Have you deferred your mortgage?
Many people have, so don’t worry, you are not alone.
We’ve had a lot of questions asked regarding pay back, penalties and what comes next.
Two banks: Scotia Bank and RBC, responded to our questions. Here is what they had to say to the questions we asked:
1) What are the repayment requirements? Are deferrals tracked on to the end of payments or are payments are accelerated and due before regular payments commence.
A mortgage payment deferral means that you will not be required to make regular payments on your mortgage for 6 months. During the time you defer your mortgage payments, interest will continue to accrue. That interest will be added to your principal. Future payments will be higher than prior to your deferred payment period. You will pay more interest over the life of your mortgage. A deferral will also help you with your short-term cash flow.
Once a mortgage payment deferral ends, the regular interest amount of the mortgage that would have been collected over the deferral period is added to the principle amount of the mortgage amount owing. Regular principle and interest payments will resume once the deferral period ends. Payments are not increased or changed. The deferral will essentially increase the length (amortization of the mortgage). RBC
Your interest rate will not change. The accrued interest gets added back to your mortgage at the end of your deferral. If you have a weekly payment plan, weekly payments are then increased to cover the accrued interest, rather than extending your amortization. For example: Let’s assume you currently have a weekly mortgage payment of $296.78. If you deferred, your payments will increase to approximately $305.33 to absorb the cost of the interest accrued. Scotia Bank
2) Can liens be put on homes where payments exceed loan agreements: ex – you bought a house for 400K now you owe $425K what happens if you cannot repay what you owe and you need to sell?
RBC will not add a second charge (lien) on the title of a property when the amount outstanding exceeds the value of a property. We assess loan to value based upon market value at the time of purchase. We will not assess property value again unless the clients makes a request to change the mortgage terms (ie: refinance a mortgage to increase the mortgage amount).
If you need to sell your home at a loss, you are still required to make those payments.
3) What happens if you have a deferral on your record but you need to refinance?
If a clients would like to refinance their mortgage, and they had previously deferred payments, the deferral will end, and we will calculate out the outstanding mortgage amount at that time (principle amount owing, plus the deferred interest amount owing). That amount will be the amount used when assessing how much the clients owes against the property.
RBC has a dedicated team of specialists who will work with clients to try to restructure or make payment arrangements with clients who are struggling to make their payments once the deferral program ends. We believe in leading with empathy and understanding and will make our best efforts to assist our clients in whatever way we are able to, to help them through these unprecedented times.
Please let us know if you have any other questions.
As always, if you need help buying or selling your home, please do not hesitate to contact Gregg Bamford or Ryan Bamford.