Super Simplified: Mortgage Deferrals
Hello RFD,
I've had a handful of friends and family ask me to simplify mortgage deferrals for them.
I've wrote a super simplified article for them, and I hope it could be of help to some of you. I am including it below.
The best way to think about a deferral is to think of it as an IOU (I OWE YOU).
For example, if I know my mortgage payment of $1,850 is coming up on Tuesday, and I’m unable to pay, I know I will have to pay it in the future (as an IOU).
A key fact to remember is that prior to this pandemic, 80% of the major lenders in Canada, would let you defer one payment per year without any questions asked, at any time for any reason. They are still allowing this during the pandemic.
It’s a simple process of logging online to your mortgage account and clicking one of the below options.
They go by different names at different banks, but they pretty much mean the same thing:
Skip-A-Payment (RBC)
Payment Pause (TD)
Take A Break (BMO)
Miss A Payment (Scotiabank)
I am including a screenshot of my personal mortgage account with RBC for one of my rental properties.
I can click 3 buttons and skip a mortgage payment. ($$$ amounts changed for privacy)
1) BANKS PERSPECTIVE
Banks allow deferrals, because they want to be competitive with other banks. Banks want to keep the homeowners happy and stress free during hard times. The banks will also make more money in the long run.
When you skip (defer) a mortgage payment, you still eventually owe the bank the payment that you skipped.
To clarify, the interest portion of the payments that you skip, gets added on to your remaining principal balance. You will owe this amount eventually, and in most cases it will be AT THE END OF YOUR AMORTIZATION PERIOD. Not at the end of your current term.
Definition – Amortization Period: How many years it would take you to pay off your mortgage completely, if the interest rate, payment amount, and payment frequency stayed the exact same throughout this period.
For example, if you have a remaining principal balance (mortgage) of $400,000 and you skip one monthly payment of $1,850, which was made up of:
a) Interest portion payment of $930
b) Principal portion payment of $920
After the mortgage deferral of one month, your new remaining principal balance (mortgage) will be $400,930. (Only the interest portion will be added to your remaining principal balance)
During this pandemic, if you can verify that you have lost all sources of income, and you don’t have any savings, major Canadian lenders are allowing you to defer up to 6 months of payments. Let’s look at the example again, as if you would defer 6 months of payments instead of 1.
You would skip (defer) 6 monthly payments totalling $11,100. ($1,850 per month)
a) Interest portion payment of: $5,580
b) Principal portion payment of $5,520
Your new remaining principal balance (mortgage), after 6 months of mortgage deferrals would be $405,580. (To reiterate, only the interest portion gets added to your remaining principal balance)
2) BORROWERS PERSPECTIVE
As you’ve read in the example above, it’s completely fine to skip a single payment. You’re really only deferring $930, and it will give you one month to get back on your feet and make your next mortgage payment.
If you skip 6 payments, it’s only an additional $5,580, that you are committing to pay in the future instead of paying right now.
As I mentioned above, you don’t owe $5,580 after 6 months. You will owe this amount eventually, and in most cases it will be AT THE END OF YOUR AMORTIZATION PERIOD. I can not stress this enough.
Amortization periods are usually between 25 to 30 years, and if you have been living in your home for a few years it will be much less. Your REMAINING AMORTIZATION IN YEARS AND MONTHS can be found on your annual mortgage statement.
3)Other Options
If you have currently lost your income and don’t have any sufficient savings to pay your mortgage, log online to your mortgage account and defer your mortgage by 1 month immediately.
You can do this right away in the comfort of your own home, without making any phone calls or going in person to the bank. After a few weeks, if your situation has not improved, you can call your lender directly. Hopefully, by this time, the phones are not as busy, and the lines are not as long. When you call them directly, speak to them about deferring your future mortgage payments.
Another option is to consider deferring your property tax payment. Property tax in Toronto is at 0.61% and on a $500,000 home it works out to about $3,000 a year.
If you are on a 6 month tax plan in Toronto, of March/April/May/July/August/September payments, defer both the $500 payments in April + May.
The City of Toronto and The City of Mississauga, are allowing home owners to defer property tax and utility payments by 60 days in Toronto, and 90 days in Mississauga. The City of Brampton is waiving all property tax and utility penalties for 150 days.
Hope this helps simplify and clarify a few items.
If anyone has any questions, or is interested in reading the full article feel free to comment or send me a personal message.
Stay strong!
I've had a handful of friends and family ask me to simplify mortgage deferrals for them.
I've wrote a super simplified article for them, and I hope it could be of help to some of you. I am including it below.
The best way to think about a deferral is to think of it as an IOU (I OWE YOU).
For example, if I know my mortgage payment of $1,850 is coming up on Tuesday, and I’m unable to pay, I know I will have to pay it in the future (as an IOU).
A key fact to remember is that prior to this pandemic, 80% of the major lenders in Canada, would let you defer one payment per year without any questions asked, at any time for any reason. They are still allowing this during the pandemic.
It’s a simple process of logging online to your mortgage account and clicking one of the below options.
They go by different names at different banks, but they pretty much mean the same thing:
Skip-A-Payment (RBC)
Payment Pause (TD)
Take A Break (BMO)
Miss A Payment (Scotiabank)
I am including a screenshot of my personal mortgage account with RBC for one of my rental properties.
I can click 3 buttons and skip a mortgage payment. ($$$ amounts changed for privacy)
1) BANKS PERSPECTIVE
Banks allow deferrals, because they want to be competitive with other banks. Banks want to keep the homeowners happy and stress free during hard times. The banks will also make more money in the long run.
When you skip (defer) a mortgage payment, you still eventually owe the bank the payment that you skipped.
To clarify, the interest portion of the payments that you skip, gets added on to your remaining principal balance. You will owe this amount eventually, and in most cases it will be AT THE END OF YOUR AMORTIZATION PERIOD. Not at the end of your current term.
Definition – Amortization Period: How many years it would take you to pay off your mortgage completely, if the interest rate, payment amount, and payment frequency stayed the exact same throughout this period.
For example, if you have a remaining principal balance (mortgage) of $400,000 and you skip one monthly payment of $1,850, which was made up of:
a) Interest portion payment of $930
b) Principal portion payment of $920
After the mortgage deferral of one month, your new remaining principal balance (mortgage) will be $400,930. (Only the interest portion will be added to your remaining principal balance)
During this pandemic, if you can verify that you have lost all sources of income, and you don’t have any savings, major Canadian lenders are allowing you to defer up to 6 months of payments. Let’s look at the example again, as if you would defer 6 months of payments instead of 1.
You would skip (defer) 6 monthly payments totalling $11,100. ($1,850 per month)
a) Interest portion payment of: $5,580
b) Principal portion payment of $5,520
Your new remaining principal balance (mortgage), after 6 months of mortgage deferrals would be $405,580. (To reiterate, only the interest portion gets added to your remaining principal balance)
2) BORROWERS PERSPECTIVE
As you’ve read in the example above, it’s completely fine to skip a single payment. You’re really only deferring $930, and it will give you one month to get back on your feet and make your next mortgage payment.
If you skip 6 payments, it’s only an additional $5,580, that you are committing to pay in the future instead of paying right now.
As I mentioned above, you don’t owe $5,580 after 6 months. You will owe this amount eventually, and in most cases it will be AT THE END OF YOUR AMORTIZATION PERIOD. I can not stress this enough.
Amortization periods are usually between 25 to 30 years, and if you have been living in your home for a few years it will be much less. Your REMAINING AMORTIZATION IN YEARS AND MONTHS can be found on your annual mortgage statement.
3)Other Options
If you have currently lost your income and don’t have any sufficient savings to pay your mortgage, log online to your mortgage account and defer your mortgage by 1 month immediately.
You can do this right away in the comfort of your own home, without making any phone calls or going in person to the bank. After a few weeks, if your situation has not improved, you can call your lender directly. Hopefully, by this time, the phones are not as busy, and the lines are not as long. When you call them directly, speak to them about deferring your future mortgage payments.
Another option is to consider deferring your property tax payment. Property tax in Toronto is at 0.61% and on a $500,000 home it works out to about $3,000 a year.
If you are on a 6 month tax plan in Toronto, of March/April/May/July/August/September payments, defer both the $500 payments in April + May.
The City of Toronto and The City of Mississauga, are allowing home owners to defer property tax and utility payments by 60 days in Toronto, and 90 days in Mississauga. The City of Brampton is waiving all property tax and utility penalties for 150 days.
Hope this helps simplify and clarify a few items.
If anyone has any questions, or is interested in reading the full article feel free to comment or send me a personal message.
Stay strong!
Full Time Realtor
GTA & Surrounding Areas
GTA & Surrounding Areas