Unprecedented Times and Your Mortgage
The current COVID-19 pandemic has caused financial hardship for many. We would like to thank our friend Steven Crews, Mortgage Broker with Paragon Mortgage Inc., MyMortgageBroker.com, for providing us with this valuable information:
“Today, we are living in history. Schools and scholars will be talking about the 2020 Pandemic for years to come. But what can you do today?
If you own a home and have a mortgage, then you may be worried about making the payments. Even if your income hasn’t been affected yet, you may want to cut your expenses so that you could afford your payments on a reduced income.
Let’s review your options based on two scenarios:
Let’s review each of these in turn…
If you or a member of your family has been affected by the COVID-19 virus, then every mortgage lender in Canada is providing options to their clients to defer their payments.
Payment deferrals could be for 1 month up to 6 months. Every lender is different, and every lender will want to speak with you to provide a personalized solution to your specific situation.
Lenders are offering different options to connect with them for the payment deferral. Your first option is to call them. I will provide a list of most lender’s phone numbers for your reference, at the bottom of this article.
The phone lines are very busy so I would recommend that you call later in the day or the evening, when fewer people are calling. Your lender is likely prioritizing requests based on the coming payment date.
Some lenders are offering an online option. If you have online access to your mortgage, then sign in there. You might find an option to skip a payment or defer a payment without making a phone call. If you can do that, then you will have another 30 days to try to get a hold of your lender by phone to request additional payment deferrals.
When you defer a mortgage payment (also called skip a payment), the interest that would have been due on that payment is added to the principle of your mortgage.
For example, let’s say your regular monthly payment is $1750 and the interest portion of that payment is $1,000. If you defer the payment, then your mortgage balance will go up by $1,000 and you will pay interest on that until you make extra lump-sum payments up to $1,000 (plus interest) to pay that off.
If your interest rate is 3.5%, then that $1,000 of payment deferral will cost you approximately $35 per year (compounding). If you have 20 years remaining on your mortgage, then that 1 deferred payment will cost approximately $1,000 of extra interest (because of compounding).
However, if you make an additional lump-sum payment of $1,035 next year, once everything is over and things are back to normal, then you will stop the compounding of that deferred payment.
If you are still working, or if you are still receiving the same income but want to put yourself in a better financial position to weather potential future issues, then you have a couple of options.
Your mortgage is likely your largest monthly expense. There are ways to reduce that payment. First, you could compare the interest rate you have with what’s available today. By reducing your interest rate, you can save hundreds per month in mortgage payments.
For example, A client of mine set up his mortgage in 2019. The best rate at that time was 3.89%, he set up this mortgage 14 months ago with an original term of 60 months. Last week, we secured an interest rate under 2.79% for him. Over the next 8 months, he will recover the penalty (which most of it was incorporated into the new mortgage) and his payments have reduced by more than $350 per month.
For this type of situation, it’s important to look at your costs and the penalty to make sure you will recover your costs. I have a calculator that you can use to do that:
If you already have a great rate or if the penalty to break the mortgage and to set up a new one is too big, then another option would be to set up a Home Equity Line Of Credit.
You may be able to set up a Home Equity Line of Credit (HELOC) so that you have access to some of the equity in your home. Home Equity Lines of Credit will typically offer lower interest rates than personal lines of credit or personal loans.
By setting up the HELOC, you will have access to cash at better rates so that you can supplement your income if it’s affected in the future.
If you have credit card debt, lines of credit and personal loans, it may be worth it to refinance your mortgage (and pay the penalty, if there is one) to bring all your payments into one. Mortgage interest rates are at historic lows and consolidating debt could help you to reduce your monthly costs and improve your cash flow so that you can weather a financial storm.
Whenever you do a debt consolidation loan, I highly recommend that you also review your cash flow. To make a consolidation effective it’s important to review your spending habits.
I posted a video on YouTube that describes how to review your cashflow without having to do a “budget”. You can watch it here.
In these unprecedented times, it’s important to be cautious with your health and your finances. These options provided in this article can help you with your mortgage finances.
As promised, here is the list of lenders and their phone numbers.
Stay healthy and practice social distancing.
Steven Crews, Mortgage Broker with Paragon Mortgage Inc., MyMortgageBroker.com”
We would like to thank Steven again for the content of this post. If you have any questions regarding this article, please do not hesitate to reach out and we would be happy to put you in touch with Steven.
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The Costen Insurance Team