A mortgage deferral is only one of many programs Canadians can explore if they struggle to pay their mortgage and house expenses.
A recent 2021 Ipsos survey suggested that 1/3 of Canadians live house poor.
In simple terms, being house poor is when someone owns too big of a house and can’t afford to live in it.
Today I’ll guide a financially strapped couple after buying an overpriced pandemic home.
I will go over what a mortgage deferral program is, how to apply, budgeting tips, credit scores, mortgage insurance, and life insurance.
What is a mortgage deferral?
A mortgage deferral is for homeowners who are struggling to pay the mortgage.
The good news is there is help in Canada with the mortgage deferral program.
Through a mortgage deferral program, a homeowner works with their lender to delay payments for a specified time.
It’s supposed to be the most exciting time when you finally win the bid on a house, even if it’s not really what you both wanted.
Unfortunately, some people who jumped into the market during the height of overly priced homes might struggle to juggle the bills.
Couple Struggling With Their Mortgage Payment
There’s more to owning a house than a mortgage payment, and this couple I’ll call Tony and Rina (to protect their privacy), are finding out the hard way.
Dear Mr. CBB,
Unfortunately, this isn’t going to be a happy email, and I’m saddened to seek out help for my family.
My name is Tony, and I’m married to my wife, Rina, to whom we have a 3-year-old son.
Recently we purchased a home after struggling to win a bid, so we took whatever we could get.
In previous relationships, we had homes, so we thought we understood home ownership.
Unfortunately, we already feel the financial pressure of owning our 1000-square-foot bungalow.
We bid on the house because we couldn’t find anything else and needed somewhere to live.
Sadly, like most home buyers during this mess, a seller’s market had no conditions meaning no home inspection.
Looking back, we made a big mistake, but we can’t go back, but we can move forward.
We put down 20% when we bought our house, so we didn’t have to get mortgage loan insurance.
Last month the facility I worked at for five years shut down indefinitely, leaving me without a job.
I heard the pandemic, prices and a lack of applicants for specialized roles hurt the company.
Currently, my wife works part-time at a dental office and picks up an extra shift when she can.
In the meantime, while I wait for employment insurance (EI), her money pays the bills, which we supplement with our emergency savings.
Our debt repayment plan, not including the mortgage, is high since we weren’t the best with our finances.
We pay the minimum payment on two credit cards; when combined, we owe $7,355.42.
I also stay home and take care of our son instead of him going to daycare on the days she works.
Until I get my EI, we face falling into mortgage arrears with our bank lender.
We are short $1275 monthly which would cover our mortgage and property taxes.
We’ve lived in this house for four years and have never been in this financial position before.
What do you suggest that we should do first?
Paul from Ontario
Responding To Paul
I’ve listed as much as possible about getting accepted into a mortgage deferral program.
I trust this will help you focus on paying off your credit cards.
One last suggestion is that you may be able to complete a credit card balance transfer.
Find a credit card that meets your needs and accepts balance transfers.
You could get both credit card debts combined into one credit card with 0% interest or something less than what you have now.
Thanks for the email.
Call Your Mortgage Lender
When discussing the possibility of getting a mortgage with a bank or mortgage broker, have them consult with you about a mortgage deferral program and whether they offer it.
If you are confident that you won’t have enough money in the bank to pay for your mortgage, call the bank.
It’s best to let them know your current situation and see if there is anything they can do to help.
Who Can Apply For A Mortgage Deferral Program?
When we had our mortgage, the bank offered us one free month without penalty for skipping a payment.
However, we could have qualified for a longer mortgage deferral provided we met the banks’ criteria.
- You have lost your job due to Covid-19.
- Your income has decreased significantly because of Covid-19
- You’ve been in good standing with paying your mortgage on time each month
- You live in your primary residence or your non-principal home.
- Your mortgage is either insured or uninsured.
Other names you might hear for the program are a mortgage deferral program or mortgage break.
Successful homeowners applying for a mortgage deferral will not see a credit score change.
The bank or institution that holds your mortgage will contact the credit bureau on your behalf.
Lenders will let the credit bureau know that it’s not a non-payment it’s a mortgage deferral which means no lost credit score points.
Although we never used the bonus month, it was nice to know that it was there in an emergency.
You can find more information about mortgage deferrals at Canada.ca.
I’d also call Employment Insurance (EI) to double-check the process of receiving your EI benefits.
Employment Insurance may have available resources for you if you explain your financial situation.
I’m not 100% certain, but it’s worth a shot.
Calculate A Simple Home Budget
If you have not calculated a simple home budget, I suggest doing so.
You must be honest and document everything you know or think you will spend each year.
I’d start by reading my 10-Step Mini Budgeting Series for beginner basic budgeting knowledge.
From there, you can decide if you want to use my free budget excel spreadsheet (we use this) or a printable paper budget.
Other informative budgeting posts that might interest you are:
- How To Budget For Short-Term Savings
- Are You Forgetting These Budget List Expenses?
- How To Handle Money Successfully
- What Does A Sample Budget Look Like?
- How Many Income Streams Should I Have?
- Consequences Of Not Using A Budget
- How A Budget Bootcamp Works
- 6 Starter Tips For Building An Emergency Savings Fund
- How To Fix Your Money Problems
- What Is Considered Bad Debt?
- How To Start Selling Everything When In A Financial Crisis
Mortgage Payment Protection Scotia Bank
Mortgage protection is optional coverage for which mortgage holders can apply at the bank that holds their loan.
Since mortgage protection is optional, even if you have life insurance, reviewing your options is a good idea.
Before we get into that, I want to discuss employer life insurance, term life insurance and mortgage insurance.
I’ve heard numerous times from people that they don’t need life insurance as their employee benefits cover them.
Although your employer might offer insurance, it doesn’t mean it will fit your needs, as each situation is different.
For example, an employer’s life insurance policy might pay a certain amount, such as $50,000.
Other employers may offer 70%, 80% or more of your salary upon death.
Power Of Attorney And Password Protection
Whether single or married, you should always appoint someone to look after personal affairs upon your death.
For example, do you have a legal Will and a power of attorney (POA) chosen?
You’ll need to leave passwords and other important information for your POA.
Using a password protector app is one of the best things you can do for your POA.
We use Keeper Security to protect our passwords and stay safe online.
You can include the password with your legal Will or let the POA know what it is.
When your POA has to take care of your affairs, they will have all of the information needed.
If paying $500 for a legal Will is too much money, you don’t need one to be covered.
Three popular online Will kits in Canada are inexpensive and simple to use.
- Epilogue Will Kit
- Canadian Legal Wills
Epilogue is a simple, fast, and affordable way for Canadians to create their Will and Powers of Attorney online.
Another popular online Will Kit provider in Canada is Canadian Legal Wills. Canada’s #1 provider of online Wills, Power of Attorney, and Living Wills.,
Willful is Canada’s favourite do-it-yourself online will platform that breaks down the estate planning process into simple steps.
If you use my link, will get 15% off any Willful plan.
You can create your last Will and power of attorney documents in 20 minutes or less with Willful.
Term Life Insurance vs. Mortgage Insurance
Let’s discuss the difference between Term Life Insurance and Mortgage Insurance.
An example is if someone owned a home, held Term Life Insurance, and died.
The Term Life Insurance is optional and will pay the beneficiary named on the insurance document the amount stated.
The insurance policy might state that it is for $800,000, which is paid once the insurance company is satisfied with the death.
Mortgage Insurance must be purchased when someone does not put a 20% downpayment on a mortgage.
Mortgage Insurance, Mortgage Loan Insurance and Mortgage Default insurance protect the lender, so they get their money back.
Related: Sun Life Go gives people the flexibility to help meet health and financial needs with convenient access to insurance coverage.
Even if you put 20% down on your mortgage, the lender or broker may ask if you still want it.
Most often, individuals with a low credit score or working for themselves will find the bank checks their credit score.
Death And Mortgage Insurance
If the homeowner was to pass away, the mortgage insurance pays off the remainder of the mortgage loan.
Money from a mortgage loan is paid to the bank where the homeowner took the mortgage and then relieved the mortgage.
So, if you put the minimum 5% down $25,000 on a $500,000 mortgage, you would need mortgage insurance which is factored into the loan balance.
To avoid paying for mortgage insurance, you would need to put $125,000 down on the $500,000, which is 20%.
I did some sleuthing at Scotia Bank to understand what protection they were offering to their mortgage customers.
Mortgage insurance is transferrable or portable, which means you can take the coverage to your new home if you move.
Mortgage Deferral Program
How do I defer my mortgage payment with TD Banks?
TD bank offers a mortgage deferral program but on a case-by-case basis.
We are working with TD customers on a case-by-case basis, providing financial relief to those who need it. This includes up to a six-month payment deferral for mortgages.TD Bank
Remember that the bank will add mortgage interest to your loan if you accept a mortgage deferral program.
Accepting any mortgage deferral program doesn’t mean you get free mortgage relief.
Once the term is up for your deferral, the bank and homeowner will discuss repayment.
Other Options Besides A Mortgage Deferral Program
A bank doesn’t want homeowners losing their homes, so they have options.
If you think about it, a bank stands to make more money from the homeowner than if they had to repossess the house and sell it.
If you don’t qualify for a mortgage deferral, you can ask your lender about extending the amortization period.
When your bank increases the amount of time it takes you to repay your mortgage, it stretches out.
Doing so means you pay a smaller monthly mortgage; however, the mortgage will cost you more in the long run.
Skipping a payment is what we were offered automatically from our mortgage lender.
Variable Interest Rate To A Fixed Rate
Swapping a variable rate mortgage to a fixed rate mortgage, so you know exactly what you need to pay each month.
With a variable mortgage, the amount will change monthly, so costs go up and down.
Interest-only payments are a way to reduce mortgage payments based on your lender’s approval.
Payment Relief Program
When Mrs. CBB had OSAP and no job, she applied to the Royal Bank, and they offered her a payment relief program.
For one year or until she found a job, she only had to pay the interest on the loan each month.
If your mortgage lender offers it, I’d probably use this option as a last resort.
If a homeowner goes this route, they are still on the hook for the missed payments.
Discussion: Have you ever had to use a mortgage deferral program, and how did that work for you?
Please type your answer in the comment section below, and I’ll reply to each comment.
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