Know Your Mortgage Options during COVID-19

January 11, 2021

COVID-19 has caused uncertainty in all our lives. Loss of hours at work due to self-isolation or illness, getting laid off from jobs, or child-care responsibilities may make you worry about how will you be able to pay your next mortgage.

Be it the government, various financial institutions, or other alternatives available to you, there are multiple doors that can help you sail through against your monthly mortgage payments.

  • How Your Government is Helping?

    Earlier, Federal Government pledged to support Canadians through this pandemic in an indirect way. The government did not take any direct action to freeze mortgage payments, instead took steps that helped Canadians – by purchasing up to $50-billion in insured mortgage debt. This behind the scene step by the Federal Government made It easier for Canadians to work with Mortgage lenders. Additionally, the government also rolled out income replacement measures for both employers and individuals. For individuals, schemes like CERB (Canada Emergency Relief Benefit) were launched which aimed at replacing some income for people who suffered financially during the pandemic. For Employers and companies, the federal government offered wage subsidies to companies that saw a considerable drop in revenue due to COVID-19.

  • What's happening with the Mortgage Industry?

    Alongside government, banks and financial institutions are also doing their bit in helping Canadians. During March, the Bank of Canada announced a series of rate cuts eventually getting the rate down to as low as 0.25%. It all started with March 4th rate cut, followed by respective cuts on March 14th and on March 27th. On Wednesday the 18th of March, six top Canadian banks announced that they would be allowing mortgage payment deferrals up to six months. These included RBC, TD, BMO, Scotiabank, CIBC, and National Bank. As of 30th June, CBA member banks have helped in mortgage deferrals to more than 760,000 Canadians.

  • What other options do you have?

    Apart from help from your Federal government and Financial Intuitions, Canadians still have few other options which can be availed:

    1. Built-In Mortgage Features

    Many mortgage lenders offer a feature that offers you to defer or skip a financial payment, when you are in a financial crisis. However, the terms vary from one financial institution to another, but as long as you have a good history of making your payments in time, you should be approved to defer payments for up to a month. The disadvantage to this option is that your mortgage will continue to accrue interest and eventually you would end up paying your principal amount and extra interest. Do remember, if you chose to defer your mortgage payment, you will still be responsible for your other obligations like property tax, maintaining adequate home insurance, and keeping the property in good repair. Check with your mortgage broker or contact us to know your options for deferral payment.

    1. Access your funds with HELOC

    HELOC (Home Equity Line of Credit) is an inexpensive and convenient way to get access to funds. Mostly, if you have more than 20% equity in your home, you should qualify for a HELOC. You should shop around with a number of lenders to get the best HELOC rates in Canada. The advantage of this option is - flexible repayment terms and typically require you to pay only the interest you accrue each month. If you have a HELOC account setup, you can simply withdraw money to make your mortgage payment, however, if you do not have a HELOC account – this would not be your best option during an emergency.

    1. Working on a solution with your Mortgage Lender

    One financial circumstance differs from another. If you’ve had good credit and haven’t had issues in making mortgage payments in the past, you are more likely to work out a deal with a Mortgage Lender. Some out of the box solutions that may work out for you are:

    • Defer Payments: You may be allowed to defer payments for a longer period of time if you have made prepayments in the past.
    • Extend your amortization: Increasing the length of time over which the remaining mortgage is paid off, you can reduce your monthly mortgage expenses. This is effective when you have just a few years of mortgage payments remaining.
    • Last of your options:

    If none of the above-mentioned options works for you, and you are still unable to make your payments, you still have the following alternatives to defaulting:

    • Your rights with your employer: Know your rights with your Employer, as many provinces have introduced laws that protect your job during COVID-19. These legislations prevent employers from dismissing you if you had to be home to take care of kids or be in self-isolation.
    • Selling your home: No one would want to take up this option but if it comes to this, selling your home could free up enough cash to pay off your mortgage and get your financial plan back on track
    • Consumer Proposal: Working with a licensed insolvency trustee, you might be able to get a good deal with your creditors that may allow you to keep your home, car, and other assets
    • Real Estate Lawyer: Consulting a lawyer may help you understand your options, negotiate with the lender and ensure that you are treated fairly in the situation

During these pressing times, the threat of losing your home is scary, however using your mortgage’s skip-a-payment option, or borrowing money from HELOC, or negotiating with your lender directly, you may be able to keep your mortgage up-to-date even if your income is temporarily interrupted.