Tag Archives: mortgage deferral

Updating Four Previous Stories

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Mortgage deferrals this spring: It’s nice to know that many times our Wednesday stories are ahead of others talking about it. May 6th we talked about a heads up that you need to check your credit bureau if you had a deferral on your mortgage or line of credit. BNN finally had it on their website August 13th – three months after us. To make sure your deferral hasn’t shown up on your credit report as arrears, go to Equifax.ca for the form to get your free report or it’s in the Money Tools book chapter on credit reports.

Solar panel payback: Last year we talked about the cost versus savings of adding solar panels to your house. It might be great for the environment, but it’s horrible for your wallet. The savings will only be your actual energy consumption cost. You will still have all the fees on your bill. Here is my last utility bill as an example. My actual gas cost was 14 cents. I know it’s summer, but even a really low $10,000 solar install will save me 14 cents a year, or around $50 in the winter. The other seven charges were over $67 and you’d pay no matter what.

Car rental reminder: If you didn’t hear it last year, this is your reminder: It may be weeks later after you return your car that you’ll get a bill for damages to your rental. It will be a bill in the mail or they may already have charged your credit card. All rental agreements state that it’s subject to final inspection. Many times, especially at airport rentals, you just hand in the keys and they never look at the returned car at the time. That’s happening more and more as you can see on travel blogs. So take pictures, it’s digital so it’s easy to do. One of the windshield, and one each side, front and back! That way you’re protected…just in case…

Teaching kids about money: We talk about this at least once a year. Here’s a beautiful reminder that kids DO understand if there’s financial trouble. If Mom or Dad are off work because of the covid pandemic, you can, should – actually must – talk to your kids about it. Make it age appropriate, but do make it a conversation. This beautiful note is from one boy for his Mom.

Some Mortgage Deferral Details:

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Two weeks ago, we talked about a PR release from the six big banks that they’ll help you with up to six months of mortgage payment deferrals. Reaching your bank may be a challenge as Scotiabank alone has been receiving around 80,000 calls a day to at least inquire about payment relief, according to one of their spokespeople.

As predicated, the rules and criteria are still evolving. One RBC employee stated that they were “changing by the hour” in a CBC interview. With that in mind, this is what appears to be happening now:

You may be able to defer your full mortgage payment for up to six months. It appears all the banks have a notice on their website to point out that your interest will continue to accrue. You are not getting a pause button, just an extension.

The bank will add the interest you are not paying with the deferral and adding it to the principal owing. In other words, if you have a $300,000 mortgage and take six deferrals, that $4,500 in interest is added to what you owe. You will then be paying interest on top of interest since your balance went from $300,000 to $304,500. The increase in your balance will now give you a higher payment when your renewal comes up. You’re adding the skipped interest to the next 15, 20 or 25 years.

As we talked about two weeks ago, the banks aren’t out one cent – in fact, they’ll make a profit on your deferrals. But for those who need the breathing room and help, it’s probably not the time to look gift horse in the mouth…

It is not an automatic approval. A former Bank of Montreal manager was asked to supply a new full credit application to see if he qualified. But the BMO wouldn’t actually tell him what the new approval criteria was! A few days ago, a CIBC customer with mortgage and line of credit was on hold for 11-hours and 5-hours the next day only to be told by their call centre that there was nothing they can do for her. So much for the press release that the banks would “work with Canadians.”

Yes, they will update their information on you first. It’ll take them one second to look at your credit score. Internally, they’ve set a number: If you’re below that, you will not qualify as they deem you too high a risk for a deferral – whether that’s your mortgage, credit line or credit card. They’ll want to know if you’re temporarily laid off or not likely to go back to work. And they’ll look at your other debt levels off your credit bureau report. In other words, it’s not just a quick call and you’re done.

The Six Big Banks May Help You

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In an announcement last night, the six big banks may help you with mortgage deferrals for up to six months in view of the coronavirus pandemic. The press release is from the Royal, TD, Scotia, Bank of Montreal, CIBC and National Bank.

But, and it’s a big but: The PR release says they “may” help – but you need to contact your branch for details. In other words, it’s not a given, it’s up to each branch working with each customer and you may not get any help or relief! The PR release headline makes them sound caring, but there aren’t any specifically outlined parameters. Colour me skeptical in that they get the big positive headline while maybe or likely not actually doing much for an individual mortgage holder when push comes to shove. That’s why the release says “contact the bank directly to discuss the options available.” Sorry to be so negative, but there’s a long track record…

Keep in mind that this was a head office decision and then a PR release. 12 hours later your branch doesn’t know what this means, what the parameters are, etc. So calling them today will likely result in just being frustrated – or declined. And remember that the banks are not gifting you one nickel. A deferral is only the ability to pay later. It will also likely be the principal portion of your mortgage since the interest is their income. Take your mortgage balance times the rate divided by 12 and you’ll know how much interest you’ll be paying this month. You may need to still pay the interest but can defer the principal portion of your payment. If you’ve had a mortgage for less than maybe 10 years, that could be as little as one-tenth of your payment – and that’s not much relief…But we’ll find out.

Also in that same announcement, some of the banks, notably CIBC and RBC will be limiting their hours at some branches in some areas while other branches will simply close.

Reluctant as they may have been, the banks have also passed on the full prime rate decreases. That makes the basis of most borrowing now 2.95%.

If you took our advice and held off renewing your mortgage, you’ve just saved yourself one percent. On a $300,000 mortgage that amounts to $250 a month in interest savings or $15,000 if you lock it in for a new five-year term.

At this point, the rate decrease isn’t likely to fuel demand for more borrowing or a spike in home sales. We’re in a new world for a few months. This is the Bank of Canada making sure that the economy does not seize up. Remember that dropping rates is horrible for lenders. Their profits come from the spread between what they pay for deposits and the higher rate they get from lending – and that’s shrunk significantly. They’re also faced with an increase in loan loss provisions (setting money aside for defaults) and higher default rates.