After Canadian provinces declared businesses shut down due to COVID-19, Canadians were forced to stay at home while the storm passed, without any pay. While some have managed to survive by telecommuting, others are facing financial trouble and struggling to pay off their mortgage.
According to a publication on Finder.com, approximately 1.5 million Canadians have returned to their immediate families as a result of the pandemic.[1] In addition, according to the Canadian Bankers Association, during the month of April 2020, the number of requests registered to defer mortgages or payments approached 500,000.[2]
If you unfortunately find yourself in an unpredictable situation where you can’t pay your mortgage, don’t give up hope. You may be wondering: what options are available to me regarding my mortgage?
While it is virtually impossible to adequately prepare for the consequences of a global pandemic, there are concrete steps that can be taken if you are having difficulty paying off your mortgage.
To get the advice of an expert in the field, we turned to Nathalie Langlois, Mortgage Specialist at BMO Bank of Montreal.
Apply to defer the mortgage
As mentioned earlier, approximately 500,000 people have applied to postpone their mortgages in Canada, allowing Canadians to refrain from making a few mandatory payments until their financial situation is stabilized. If you don’t have enough emergency funds to weather this economic turmoil, this mortgage deferral is a great starting solution.
The major Canadian banks grant deferrals for mortgage loans, the application of which allows you to suspend certain payments. It is important to note that such deferral does not erase or erase the amount owed on your mortgage. Once the deferral is complete, you resume making your payments. Depending on the lender, deferred payments will be accrued when your loan expires or will be due as a one-time payment. If you defer your mortgage, it will not affect your creditworthiness.
“At the start of the pandemic, the phone kept ringing. It is more than twenty requests for postponement of mortgage payment that I received from my clients, every day… It is important to know that the postponement of a few mortgage payments is a very short-term solution. The postponed payments will have to be made sooner or later, ”explains Nathalie.
Refinance your mortgage
Refinancing a mortgage involves terminating your current loan and starting a new one with the same or another lender. There are several reasons for refinancing your mortgage, including getting a lower interest rate or gaining access to your home equity.
If you’re struggling to meet your monthly mortgage payments, be aware that refinancing could lower your monthly payment, as long as you can renew your loan at a lower rate.
Currently, interest rates are fortunately at their lowest level so far. Chances are, you can get refinancing through the best mortgage lenders and your monthly payments will be lower.
“With interest rates this low, in most of the file reviews that I do, mortgage refinancing saves money over 5 years,” says the mortgage specialist.
However, if your mortgage were to last for several more years, you will be charged a prepayment penalty, which will compensate your lender if the term of the loan is terminated early. All lenders apply the calculation of such a penalty differently. To find out about yours, contact your lender and ask them the question. You will need to weigh the advantages and disadvantages of the prepayment penalty in order to judge whether it is a wise choice in the end.
Apply for a mixed mortgage rate
On the other hand, if the amount of the prepayment penalty is too large to make you decide to refinance, you should consider a blended mortgage rate. This will help you avoid paying a prepayment penalty and reduce the interest rate and mortgage payments.
In this type of loan, the current rate is combined with that of a new mortgage loan, thus forming an intermediate rate. Since you are not strictly terminating your current mortgage, you will escape the prepayment penalties inherent in standard refinancing, but you will still be able to lower your monthly payments.
“A mixed mortgage is good when you want access to your capital or want to have a lower mortgage rate or both,” according to canwise.com.[3]
However, that may not be enough to keep you going, so if you’re still having trouble paying off your mortgage, there is another more drastic option.
List your property
In case you run out of options and are still having trouble paying your mortgage, now is the time to consider selling your property. This advice should not be taken lightly, knowing that selling your home to be free from the financial burden of a mortgage is the only option available. If you miss too many payments, you could face foreclosure, a nerve-racking experience no one wants to go through.
“I strongly recommend that my clients sell their home before it is foreclosed. The repercussions are immense on their credit rating and it will follow them for years, ”says Nathalie.
In the event that you think you are unable to pay your mortgage, the first step is to find out about the value of your home. In fact, the difference between the eventual sale price of your property and the amount owed on your mortgage loan will tell you how much you could get back from this sale.
A good place to start would be to take a look at your property’s selling price report, where you can compare yours to homes recently listed in your neighborhood.
If you are really thinking about selling your home, then eventually settle for a smaller, more economically convenient home. A real estate broker can help you sell your property and find your next home without the hassle.
Without a doubt, not being able to pay off your mortgage is a very scary situation. Sooner or later we will all recover financially from this unfortunate and unexpected situation. Remember that this situation is temporary.
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