Will Deferring Your Mortgage Impact Your Ability To Borrow?
In April 2020 all Canadian financial institutions offered homeowners the right to defer their payments for mortgages and loans for 6 months in light of COVID-19. Some people chose this with no consideration for other options, the consequences and without asking will deferring your mortgage impact your ability to borrow?
The deferral programs typically allow the home owner to defer those payments till the end of their mortgage term and the balance owing increases to add in the deferred payments. Then the new term of mortgage will come with a payment a bit higher than before for the next term.
Lenders and the credit bureaus all agreed the deferral of any financial accounts such as mortgages would not impact a borrowers credit score or history. Some home owners could use the deferral as a time to save some money in an emergency fund for any further reduction in employment or earnings during COVID-19. Alternatively they could put extra money down on other debts to help improve their credit rating and lower their cost of borrowing on those higher interest credit cards.
However, every option available to home owners comes with pros and cons.
Pros
If a homeowner defers the mortgage because they need the extra cash flow due to a loss of income that may be an obvious choice. If a homeowner defers the mortgage to save some money and lower other debs this may also be an obvious choice. However, all home owners should consult with their mortgage broker for a complete review before choosing a deferral. With current low rates and other product offerings there could be better ways for homeowners to reduce debt and lower their cost of borrowing.
Cons
We have heard from homeowners who have been declined when applied to transfer their mortgage at maturity after a deferral. These instances have been directly with the branches of the large banks. We have heard of homeowners who have had loan payments automatically deferred by the big banks even if they the client has not requested it. In some cases these deferrals have shown up on credit reports when they aren’t supposed to.
Even though a deferral sounds like a good idea you should always ask will deferring your mortgage impact your ability to borrow?
Other things to consider
Always check your accounts online to ensure payments are made on time. If you see a delay in your payments and have not requested a deferral, contact your lender. Check your credit report annually not only for your score but to review the details and ensure no issues with collections or incorrect reporting.
When in doubt contact your mortgage broker with any questions or a review of your needs.