Canada’s big banks recently announced that due to the COVID-19 pandemic, they would be allowing homeowners to defer their mortgage payments for up to six months if needed, but the offer is more complicated than many think.
Local mortgage associate Lisa Kopchuk is hoping to clear up any confusion about how the deferral program actually works — for homeowners, landlords, and renters.
“I think there's some miscommunication that's happening with a lot of the social media, that's saying deferrals are like taking six months off of your mortgage, and that's not quite how it works,” said Kopchuk. “It sounds like a mortgage holiday, but really it’s more like a payment schedule.”
A mortgage deferral program from any bank or lender is simply a payment arrangement in which the property owner postpones their payments until a later date.
Banks have always had these programs available and have simply waived the usual fees required to use the program, in light of the COVID-19 pandemic.
What Kopchuk feels some people aren’t realizing is that these programs are not going to be automatically applied for any property owner, and they are not guaranteed.
They must be applied for and approved by the bank or lender, usually on the basis of financial need.
Currently, Kopchuk is hearing that few applications are being approved and even fewer are being granted the full six months of payment deferral because of the uncertainty of how long COVID-19 closures will affect people’s work.
Right now, property owners would have to prove that their income has been affected by the COVID-19 outbreak — either they have been laid off, or their self-employment income requires face-to-face contact, for example.
Some rental properties, depending on the lender, are not being approved because of the availability of government contingency plans like employment insurance and the federal emergency employment benefit recently announced.
“This essentially creates a bit of a vicious cycle, when the renter doesn't qualify for EI or the emergency fund and the landlord doesn't qualify for a mortgage deferral,” said Kopchuk.
Kopchuk also explained that deferring mortgage payments could actually cost property owners more money down the road, as interest accrues.
Deferred payments and their interest are added back into the principal amount owing, which means property owners are then seeing interest collecting on interest — which will increase their payments in the future.
“The amount that gets pushed off actually accrues interest and it grows. You'll end up paying money, in the long run,” said Kopchuk. “It can get very expensive.”
Her concern is that relying on the approval of a mortgage payment deferral could create a cycle of financial instability and result in mass foreclosures of properties throughout the city.
“In Moose Jaw, there are few people who are a landlord as their only form of income,” said Kopchuk. “Nobody wants to be evicted and nobody wants to evict, so all we have to do is communicate and learn about the processes of how to make this easier for everybody.”
Kopchuk hopes to see the government consider implementing a moratorium on rent and mortgage payments in the future, but for now, she urges property owners to think about the mortgage payment deferral programs as a last resort option.
She also advises renters to be in contact with their landlords if they will be unable to make their rent payments, to work out a solution sooner rather than later.
“The most basic thing to know is that not everyone is going to qualify, so please be prepared,” said Kopchuc. “Because this really is unprecedented, we've never seen this before.”