The COVID-19 pandemic has completely taken the global populace by storm and has decimated personal lives. As businesses were shut and borders were closed, consumer spending dropped while unemployment rates skyrocketed.
Canada’s unemployment rates in May were over 13% and it stood at 10.2% as of August 2020. This means there is a good chance a significant portion of Canadian home-owners are struggling to pay their mortgages on time which may also result in a housing market crash.
While the Justin Trudeau-led government has helped millions of Canadians via the CERB (Canada Emergency Response Benefit) there is also a provision for mortgage deferrals.
The Canadian government understands homeowners are facing financial hardships and the mortgage deferral program aims to help people impacted due to COVID-19. So homeowners under financial duress may be eligible for a mortgage payment deferral up to six months to help ease the burden.
The deferral is essentially an agreement between you and your lender. The Canada.ca website states, “Typically, the agreement indicates that you and your lender have agreed to pause or suspend your mortgage payments for a certain amount of time.”
It adds, “After the agreement ends, your mortgage payments return to normal and the deferred payments — including principal and accumulated interest – are added to the outstanding principal balance and subsequently repaid throughout the life of the mortgage.”
The mortgage deferral is an ongoing program and you can apply at any time during the coronavirus outbreak.
The payments are not canceled
Essentially, the mortgage deferral program helps you when you are struggling to make payments due to unemployment or underemployment. You can skip the payments for a period of up to six months.
Homeowners should not note that the agreement does not cancel or eliminate the amount that is owed on your mortgage. You will in fact have to resume payment at the end of the agreement as per your regular payment schedule.
The interest that wasn’t paid during the deferral will continue to be added to the principal amount of your mortgage and can impact the total amount you owe as per your original payment schedule. So, you will have to repay the principal and interest amounts that were skipped during the deferral program.
The mortgage deferrals are solely related to your loan amount and do not impact other payments such as property taxes and life or disability insurance.
Get in touch with your mortgage lender
In order to apply for the deferral program, you need to get in touch with your mortgage lender. Your lender is trained and equipped and wants to establish a long-term relationship with you. The CMHC (Canada Mortgage and Housing Corp.) provides lenders with the tools and flexibility to make timely decisions and help the homeowner.
These tools include extending the original payment period which will lower your monthly mortgage payments. Your lender may also add missed payments to your mortgage balance and spread them over the entire mortgage period.
In order to protect you from volatile market conditions, you can convert a variable interest rate mortgage to a fixed interest rate mortgage.