians who receive approval for mortgage deferrals will eventually have to catch up on the postponed payments. They may also face significantly higher interest costs over the life of the mortgage.
With mortgage payment deferral programs the interest on postponed payments typically continues to accrue and is added back to the borrower’s outstanding balance. Some of the big banks have indicated this means some borrowers will face higher mortgage payments at the end of the deferrals periods. Others have said mortgage payments will stay the same until the end of the mortgage term.
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The extraordinary volume of mortgage deferrals, along with other COVID-19-related special payment arrangements on anything from credit cards to car loans, could make it hard for Canadians to dispute errors on their credit reports, Scott Terrio, a certified credit counsellor at Ontario-based Hoyes Michalos, told Global News before the CBA release on Friday.
Often, flexible payment plans come with the guarantee that lenders will not report deferrals as missed or late payments, which would negatively affect a customer’s credit rating.
Normally, if that’s the case, a lender reporting as late the deferred payment would be a mistake, according to Julie Kuzmic, director of consumer advocacy at Equifax. That’s something consumers would be able to dispute, as with any other error on their credit report, Kuzmic added.
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However, consumers who try to challenge errors may run into delays, Terrio said.
“None of the systems can cope,” he said.
The good news is that, while addressing credit report errors is important, there’s no rush to do so unless a consumer is planning to apply for a new loan or credit in the near term, Terrio said.
The financial industry, as well as federal and provincial regulators, are currently at work to come up with a system that would ensure borrowers are not penalized for taking advantage of special payment arrangements, Kuzmic said.
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For the time being, consumers’ best defence is to ensure they have a commitment in writing that lenders will not report deferred payments, said Terrio.
“Always get it in writing. Don’t go with what somebody tells you on the phone.”
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