Mortgage deferrals are done. What should I do now?

Mortgage deferrals are done. What should I do now?

Since March, more than 775,000 Canadians have taken advantage of Canada's deferred mortgage program: more than $180B in payments were deferred for six months to help people get through financial uncertainty during the pandemic. That program has now come to an end, and homeowners are expected to start making their mortgage payments again.

For many, those six months have been the reprieve they needed to find work, make plans, or adjust to a new financial reality like having one partner stay home with the kids. But what happens if you aren't in a position to start making those payments just yet? That depends on whether you need a short-term fix or if you’re looking at a longer-term situation. Either way, start by talking to your lender about what options they may be offering.

“Banks aren't saying yes to extensions right now,” says James Harrison, Mortgage Broker at Mortgages.ca. “But that doesn't mean they won't offer you some flexibility if you need it. Reach out directly: from what I've seen, some banks are doing things to help people transition from deferred mortgages. For example, right now, TD is allowing a four-month extension that isn’t a full deferral but gives you the option of lower monthly payments. Lenders are all taking a different approach, so your best bet is to ask yours how they can help you.”

It's a good idea to talk to a financial advisor as well. They can help you get a sense of the bigger financial picture, whereas your lender may be more narrowly focused on your loan.

Applying for a loan

Options to cover you for the short-term

Need some time to find a new job? This may help:

1. Borrow some money.
If you've had conversations with your lender and advisor but you still need help for a few months, consider borrowing. See if family members can float you a short-term loan, or tap into a home equity line of credit (HELOC) to tide you over. Running up your debt isn’t ideal, but it’s a much better option than using credit cards to make up for the temporary shortfall. Those interest rates can be crippling, unlike a HELOC or a friendly loan from mom and dad.

If you need a longer-term solution
If a temporary fix like a loan isn’t enough to help you right now, you might want to consider the following ideas:

2. Refinance your mortgage.
Interest rates are incredibly low right now, so if you’re currently locked into a fixed mortgage at a higher rate, you could significantly lower your payments by breaking it. One thing to be careful of here, however, is the penalties that come with breaking a fixed-rate mortgage: they can be in the tens of thousands. If you have a variable-rate mortgage, you’re in a much better position: penalties usually only add up to about 3 months’ interest.

Toronto Star: Mortgage deferral coming to an end? You have other options – but beware of penalties

But even with those penalties, you could still end up saving enough to make a difference. It's worth talking to a mortgage broker, who can shop around for the best terms for you. You don't have to rely on what your current bank is offering.

As part of that refinancing, you can also ask the lender to extend your amortization period, which adds to the number of years you have to pay down the mortgage. You’ll end up paying more overall, but it will make your individual payments more manageable. If that’s what you need.

Related info: How mortgage rates work and where they’re going next

Locking the door

3. Sell your home and buy less expensive property.
Whether it’s a smaller place in town or something a bit further out, making a move can lower your monthly costs while still letting you build equity. This is a definite trend right now, as people move to save money or get more space for less.

If you’re in a house, right now is a very good time to sell: detached and semi-detached houses and townhouses in the 416 and the 905 are selling like hotcakes. The market for condos has slowed, so you may not get what you might have pre-COVID, but if you’ve owned for more than a couple of years, you will still make a profit.

Related info: Your definitive guide to today’s Toronto housing market

4. Sell your place and rent for a while.
It’s a last-resort solution, but carrying the costs of a home you truly can’t afford is a huge stressor that could eventually impact your health – and having a home go into foreclosure won’t do your credit any favours. This option gives you an opportunity to get back on your feet financially, and buy something again when it’s less of a burden.

Thinking about making a move? Talk to a Condo Pro first. They can help you decide if it’s the right decision, or connect you with a mortgage broker who can help you figure things out.

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