The Six Big Banks May Help You

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.

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