If you’re one of the thousands of Canadians who were laid off or lost their jobs because of COVID-19, will that affect your chances of your mortgage being renewed?
Typically it should not, mortgage brokers say.
“If you are paying your mortgage regularly your lender will always offer you a renewal, because it’s cheaper for them to keep a client than it is for them to go out and get a new one,” said Denise Laframboise with Element Mortgage Group.
“There is a common misconception out there that you will need to qualify for your mortgage at renewal. If you are staying with your existing lender, then that is typically not the case. A homeowner usually has the option to continue on with their current lender without requalifying.”
If you’re looking to refinance or make changes to your mortgage, then you will have to requalify. That’s when lack of employment can be an issue, she said.
“Unfortunately for a lot of people who are out of work, you’re also racking up a lot of debt, potentially making it harder for people to requalify,” she said, pointing out that some lenders have accepted the $ 2,000-a-month Canada Emergency Response Benefit as income.
“But people can just stay with their current lender and take whatever renewal offer is given. You won’t get to shop the whole market, but you’re not going to lose your house.”
Five years is the typical length of a mortgage contract term in Canada.
Those out of work who have received a renewal offer could still do some negotiating around the rate they’ve been offered with their existing lender, said Estée Zacks, owner of Strategic Mortgage Solutions. They can start by checking what the going rate is at the time of renewal.
“Number one, see what the market rate is at that time. Number two, request something and negotiate in that ball park with your existing institution if you’re not employed. And number three, decline the refinance application process if pitched or proposed to you,” she said.
“Remember, if you don’t ask, you certainly won’t get,” she added. “Do what’s in your best interest.”
Rates are at a historic low, said mortgage broker James Laird, pointing out that even if the rate offered to someone at renewal is not the absolute best on the market, it is almost certainly better than what they’ve had for their previous term.
The lowest rates that exist right now are five-year fixed rates at less than 2 per cent, he said. If a lender offers you something “in the low 2s,” Laird recommends going for it.
“If you’ve lost your job and your existing lender offers you a renewal, you should take it,” said Laird, co-founder of RateHub.ca.
He said technically a lender could ask for proof of income upon renewal, but that in practice, as long as you’ve been consistently making your payments, the lender will simply offer a renewal.
“We’ve never dealt with a pandemic that’s caused mass unemployment, so the lenders are still sorting this out and how they’re going to handle it,” he said.
Laframboise said she also reminds people of the consequences of having all of your accounts in one place.
“If you have everything at one place, you are giving that lender permission to see everything. So if they can see that my business is struggling in my business bank account, that may be a red flag for them,” she said. “If I have my mortgage and business banking at two different places, I’m not giving them permission to see anything I don’t want them to see.”
The brokers also reiterated the importance of getting independent advice when dealing with something like a renewal.
“People may not want to call their bank and say, ‘I lost my job, what do I do next?’ You may not want to raise any red flags,” Laframboise said.
“A bank is not there to give independent advice. It’s there to say, ‘Here’s what we can do. Do you want it?’ ”
And then there’s the question of deferrals. Many Canadians took advantage of the six-month break in mortgage payments announced in the spring at the height of the pandemic.
But what if a person is still unemployed and unable to make their mortgage payments once the deferral period comes to an end?
“If you can’t pay your mortgage your options will go back to what they were pre-COVID,” Laframboise said. “You would try to work with your lender or the default insurer (if you bought with less than 20 per cent down) to find a resolution.”
Laframboise said it’s possible that some Canadians currently in deferral have been saving up, preparing for the resumption of their mortgage payments. For those who are not in that position, she said options could include restructuring their mortgage or going to alternative lenders.
However, “for clients who are already over-leveraged or unable to restructure, they may find themselves looking to sell if they are going to be unable to afford their home,” she said.
Laframboise said lenders are being flexible, and that ultimately she believes “there will be options for Canadians to keep their homes in the majority of cases.”