More Than 670,000 Canadians Have Deferred Their Mortgages

Written by Posted On Tuesday, 28 April 2020 05:00

We are now well into the second month of the coronavirus lockdown and job losses are mounting. The Canadian Bankers’ Association (CBA) says as of April 16, more than 670,000 homeowners have had their mortgages deferred – more than 10 per cent of the mortgage loans in the banks’ portfolios.

It would be a lot more if the banks didn’t have the right to refuse deferral requests. A recent random survey by Forum Research found that 46 per cent of homeowners asked their lenders for mortgage assistance but were denied.

“These programs are for people who are genuinely struggling to make their next mortgage payment. They’ve lost their job and/or most of their income, and they don’t have reserves to draw on. If you’re not in this group, you aren’t likely to be eligible,” says David Larock, an independent mortgage broker who has a well-read mortgage blog.

Deferring your mortgage should be avoided unless absolutely necessary because it just adds to your debt. 

“Canadians should understand that this is not mortgage forgiveness,” says the CBA. “Mortgage deferral means that payments are skipped for a defined period of time, during which interest which would otherwise be part of the deferred payments is added to the outstanding balance of the mortgage. The added interest is incorporated into the monthly payment, either when payments resume at the end of the deferral period or upon renewal at the end of the mortgage’s term.”

Borrowers can also talk to their lenders about their options, such as making lump-sum payments when they are able to do so. But depending on the mortgage contract, extra fees may apply.

Larock says deferring mortgage payments will not hurt your credit score, and that lenders are generally offering to waive fees associated with the programs.

The TD Bank website says if you are thinking of deferring your mortgage, consider these four points:

- Check your current spending and decide what you must pay for and what you can get by without.

- Prioritize your debt. TD says the money saved by not paying your mortgage could, for example, be used to pay off high-interest credit card debt.

- Determine if some of your other bills, such as property taxes, can be deferred. See if you qualify to take advantage of government relief programs.

- Check your cash flow and determine how much you will receive in the near future, to get a good idea of where you are spending your money.

A group called Democracy Watch says Canada’s largest banks are not doing enough to help out consumers. It says more than 50,000 people have joined a letter-writing campaign and online petition “calling on all federal parties to work together in this minority government situation to make Canada’s big banks do more to help Canadians and small businesses, and pay their fair share of taxes, now and after the coronavirus crisis.”

The group says the “Big 6” banks “have reaped record profits every year for the past 10 years in part by firing thousands of people, shifting jobs overseas (or using temporary foreign workers), cutting services and hiking fees and credit card interest rates even as the Bank of Canada’s prime rate dropped to record low levels.”

Duff Conacher, co-founder of Democracy Watch, says, “The federal government cannot tell if the banks are still gouging or treating customers unfairly in this crisis, and won’t be able to tell post-crisis, because the banks are allowed to keep secret the profit levels in each area of their business, what type of borrowers they approve and reject for loan and credit relief, and how many complaints they are receiving.”

Among other things, the group is calling on the banks to cut their interest rates and fees in half, “and cut loan payments entirely for anyone who needs it.”

Larock says that given the numbers of deferred mortgages, “I can guarantee lenders are worried enough to be taking a hard look at their underwriting policies.”

Concern about consumer debt in Canada has been on the radar for some years, and the pandemic will only make things worse for those who are stretching to buy a home.

For example, banks may stop approving borrowers who work on commission or are self-employed until after the lockdown, he says.

“If you’re applying for a mortgage, the lender will thoroughly vet your application to confirm whether you’ve suffered any change to your income as a result of COVID-19,” he says. “Discuss it at the pre-approval stage and insist on a financing condition when you make an offer to purchase a property. Then, provide your income documentation immediately after your deal is approved and while your financing condition remains in effect.”

Real estate prices are expected to bounce back after the crisis, but if they fall there is always concern that the appraisal won’t be as much as the offered price. If this happens, says Larock, the borrower will need to make up the difference. Again, putting a financing condition in the offer to purchase is an important safeguard.

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Jim Adair

Jim Adair has been writing about Canadian real estate, home building and renovation issues for more than 40 years. He is the former editor of Canada’s leading trade magazine for real estate professionals, as well as several home building, décor and renovation titles. You can contact him at [email protected]

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