COVID-19 Mortgage Payment Deferral
Many have reached out to me wondering about the mortgage deferral program that was recently announcement by the big six banks (TD, CIBC, RBC, Scotiabank, BMO, HSBC). In summary, the big banks will allow for mortgage payment deferral for up to 6 months but is looked at case by case. While I think this may be a good start for home owners, it may not be the solution that everyone is looking for.
Mortgage Deferral vs Mortgage Forgiveness
Mortgage Deferral is allowance to skip a mortgage payment. This means you still owe the same amount, but the payment is postponed to a later date. Mortgage Forgiveness is eliminating a mortgage payment altogether. I emphasize the difference between these two because I've had many clients asking for advice on using this program. At first, it sounds like you get a free six months free from mortgage payment. Yet, not all the details were disclosed yet on whether the mortgage deferral is having your interest accrue. If you aren't paying off your mortgage, it'll just continue to grow through interest.
What's my suggestion?
Ask your mortgage provider all the details before committing to the mortgage deferral program and if you're accruing interest over the 6 month period. As this program is new and is run by the big banks, this is my personal opinion on the situation as a whole.
If interest is accruing:
- If you can afford your monthly payments, continue making them regularly. It'll be better in the long run since 6 month payments aren't accruing interest.
- If you can't afford your monthly payments due to being laid off or low cash flow, this may be a good option since it's important to keep emergency funds when necessary.
If interest is not accruing:
- I would postpone payments if possible. Even if you can afford to pay your monthly payments, this may be a good opportunity to save and make a large lump sum payment at the end of the year.
Have any questions or concern regarding a purchase, refinance, or debt? Please feel free to contact me