Understanding mortgage deferrals during the COVID-19 pandemic and how they may impact you in the coming months ahead. We are a couple of weeks into a Canada and Province-wide lockdown due to the COVID-19 pandemic.

Firstly, a sincere THANK YOU and APPRECIATION for all the hard-working nurses, doctors, health care workers, first responders who are working hard across our city and province, combating this pandemic. We are all very thankful for all that you do! Thank you for keeping us safe! 

To sum up this past week in the world of mortgages is probably tough to do in one blog post.  The top requested item, people want to understand more about “Mortgage Deferrals”?

Federal Government & CMHC

Our government and CMHC have been proactive on behalf of banks and lenders, suggesting that there will be solutions for Canadians impacted by COVID-19. In some instances, offering up to 6 months of mortgage payment deferrals on insured mortgages. Their announcement, made on March 13th, was without any consultation or coordination with mortgage lenders. Which I suppose can be expected during times like this, where things are evolving minute by minute. Click this link to read “Understanding Mortgage Payment Deferrals”.

I don’t disagree with the intention, but the execution has become nothing short of a debacle. This has led to further panic with some waiting on hold for up to 3 hours trying to get through to their lenders.

All mortgage lenders quickly responded with a coordinated effort and made a joint declaration to support these payment deferrals. All parties woefully underestimated the impact of this announcement. Lenders are inundated with unprecedented call volumes! Some have gone from 600 calls per day to 3,200 calls per day. One major lender receiving over 24,000 emails requesting information on payment deferrals in a day. The sheer magnitude of both call and email volume is staggering and has caused a drag on all financial services companies and mortgage lenders. This at a time when mortgage application volumes have risen quickly.

Financial Impact

I’ll shed some light on things we should be thinking about prior to requesting a mortgage payment deferral. Let me start with the fact that there should be an immediate need or impending need. The stories are beginning to mount. We know individuals who have been laid off, directly impacted by COVID-19. Perhaps you’ve been impacted? This is becoming the true financial tragedy of this pandemic. For those individuals with an immediate need, this deferral program is perfect for you. Please reach out to me before calling your lender, I will be able to assist you and give you some guidance.

From what I have heard from lenders, they are now attempting to triage requests into immediate needs. The next tier, would-be clients who have payments coming out in the next couple of weeks or a month from now.

Mortgage Deferrals

The next point I would like to make is that these are mortgage payment deferrals. Lenders are simply putting your payments on hold. In some cases, lenders will even consider waiving up to 6 months. Your mortgage payment will not disappear. Interest will continue to accrue on your mortgage. If you don’t have employment income coming, monthly cashflow has deteriorated, you’ve depleted your savings, then this deferral program makes absolutely perfect sense. You should do it! Don’t delay.

The Intention of Mortgage Deferrals

Please keep in mind the intent of this program. It’s designed to assist those who will be facing financial hardship. In saying that, anyone applying to their lender to have their mortgage payments deferred, should be prepared to answer a series of questions determining suitability. It is also important to understand how the payment deferral will work. Likely, your deferred payments will be added to the end of your mortgage term, potentially impacting your ability to switch or move your mortgage at the time of renewal? The other thing to consider is for those who have switched or who have just recently got a mortgage in the past year. There may not be enough equity in your property, thus, each lender may have to take that into consideration when assessing if they can defer payments.

I’m posing more questions than answers. With many different lenders involved, each will have their own way of assessing your request. Much the same as each lender assesses new mortgages applications. All lenders will review mortgage deferral requests on a case by case basis.

I encourage anyone impacted to contact me directly so we can have a conversation to assess some of your options. You can reach me via email at mike@mikecameronyyc.com. I will follow up to schedule a call to discuss further.

Mortgage Interest Rates

This may take most of you by surprise, but mortgage rates are GOING UP. Now you’re saying, “Mike what are you talking about, the Bank of Canada just lowered rates last week”. Correct, however, we have started to see bond yields increasing which means fixed mortgage rates will begin to trend higher. That trend continues and bond yields were up almost .50% this week from all-time lows.

I expect to see fixed mortgage rates in the higher 2.00% range and moving above 3.00% soon.

This is not surprising, we all knew record-low mortgage rates would be short-lived. Rates would come up quicker than they have come down. Another factor impacting rates is the liquidity and risk pricing that has started to increase. Banks don’t want to lend to each other, businesses, even consumers, due to the perceived risk of not being paid back.

This is the same as what we saw in Fall 2008 and Spring 2009 during the financial crisis. We have now started to see variable-rate mortgages remove their discounts. So there are no more prime – 1.00% discounts on variable-rate mortgages. These discounts with some lenders have gone down to prime or prime + .10%. The prime rate is currently 2.45% after we saw decreases of 1.50% this month and we may see further decreases. Variable-rate mortgages with a discount (prime – .50%) are well-positioned in the coming months ahead.

I am going to stop and once again encourage any past clients or new clients to reach out so we can discuss your situation. These are challenging times for all of us, I can assure you there is no judgment on situations that have spiralled beyond your control. However, the sooner we can take action the better, instead of waiting until some of your options disappear.

I would encourage any that have been impacted to start the search here because you may qualify for some additional funds directly from the government which could help to make those mortgage payments before you think about deferring payments.

Important Links

Calgary Emergency Management Agency

https://www.calgary.ca/CSPS/cema/Pages/Response-to-Coronavirus.aspx

Alberta Government  Support

https://www.alberta.ca/covid-19-supports-for-albertans.aspx

Federal Government Support

https://www.canada.ca/en/department-finance/economic-response-plan.html

Practice safe social distancing, wash your hands often, avoid touching your face, cover coughs and sneezes with a tissue or your elbow. Take good care everyone and please stay safe. 

Mike

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