Mortgage Deferrals — When and How They Work
Published on 29 August 2022, 07:22:56 AM
Tough economic times call for tough solutions like mortgage deferrals.
When you can’t make your mortgage payments, you may have to:
refinance your current mortgage
take out a private mortgage to get by
or transfer your home to next of kin.
Before you do that, ask your lender about mortgage deferrals. They let you temporarily suspend (or defer) your payments until your financial situation changes.
Quick Read
How do payment deferrals work?
How long can you defer payments on a mortgage?
What is the difference between deferral and forbearance?
Who qualifies for mortgage deferrals
Does a deferment hurt your credit?
Using insurance to pay your mortgage
When to Consider Mortgage Deferrals (Canada)
Mortgage deferrals let you briefly skip payments while you look for work, reorganize debt, or get financial aid. You can request a deferral at any time. Take advantage of mortgage deferrals to suspend loan payments when you need time to decide whether to sell your home, rent it out, or ask your lender to take back your mortgage. Six steps to get out of debt.
When to Get a Mortgage Deferral
Banks, credit unions and CMHC have been willing to temporarily suspend mortgage payments for up to six months during the recent pandemic. But you can request a mortgage deferral at any time.
A mortgage deferral lets you briefly skip payments while you look for work or get government financial aid. Deferrals give you time to consider if you need to sell, rent or ask your lender to take back your mortgage.
When your financial situation is unlikely to improve, deferrals lets you exercise your options without a mortgage default.
For example, you might:
- borrow back lump sum payments you made in better times
- temporarily reduce your payments
- transfer to a private lender for second mortgages
- blend and extend your mortgage to lower the interest
- convert from variable to a fixed rate to keep payments steady
- increase your amortization to reduce monthly payments
- or live in your home while you sell it.
We have a real estate lawyer anywhere in Ontario when you need one.
How Mortgage Deferrals Work
Deferring your mortgage means putting your regular payments on hold until you can afford to make the full payments again. Your bank will let you know how long you can suspend your payments. Up to six months is standard.
Making Interest Only Payments
Deferrals allow you to pay interest only and set aside principal payments for a better day. They increase how long it takes you to pay off your mortgage by adding deferred payments to the end of your amortization term. You can also repay the principal by refinancing your home or selling.
Paying Interest on Interest
Your mortgage lender charges interest every month you defer your mortgage principal. The new interest is added to your normal monthly interest payments. Some lenders will refund these “interest on interest” payments when your deferral ends. Ask if your lender will.
Who Pays Property Taxes
Depending on how you pay property tax, you may want to ask your lender if they will temporarily pick up these expenses. Your municipality may also defer property taxes if you are suffering financial hardship. These become outstanding debts when you resume your property tax payments.
Forbearance vs Mortgage Deferrals
Mortgage deferrals differ from forbearance because they add any missed principal payments to how much you owe when your mortgage is paid. Forbearance also suspends mortgage payments temporarily, but may require you to repay the principal in full to resume your mortgage.
You can use a combination of forbearance with mortgage deferral. Instead of making a lump sum repayment when you restart your mortgage payments, ask your lender if they will add the missed principal to the end of your loan.
Who Can Defer Mortgages
You may qualify if:
- you, your spouse or partner are unemployed,
- or your family’s income declined because of illness, reduced work hours or unemployment,
- and your mortgage is in good standing,
- whether you live in your home or own and rent it.
Skip-a-Payment at RBC.
Cancel or Repay Deferrals
If your fortunes improve, you could cancel your deferral early and resume your regular mortgage payments. That halts the extra interest you pay to suspend your mortgage payments, while adding the deferred principal to the end of your loan.
Reinstating your loan lets you continue on with your regular mortgage terms, instead of making higher monthly payments to catch up or extending the amortization term. Your lender can discuss which option is right for you. Cancelling a mortgage deferral early.
When your financial situation is unlikely to improve, using mortgage deferrals gives you time to consider other, less drastic measures to defaulting on your loan.
For example, you might:
- borrow back lump sum payments you made in better times
- temporarily reduce your payments
- transfer to a private lender for second mortgages
- blend and extend your mortgage to lower the interest
- convert from a variable rate mortgage to a fixed rate to keep payments steady
- increase your amortization term to reduce the monthly payments
- or live in your home while you sell it.
Mortgage Deferrals and Credit Scores
Rest easy on the credit score front. Mortgage deferrals are a lender-approved way to temporarily manage debt, not a mortgage default. To prevent credit bureaus from mistakenly lowering your credit score, get mortgage deferrals in writing.
Using Disability or Credit Insurance
Don’t want to defer? Disability or credit insurance can tide you over when you are temporarily disabled or unemployed.
Who Qualifies
Provided you’re in good health, under 65 to 70 (depending on your policy) and have kept up with your debts until now, insurance can help you make payments that could otherwise be unmanageable.
How to Buy It
You can buy private insurance, include it in your extended benefits at work or add it to a mortgage. Disability or credit insurance make mortgage or rent payments and pay basic living expenses if you lose a job through no fault of your own.
When It’s Effective
An accident or illness that prevents you from working, layoffs, legal strikes or being let go without cause can trigger your insurance.
Check your policy for benefits periods. Single premium policies are paid in full when you purchase insurance. Otherwise, you may have to negotiate with your lender to temporarily delay the monthly premiums.
Why You Need a Real Estate Lawyer
If you’re refinancing a mortgage or starting over with private mortgages, we have licensed real estate lawyers near you who can close your transaction. Axess Law completes most mortgage discharges in less than a week.
Access lawyers in the Greater Toronto Area and Ottawa to discharge existing mortgages and communicate with your bank to finalize your new or blended mortgage. We add new lenders and update the title to your property to make it legally valid. See if a real estate deal falls through who gets the deposit?
Ask your mortgage lender or broker if they pay or reimburse legal fees. You could get mortgage assignment fees and discharge costs covered in part or full when you change lenders to get more favourable loan terms.
Questions about mortgage prepayment penalties you owe or administrative fees in mortgage documents? Our real estate lawyer services keep you informed every step of the way. 25 questions to ask a real estate lawyer in Ontario.
Affordable Legal Services, Anywhere in Ontario
Access lawyers for less in the Greater Toronto Area, Ottawa, or anywhere in Ontario when you buy, sell, or transfer property. Axess Law’s flat fee real estate lawyers are affordable, and our rates are all inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it.
Use a virtual real estate lawyer.
Mortgage Lawyers for Flat Fee Legal Services
Our affordable real estate lawyers help you refinance a mortgage or take out a new one. Use our easy online booking form to make your appointment. It takes only minutes and we’re open 7 days a week, at times convenient for you. Make day or evening appointments, whatever fits your schedule best. Call our 1-647-479-0118 lawyer line (toll free to 1-877-402-4277) to meet in person at any of our Axess Law locations in the Greater Toronto Area or Ottawa. We video conference online anywhere in Ontario and witness your signature using secure, remote signing software.
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