Mortgage Deferral during Covid times: Should you or shouldn’t you?
In one of our previous posts we told you about the situations in which you can opt for mortgage deferral, the methods in which mortgage deferral payments can be made, the eligibility criteria as well as the impact of deferred payments. But there's a lot more to be said about mortgage deferral, especially in relation to Covid-19 pandemic; so here we are! We got a lot of queries from anxious borrowers asking us if deferring payments during Covid-19 is a good idea. While some may opine that unnecessarily deferring your mortgage payments is like axing your own foot, we think otherwise. It is no secret that Covid-19 has impacted businesses all over and Canadian businesses that fall under the non-essential category got adversely affected as well. Let us begin by telling you that there is no mortgage waiver or forgiveness being given to homeowners because of the pandemic. Please note that you would certainly have to make the mortgage payments you may have missed earlier.
How to decide whether to go for mortgage deferral during Covid-19?
So how do you arrive at this crucial decision whether you should go in for mortgage deferral during these trying times or not? You need to analyze how has Covid-19 affected or likely to affect your cash flow (net amount of cash into and out of your bank account in a given month) in the near future. Canadian working population has witnessed pay cuts, trimmed number of working hours, or have had to compromise on their jobs in order to manage homeschooling of kids, and other such incidents which may have resulted in a lower than usual income from the pre-Covid times. A lower income usually indicates a negative cash flow i.e. your expenditures being more than your income. So you have two options - you could either reduce monthly expenditures (if at all possible) or get a better paying job to make the cash flow positive again. Because of the job market being in a hazy state, the latter is not likely to happen unless you are one of those really lucky ones. So, most lenders are offering mortgage deferrals to help get the payments back on track, albeit in a deferred mode for homeowners as well as those who have rented properties. We recommend that if you have a negative cash flow scenario currently, or if you see it upcoming, you should opt for mortgage deferral which would give you a chance to keep at least a part of your savings intact, especially for unforeseen circumstances and emergencies.
Mortgage deferral is no crime. You are still committed to paying back your lender or lending institution, just, a little later and with interest. But before you take the mortgage deferral route, do that math or have someone do it for you. You would be adding more years for which you'd have to pay interest and deferrals don't come cheap. Go got it if you really cannot afford paying your mortgages or your savings are running out. If you have any queries or doubts relating to mortgage deferrals, we would be happy to help.