We are in the middle of a worldwide roller coaster ride.
With unprecedented restrictions being implemented to deal with the Coronavirus (COVID-19) Pandemic, what do these extraordinary measures mean for you and your mortgage?
BANK OF CANADA RATE
With adversity comes opportunity – and our current mortgage situation is no different. In order to keep our economy afloat, the government reduced the Bank of Canada rate on March 4, 2020 to 1.25%. As a result of that decrease, most lenders also reduced their 5 year fixed mortgage rate. Due to that rate drop, many buyers and refinancing clients were able to secure a great mortgage rate. On March 13, 2020, the government dropped the Bank of Canada rate another 50 bps to .75%! To my surprise, many lenders started to increase their rates immediately after this announcement! If you are currently looking to purchase a property or refinance your current mortgage, this is an excellent time to see your Mortgage Broker about locking in a low rate.
MISSING A MORTGAGE PAYMENT
So what happens to your mortgage payment if you are not earning any income? The government has waived the waiting period for Employment Insurance benefits for those who are quarantined (https://www.canada.ca/en/employment-social-development/corporate/notices/coronavirus.html). But what if your workplace is shut down or you have to stay home to be with your children or you are in the service industry and you rely on tips to meet your monthly financial obligations? If there is a chance that you cannot pay your mortgage payment due to an income reduction as a result of the COVID Pandemic, my first advice is to contact your lender immediately. Many lenders have implemented emergency measures to help clients through this uncertain financial scene. Putting a plan in place with your lender as soon as possible will help you avoid relying on credit that may ultimately hurt your credit score. In most cases, your lender will allow you to miss some mortgage payments…. Please keep in mind that the interest you “miss” will still be added to the amount you owe on your mortgage.
INSURED MORTGAGES
If you originally purchased your property with less than a 20% down payment (and have not refinanced your mortgage since), your mortgage is most likely insured by CMHC, Genworth or Canada Guaranty. Contacting your lender the moment that you feel you will not be able to make your mortgage payment is vital. CMHC and other mortgage insurers offer tools to lenders that can assist homeowners who may be experiencing financial difficulty. Their default management tools default management tools include: payment deferral, loan re-amortization, capitalization of outstanding interest arrears and other eligible expenses and special payment arrangements. (https://www.cmhc-schl.gc.ca/en/media-newsroom/Notices/2020/cmhc-statement-covid-19).
DEFERRED MORTGAGE
Canada’s six largest banks announced plans to provide financial relief to Canadians impacted by the economic consequences of COVID-19.
Effective immediately, Bank of Montreal, CIBC, National Bank of Canada, RBC Royal Bank, Scotiabank and TD Bank have made a commitment to work with personal and small business banking customers on a case-by-case basis to provide flexible solutions to help them manage through challenges such as pay disruption due to COVID-19; childcare disruption due to school closures; or those facing illness from COVID-19. (Read more https://www.scotiabank.com/corporate/en/home/media-centre/media-centre/news-release.html?id=3510&language=en)
There is no need to panic. The government, the lenders, and the insurers are all aware of this time of uncertainty. If you are not sure about your circumstance, please reach out for advice.
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If you are interested in finding out more, I’d be happy to look at your mortgage options with you.