Mortgage deferral mistakes and misconceptions during Covid-19. Penalties for deferring a mortgage payment
Sunday Apr 12th, 2020Share
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As a result of covid-19, many institutional lenders (banks) have helped by offering deferrals on mortgage payments. Banks sent out mass emails promoting this to their database of clients, and because lenders were not clear on the qualifications and penalties associated with deferring multiple mortgage payments, many clients have misconceptions and mistakes in their assumptions about the mortgage deferral program, during covid-19.
This video looks at the two biggest misconceptions or mistakes that many people have in regards to deferring a mortgage payment at this time during the coronavirus pandemic - one of the questions answered in the video is "Are there penalties for deferring a mortgage payment at this time?" 🏡
Thank you for watching!
Hey guys, it's Karen from Toronto here.
And in speaking to a number of clients over the past couple of weeks, I've noticed that many of them have misconceptions around deferring a mortgage payment at this time with covid-19.
Many individuals are thinking that lenders and banks are allowing anyone to defer a mortgage payment and without penalty.
And this is completely incorrect.
I think the misunderstanding started a couple of weeks ago when banks sent out mass emails to clients offering help during this covid-19 time, by offering to defer mortgage payments for them.
The one thing that these emails did not disclose is the qualifications as well as the penalties that are associated with deferring a mortgage payment.
So in today's video, I'm going to address the two biggest misconceptions, or the two biggest mistakes, that individuals are under the impression of, when it comes to mortgage deferral payments at this time with covid-19.
The first mistake that I'm hearing is that a lot of individuals are under the impression that there's no penalties for deferring a mortgage payment at this time. Now the truth is, most programs allow you to defer one mortgage payment in a given year. Now, even if you have a job loss due to covid-19, if you have to defer multiple mortgage payments, be prepared to pay interest on those deferred mortgage payments. So there will be penalty in the form of interest charged.
I'd also like to make it clear that deferring a mortgage payment means you will be paying that amount at a later date at an agreed-upon time with your lender. Your lender will be expecting all of those deferred payments, all of that money, to be paid back to them by a certain date.
Now the next question that usually comes up is, if you defer a mortgage payment, when does the lender expect that mortgage payment to be paid back? Our mortgage specialist, Tristan, from Citadel mortgages has the answer for us here.
TRISTAN: "What they would like to see is, they would like to see the payment be made up on the following month, but they're going to add it to the overall mortgage. So, you know, if it's two months, then they're going to add two more months of payments on top and then the interest associated for those months will be added to it as well."
Now the second mistake that I'm hearing is that a lot of individuals are under the impression that anyone can defer a mortgage payment at this time because of covid-19. And this really couldn't be further from the truth.
There is a qualification process with every lender.
Being laid off or having a reduced income from covid-19 does not automatically qualify you for this mortgage deferral program. You have to demonstrate financial hardship and that has to be backed up by paperwork.
So if you've been laid off due to covid-19, but you have access to enough cash assets to make your mortgage payments, keep in mind that your lender will most likely not qualify you for this program. And banks and lender phone lines are overloaded right now. So if you don't fall into this category of financial hardship, I wanted to save you some time from calling your banks or your lenders.
Now if you decide to request for a mortgage deferral payment, be prepared to submit paperwork to your lender indicating your personal assets, your current income as well as your expenses. And that information will be used to assess if you qualify for this program.
Now the good news is that the one concession lenders are granting, is that if you qualify for a lender approved mortgage deferral program, your credit will not be negatively affected.
Our mortgage specialist Tristan as a couple of related points to add on here.
TRISTAN: "A lot of people, you know, don't may not realize that some of the lenders actually allow clients to skip a payment throughout the year. And when you defer that payment, it doesn't go against your credit score and this is pretty much the same that applies with this deferral program as well. It's not necessarily going to hurt your credit score. The only time it's going to report to your credit score is if you actually physically miss your payment. So communication is key. You gotta call your lender. You have to have that conversation with them. Don't just skip your payment and then call them and say "well I heard you were doing a deferral program, right?" You know, you gotta qualify right. Make sure you actually call your lender and then have that conversation. If you do that your credit will be fine."
Another point to note is that pretty much none of the private lenders or "B lenders" are offering this program. The mortgage deferral payment program is mostly being offered by large institutional lenders such as your big banks.
Speaking of mortgage payments, the average condo in Toronto costs $712,746. Do you know how much that would cost you in monthly mortgage payments? Well, go ahead and click that "like" and "subscribe" button now because in an upcoming video, I will share with you how much your monthly mortgage payments would be if you were to buy the average condo in Toronto.
Now, if you have any mortgage questions for Tristan, I will include his contact details in the description box below.
In the meantime, if you guys have any real estate questions or needs and that we can help with, give us a call.