Should I Defer my Mortgage Payments with COVID 19?

Posted by Jared Chamberlain

should_I_defer_mortgage_payments_covid_19We have been asked many times, and have even asked ourselves, "Should I defer my mortgage payment with COVID-19 here and is it worth it?" We took these questions to one of our amazing mortgage brokers Lindsay Labrecque and this is what she let us know!

Over the last 2 weeks, several articles, recorded Zoom calls and Podcasts regarding the economic effects of COVID 19 and mortgage deferrals have surfaced.  We’ve listened to and read many of these articles and have spoken to several clients, landlords and lenders about the programs available.

Many mortgage industry members were quick to jump to an opinion on deferrals with some saying things like, “unnecessarily deferring your mortgage is like parking in the handicapped stall without a permit” or “Defer your mortgage and invest in the depressed stock market.”  “I made a commitment to my bank, and I will pay it, come hell or highwater.”  Really – there are some good ones out there!

We decided that issuing a statement a week ago, from a place of chaos and uncertainty wasn’t in the best interest of our clients (or anyone else reading our blog post).  Now, that we have some more clarity from the government and the lenders, we wanted to put together a quick blog post with our opinions, specifically on mortgage deferrals.

As COVID 19 hit Canada and many non-essential businesses began laying off employees, there was much miscommunication from the government both federally and provincially that lead both homeowners and tenants to believe that mortgages were being “forgiven.”  This is wrong.  Period.  There is ZERO mortgage forgiveness being offered to homeowners.  All those mortgage payments have to be made, eventually.  But the big question is, “if your cash flow is affected now, or has a strong chance to be affected in the coming months, do you take the stress off.”

Let’s start with “what is cash flow?” Your cash flow is the monthly cash coming in, less the monthly cash coming out.  Obviously, we always want to be cash flow positive, meaning, there is more coming in than needs to go out.

Many Canadians have had their hours cut, wages cut, have had to rework their jobs due to homeschooling their children or helping with elderly family; the reasons for income reductions are endless.  We are almost all negatively impacted and many of us have moved to (or are moving towards) a negative cash flow situation.

There are only 2 ways to change your monthly cash flow, reduce your monthly cost or increase your monthly income.  Well, what I can tell you is that unless you’re selling ventilators, video conferencing software or surgical masks, you better start looking at how to reduce your costs.

Almost every lender has put together a program to assist their clients with deferrals.  A very large percentage have put together an automated or email system that allows you to either book a call or virtually submit your request.

Last week, we still didn’t have clarity from all of the lenders about their deferrals for Rental Properties.  At this time, most of the lenders are offering deferrals for both primary residences and at least SOME rental properties, (Scotia for example is offering mortgage deferrals for 1 principal residence and 3 rental properties).

So, all of this to save WHAT, Spire ladies?

If you are in a negative cash flow situation, do not deplete all of your savings or emergency reserves if a mortgage deferral is available to you.  Period.  Defer your mortgage.  You’re not taking something you shouldn’t be, you’re still going to fulfill your commitment to the bank, and you’re sure as hell not parking in the handicapped stall.

This pandemic could extend for many months, and we could have “round two” in the fall.  It is important that your emergency reserves are available for harder times to come.  If your cash flow is headed to negative, take the deferral.

But if we take the deferral – we’ll be paying 25 more years of interest – it will cost a fortune – the bank will make more money – that’s my money – I wanted to pay my mortgage off faster….blah…blah…blah.  Take the deferral.

Here is the math:

If you purchased a $400,000 home, with 5% down in the last few years, your payments are likely around $1800 per month.

Deferring your mortgage for 6 months puts $10,800 BACK in your pockets to help with your negative cash flow situation in the next year.  THIS, IS, HUGE.

***Pro tip – you ALSO need to be applying for ALL government programs ,(federal and provincial), that are available to you.  Rent subsidies, child tax benefit and Employment Insurance.***

The ramification on month 7 are small in comparison – you’re looking at an increase in payment of about $75 dollars/mth.  $10,000 today – for a small increase in 7 months – TOTALLY worth it! Do not let your Ego get in the way. Please put on your oxygen mask first!

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