Should you Defer your Mortgage Payments?

Relief Programs Being Offered By the Government for Support

In light of all the economic disruption we have seen related to the Covid-19 outbreak there have been a number of relief programs offered by the government to help support families, businesses and local governments. We will be releasing a guide in the next week on these programs as more details become available on how to access them but in the meantime one of the non-government government programs being offered by most major banks in Canada is catching many people's eye.

On March 17th the big 5 banks all announced that they would offer mortgage deferral options for borrowers who are in good standing with their payments but have been affected by the pandemic. From a high level, each of there programs are very similar and offer the following benefits:

Defer your mortgage payments for up to 6 months

No principal payments will be made during the deferral and interest that would have been paid will be added to your outstanding mortgage balance

Once payments restart your payments will remain the same until the end of your term at which point there will be reset based on your outstanding mortgage at the time

Overall, this seems like a good deal but is there a catch that people need to be aware of? As with most things financial, the devil is in the details. The first thing you need to be aware of is that you are going to be pay interest on top of the interest being deferred and so your costs on your mortgage are increasing. As mentioned above, any interest that would have been paid during your deferral is simply added to your outstanding mortgage balance on which interest is charged. Depending on your individual situation this will certainly mean that your costs of buying your home will increase and it also could increase the amount of time that it takes for you to pay off your mortgage.[1]

Another consideration is your credit rating. Now full disclosure on this is that it is not any of the lending institutions intentions to have a deferral impact your credit rating in any way but there may be some hiccups in the plan. First of all, the credit agencies receive payment information from the individual lenders and so it is on the lender to report whether or not a payment has been missed. Many of these systems are automated within the lending institutions and so it will be up to the lending institution to take action and make a report to the credit agency. If this isn't done, then your credit score will be negatively affected and will have to be cleaned up.

Importance of Paying Attention to Detail

Given the volume of calls that the lenders have received over the last couple of weeks there is a high likelihood that mistakes will be made and so it's important that you pay attention to these things if you are seeking a deferral. Also, don't assume that you will qualify for a deferral and stop making your payments. If you stop your payments before you have an agreement with your lender then this will certainly be reported to the credit agencies and they likely will not be lenient in removing it.

On average, one late payment can drop your credit score by 20-40 points and a lower credit score could impact your ability to borrow in the future at favorable rates.[2]

Is the Deferral of Payments Worth it?

This of course needs to be taken on a case by case basis but for those families (and there are many of them) who could really use a helping hand then this program is absolutely worth the potential costs. Overall these programs are fairly well thought out and will benefit not just the individual families in need but the banks and our overall economy as well.

Additionally, if your family does feel like you need this helping hand then I want to assure you that you are not alone in this and you should not feel any shame about taking the deal being offered. There are quite literally hundreds of thousands of Canadians who will take part in these programs and this is simply a statement of the times we are in, not your financial responsibility level. I have included contact information below for most of Canadian lenders in case you want to reach out to your lender.

Let's Celebrate the Amazing Stories

On a final note, I know there are a lot of heartbreaking stories out there right now but there are also some amazing stories of people and companies stepping up for our community and I want to make sure we are celebrating those as well. Just recently I read about a couple of local distilleries and a brewery here in Manitoba who have shifted their operations to make hand sanitizer which is in shortage. Patent 5 distillery, Capital K Distillery and Farmery Brewery have all answered the call and are doing what they can to help people on the front lines and families at home. I for one will be thanking these companies with my support in the future.

I know they are not alone and there are many other great stories going on as well. If you know any companies or individuals who are also answering the call then please let me know. I would like to share their stories and do what we can to support them and also anyone else who might be in need. We are quite literally all in this together! Stay healthy, stay strong and stay connected!

- Grant White, CIM, CFP

Grant White is a Portfolio Manager/Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Grant White who is a Portfolio Manager for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.

Here are the contact numbers for Canadian lenders:

ATB 1-800-332-8383B2B 1 800 263 8349

BMO 1-877-895-3278

Bridgewater 1-866-243-4301

CIBC 1-800-465-2422

CMLS 1-888-995-2657

Optimum 1-866-441-3775

Equitable 1-888-334-3313

Connect First 403-736-4000

Chinook Financial 403-934-3358

First Calgary Financial 403-736-4000

First National 1-888-488-0794

Haventree 1-855-272-0051

Home Trust 1-855-270-3630

HSBC 1-888-310-4722

ICICI 1-888-424-2422

Manulife 1-877-765-2265

MCAP 1-800-265-2624

Merix 1-877-637-4911

Marathon 1-855-503-6060

National Bank 1-888-835-6281

RBC 1-866-809-5800

RFA 1-877-416-7873

RMG 1-866-809-5800

Scotia 1-800-472-6842

Servus 1-877-378-8728

Street Capital 1-866-683-8090

TD 1-866-222-3456

[1]https://www.bnnbloomberg.ca/canada-s-big-banks-field-213-000-requests-for-mortgage-deferrals-1.1412754

[2]https://www.canadianmortgagetrends.com/2020/03/deferred-mortgage-payments-credit-score-gamble/