Now that the Office of the Superintendent of Financial Institutions (OSFI) has signalled that the mortgage deferral program is coming to an end, Jason Davenport is preparing to handle calls from worried homeowners.
“We haven’t received any panicky calls yet, but I’m prepared for it to happen,” said Davenport, manager of the Meridian Credit Union’s Danforth branch in Toronto. “We have touched base with our members throughout the pandemic, so they should be very aware of their individual timeline. Ultimately, I want homeowners to call with enough time to look at options.”
Due to the pandemic lockdown, the Canadian government allowed lenders to offer homeowners the option to defer mortgage payments for up to six months, beginning in March. As of July 31, the Canadian Bankers Association indicated that more than 775,000 Canadians had taken advantage of the opportunity to defer their mortgages or skip a payment. Homeowners can still opt into the program until Sept. 30 at many financial institutions.
With the average monthly mortgage payment estimated at $ 1,326, according to the Canada Mortgage and Housing Corporation, Canadians were able to free up about $ 1 million monthly during a period when job layoffs and furloughs were common; in fact, by Aug. 31, 8.7 million Canadians had applied to the Canada Emergency Response Benefit of $ 500 weekly for financial assistance during the pandemic. Fortunately, as the economy begins to rebound, unemployment is decreasing — down to 10.9 per cent in July from a high of 13.7 per cent in May, according to Statistics Canada — and many Canadians are beginning to regain their financial footing.
“I am glad the deferral was made available, because Meridian needed to be there for people, but six months has given them enough time to make plans for adjusting,” said Davenport. “We are looking for payments to start happening again, but we do offer our members a ton of options, including an increased amortization period for their mortgage, subject to lending guidelines; establishing a home equity line of credit (HELOC); or refinancing.”
The major Canadian banks, too, are preparing for the end of the deferral period and offering to work with clients to ensure they can meet their financial obligations in a manageable way.
“Under the (RBC Client Relief) program, clients had the option to defer mortgage payments for up to six months, and many of the clients who selected this option started making their regular mortgage payments before their deferral period ended,” said Heather Colquhoun, director of personal and commercial banking communications for RBC, by email.
“We have proactively contacted our clients to offer guidance and support, financial advice and insights into their finances — what we’re calling an RBC check-in. We’re meeting with a record number of clients to help provide the advice they need to navigate their changing circumstances before they reach the end of their deferral.
“We know that some clients are still facing financial challenges due to the lingering economic effects of the COVID-19 pandemic. RBC has a number of options to assist clients who are can’t afford their current payment, including extending the amortization period to reduce monthly payments.”
At CIBC, Laura Dottori-Attanasio, group head of personal and business banking, noted by email, “As the economy reopens, we’re seeing more clients getting back to normal in terms of income; however, we recognize there are clients who remain affected and we’re committed to helping them. Our current focus is on reaching out to clients who are on a payment deferral program to assess how they are doing and ask how we can assist them.
“For clients who may be affected over the longer term, we will work with them to restructure their finances where possible so that they have a sustainable long-term plan in place to get them back on track.”
Homeowners who are considering lowering their monthly mortgage payments by refinancing need to take potential penalties into account, says Phil Weir, a mortgage broker and president of the Canuck Mortgage Group in Vaughan.
“Lots of people have been coming to look for refinancing, but it’s a double-edged sword,” Weir said. “Interest rates are down, but that’s really only good for people whose mortgages are coming due for renewal. The penalties are massive if you break a five-year, fixed rate mortgage.
“I have a client whose penalties would be $ 15,000, so she’d only save $ 1,000 over a five-year term, but she would have a lower monthly payment.”
He has found that many of his clients who opted for mortgage deferrals are now back at work, so they are able to meet their monthly obligations, but “if we get locked down again, I don’t know what will happen. There’s a lot of hype and uncertainty.”
Davenport, the Meridian branch manager, advises homeowners to talk to their financial advisers, and, if they don’t have an adviser, now is the time to choose one who can help create a viable financial plan tailored to your circumstances.
“Start thinking about your financial situation and talking to your adviser,” he said. “You need time to make an informed choice.
“Enough time has passed since the pandemic began that people need to make plans to move forward.”
Tips for handling the end of mortgage deferrals
- Start talking about it now; reach out to your financial institution and your financial adviser.
- Talk to your own financial institution before looking elsewhere for relief, since you already have a relationship with that organization. A lot of financial institutions will work with you if you indicate you want to work with them.
- Now is a good time to find a financial adviser for advice going forward. Learn about their background and how long they have been in the industry; make sure you feel comfortable with them.
- Work with your adviser and/or your financial institution to plan for your financial future.