Life can throw unexpected challenges, and financial hardships can make it difficult to keep up with your mortgage payments. You’re not alone if you’re a Canadian homeowner facing financial difficulties. Mortgage payment deferrals can offer temporary relief, giving you the breathing room you need to get back on track. This guide will explore the ins and outs of mortgage deferrals in Canada. We’ll cover eligibility criteria, the deferral process, potential drawbacks, and alternative solutions to help you make the best choice for your unique circumstances.

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Key Takeaways

• Mortgage deferral is not loan forgiveness; it provides temporary relief, and eventually, the deferred amount needs to be repaid with added interest.
• Lenders have specific criteria for deferral eligibility, often considering factors like financial hardship and mortgage type.
• Deferral might not be the best solution for everyone.

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What is Mortgage Payment Deferral?

A mortgage payment deferral is a temporary agreement with your lender that allows you to pause your regular mortgage payments for a specified period. This can be a lifeline during challenging times, providing immediate financial relief. However, it’s crucial to remember that the deferred payments are not erased; they must be repaid later.

Mortgage deferrals can assist when you face financial difficulties, such as job loss or decreased income caused by pandemics or natural disasters. A mortgage deferral is a mutual agreement between you and your lender, allowing you to temporarily halt or delay your mortgage payments for a specified period. Often referred to as a mortgage payment deferral agreement or mortgage forbearance agreement, this arrangement is a short-term solution. Once the deferral period concludes, you will resume your regular mortgage payments, and you will need to repay the missed payments, which will include both the principal and any accrued interest.

Mortgage Deferral Eligibility

Eligibility criteria for mortgage deferral vary between lenders, but common factors include:

• Financial hardship:  Demonstrable reasons like job loss, reduced income, illness, or other unforeseen circumstances.
• Mortgage type:  Some lenders may restrict deferrals on certain mortgage products.
• Good standing: Your mortgage account should typically be in good standing before applying for a deferral.

What Happens When You Defer Your Mortgage?

A mortgage deferral offers temporary relief from payments but comes at the cost of increased interest and potentially higher payments in the long run. Before opting for a deferral, it’s crucial to fully understand the terms and potential impact on overall mortgage costs.

Interest accrues: Interest accumulates on your outstanding mortgage balance even though you’re not making regular payments. This means the total amount you owe will increase.

Amortization may extend: The length of your mortgage term, or the length of time it takes to pay off your mortgage in full, may be extended to account for the deferred payments.

Monthly payments could increase: Once the deferral period ends, your monthly payments could be adjusted upwards to cover the accrued interest and the remaining principal balance within the (potentially extended) amortization period.

Common Mortgage Deferral and Relief Options

• Mortgage payment deferral (delay payments for a specific period).
• Extended mortgage payment deferrals (longer deferral period with potential limits).
• Extension of amortization (lower payments but increased interest costs over time).
• Special payment arrangements (reduced payments for a set period).
• Capitalization (add missed payments to principal, increasing mortgage balance).
• Interest-only payments (defer principal payments temporarily).
• Selling your home (consider downsizing and accessing the equity in your home).

Pros, Cons and Alternatives for Deferring Mortgage Payments

Pros of deferring mortgage payments:

• Provides immediate, short-term financial relief during challenging times.
• Improves monthly cash flow, allowing you to focus on essential expenses.
• Offers peace of mind and reduces financial stress.

Cons of deferring mortgage payments:

• Unpaid interest accrues and is added to the principal, increasing the overall mortgage debt.
• Leads to higher borrowing costs over the life of the mortgage.
• This can result in a longer repayment period and more interest.

Alternatives to deferring mortgage payments:

• Refinancing: Access equity in your property to pay off other debts or cover expenses.
• Increasing amortization: Extend your mortgage repayment period to lower monthly payments.
• Adjusting your budget: Review your spending and identify where you can save.
• Pursuing other deferral options: Consider deferring property taxes, utility bills, or other loan payments.

Causes and Alternative Solutions for Mortgage Payment Deferrals

Causes of financial difficulties:

• High household debt
• Increased cost of living
• Rapid increases in interest rates

Impact of rapid interest rate increases:

• Higher mortgage payments for those renewing fixed-rate mortgages
• Increased payments for those with variable-rate mortgages
• Potential trigger rate issues for variable-rate mortgages with fixed payments, leading to negative amortization

Options for renegotiating your current mortgage:

• Renegotiate terms to improve financial stability or take advantage of lower rates.
• Convert from a variable to a fixed interest rate for payment predictability.
• Consider blended options (blend-to-term or blend-and-extend) to potentially lower payments.

Leveraging mortgage features:

• Re-borrow prepayments made during the current mortgage term.
• Skip a payment (if eligible and within allowed limits).
• Utilize a home equity line of credit (HELOC).
• Make a mortgage creditor protection claim if applicable.

CMHC / Sagen / Canada Guaranty Mortgage Default Management 

Canada’s mortgage default insurers have created a government-approved process for deferring mortgage payments on insured and insurable mortgages. They emphasize that lenders must assist borrowers who are experiencing financial challenges. If borrowers are having trouble with their mortgage payments, they should contact their lender promptly to explore their options and find a suitable solution for their financial situation.

• Due diligence: Lenders must thoroughly assess each borrower’s unique situation before applying default management tools. This includes gathering updated financial information and calculating debt service ratios.
• Minimize claims: Lenders must proactively reduce potential claims, effectively managing borrower defaults.
• Explore all options: Lenders are expected to exhaust all viable options and default management tools to help borrowers resolve their default situation.
• Maintain loan priority: Any actions taken to manage a default should not negatively impact the priority of the loan and its associated security.
• Document everything: Lenders must keep detailed records of all borrower interactions, financial assessments, and the rationale behind default management decisions.

Available default management tools:

• Short-term mortgage payment deferral: Temporarily pause or suspend mortgage payments.
• Amortization extension: Extend the mortgage repayment period to reduce monthly payments.
• Adding arrears to mortgage balance: Include missed payments in the mortgage balance and spread them over the remaining term.
• Variable to fixed conversion: Switch from a variable interest rate to a fixed rate for predictable payments.
• Special payment arrangement: Create a customized plan tailored to the borrower’s financial situation.

Lenders have a responsibility to work with borrowers facing financial difficulties. If you’re struggling to make your mortgage payments, contact your lender as soon as possible to discuss your options and find a solution that works for you.

RBC Skip-A-Payment Mortgage

RBC’s Skip-A-Payment feature allows you to pay back any missed payments at any point during your loan term. If you have made any double-up payments, you can skip the total payment amounts matching those payments. However, it’s important to note that taking advantage of this option may lead to a considerable rise in your overall interest expenses. While this feature can provide temporary financial relief, it can also result in higher costs in the long run.

To qualify, your mortgage payments must be current with no overdue amounts. RBC does not allow negative amortization, so your total mortgage balance plus missed payments cannot exceed the original mortgage amount. You can miss up to 4 weekly payments, 2 bi-weekly or semi-monthly, or 1 monthly payment. 

This option at RBC has no fees, but interest on skipped payments will be added to your principal, increasing your mortgage balance. Your regular payments will remain the same during the term but may increase upon renewal due to the higher balance. You are still responsible for other payments like property taxes and insurance.

TD Mortgage Payment Deferral 

TD’s flexible mortgage payment features allow eligible borrowers to skip up to 4 months of payments. Interest will still accrue. To qualify, all TD debts must be current, with no delinquencies or bankruptcies. You can use this feature once per term for up to 4 months through TD EasyWeb. 

Contact TD immediately if you anticipate difficulties with your mortgage payments, ideally before missing any. The application process is simple via the TD website, but remember that deferring payments is temporary, and interest will continue to accrue, increasing your overall debt. If you can manage your payments, consider other options.

BMO Flexible Payment Options

BMO’s flexible payment options temporarily ease financial burdens by allowing you to skip mortgage payments. However, it’s important to remember that interest will still accrue, and you’ll ultimately pay more over the life of your mortgage.

Take a Break Option allows you to skip 1 monthly mortgage payment yearly. You can divide this payment into smaller amounts, either bi-weekly or weekly. However, this option is not available for BMO Smart Fixed Mortgages.

Family Care Option lets you skip up to 4 monthly mortgage payments if you or your partner need time off for family matters, such as a new baby or caring for a sick family member. Similar to the other option, this can also be split into smaller payments bi-weekly or weekly. However, this option is unavailable for BMO Smart Fixed Mortgages or self-employed borrowers.

When you skip payments on your mortgage, interest continues to build up, which means the total amount you owe will grow over time. You can pay back any missed payments whenever you choose, and there are no fees for doing so early. However, certain limitations are associated with these options, so it is essential to contact BMO for further information.

CIBC Mortgage Payment Relief 

If you’re experiencing financial difficulties, CIBC’s mortgage payment relief options may allow you to temporarily suspend your mortgage payments. Interest will accrue during this period and be added to your total mortgage amount. 

You can only defer payments for up to 4 months, which may not be sufficient for everyone. You must qualify through an assessment and continue paying property taxes and insurance. After the deferral, your mortgage payments may increase to cover missed payments.

Short-term options

Revert to your original amortization schedule if you’ve been making accelerated payments to improve cash flow, though this may increase total interest costs and extend your mortgage duration.

For immediate cash flow relief, make reduced interest-only payments for a limited time, but be aware that payments will rise afterward, and no principal will be paid down.

Defer mortgage payments for up to 4 months for quick cash relief, but this usually requires qualification and will result in higher payments and accumulated interest added to your principal afterward.

Long-term options

Refinancing your mortgage can reduce income over time by securing a new mortgage loan with lower interest rates or a longer repayment period, potentially lowering monthly payments or consolidating debts. However, be mindful of closing costs and the possibility of extending the mortgage duration.

Extending the amortization period of your mortgage can lower monthly payments by increasing the repayment time. However, this may significantly increase the total interest paid over the loan’s life, so consider the long-term financial impact.

Frequently Asked Questions (FAQ) on Mortgage Payment Deferrals

Final Thoughts

Navigating financial challenges can be overwhelming, so it’s important to know options are available. Mortgage payment deferrals can provide temporary relief, but carefully weighing the pros and cons is essential. Consider alternatives like refinancing or adjusting your budget if possible. If you’re considering a mortgage deferral, reach out to your lender to discuss your situation and explore available options.

Contact nesto mortgage experts for personalized guidance and expert advice tailored to your needs. We can help you assess your financial situation, explore the best course of action, and navigate the complexities of mortgage deferrals or alternative longer-term solutions. Remember, you don’t have to face financial difficulties alone – we’re here to help.

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Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.

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