With the current state of affairs many are being faced with the reality of either being laid off, working fewer hours, a lack of childcare and for Self- Employed individuals a complete loss of income. Keeping up with bills, especially mortgage payments, may feel like a losing battle as we are not sure when this pandemic may end. For most their worries are surrounding paying 1 mortgage, but for real estate investors, you may have 1 or more depending on your portfolio.
Today we will be looking at two possible solutions on how to deal with your inability/uncertainty in being able to pay your mortgage and any of your bills for that matter.
The first thing you can do if you are concerned about your ability to meet your mortgage payments is to contact your financial institution. Together, you can discuss your options and come up with a plan that works for you. Remember to be patient when you contact your lender, as there will be longer wait times. If they have an email option, you can email them with your information.
Option 1: Making multiple payments throughout the month (Preferred option)
The typical mortgage is structured so that you make a single payment each month for a total of 12 payments per year. If this is the case, we suggest you negotiate with your lender to switch to a weekly or bi-weekly payment method. This will take the stress out of one big payment at the end or beginning of the month.
How does it work
The basis of making bi-weekly mortgage payments is simple. Instead of paying once a month, you pay half your monthly mortgage amount every other week.
By looking at the number of weeks in a year 52, you will end up making 26 total payments. So if you paid your monthly mortgage payment twice per month you would end up making 24 payments each year.
Benefits:
Build equity faster
Pay lesser interest over time
Pay down your mortgage faster
Drop your Private Mortgage Insurance payment sooner
Makes it easier to budget
Things to look for:
When switching to a weekly or bi-weekly payment plan with your lender, be sure to ask how your payments will be credited. You need to know specifically whether the extra payment will be applied to the principal. You also must ensure that your lender will immediately credit each half monthly payment upon receipt. If your lender waits until the second payment has been received before crediting your loan, you'll never see the financial benefits of a weekly/bi-weekly payments.
Option 2: Deferral of payment up to 3-6 months or what the lenders are deferring to.
This option should be left as a last resort as it may impact your ability to borrow in the future. Before utilizing this option ensure you have an in-depth conversation with your lender about any possible disadvantage of this route. Have them provide the benefits and the drawbacks in writing, so you can go over at your own pace before making a decision.
Canada six’s largest banks have announced that they will be allowing the deferral of mortgage payments for up to six months amid the coronavirus pandemic. Bank of Montreal, CIBC, TD Canada, National Bank of Canada, RBC Royal Bank and Scotiabank are participating. Every bank will be different in how they manage it and you will need to contact them as it is based on a case by case situation. Some may even allow for the deferral to continue until renewal when they simply renew with the higher balance. Others may structure a repayment plan.
How does it work: Your principal and interest payments do not have to be made for a period of up to six months. The interest deferred will be added to the outstanding principal of your mortgage. When the deferral period has ended, The added interest will be incorporated into your monthly payment either. Details of the repayment will vary according to the specific lender and situation. It is important to note that Mortgage deferrals won't affect property taxes and life/disability insurance. So you are still expected to make these payments.
Requirements: Institutions will probably require a letter explaining your financial hardship and third-party verification before agreeing to alter your mortgage payments. Third-party verification can be a letter from your employer to verify that you have been laid off or that your hours have been significantly reduced. If you are self-employed, you will need to show documents from a certified accountant supporting your position. However, still, contact institution as they may have additional documents in which they require.
Things to look for: Only those truly unable to pay their mortgage right now, due to loss of income from the pandemic, should apply. For those who feel they meet the requirements, it’s worth applying, and each application will be assessed on a case-by-case basis. Please keep in mind that deferring payments will cost you more money in the long term. Not only will you likely be wasting your time and that of the overstretched lenders, but the program should also only be used as an emergency last resort. Also, this will stay on your file and might work against you in the future when you wish to take a loan from the bank.
The threat of losing your home is almost as scary as the threat of a new virus that’s sweeping the globe. We suggest you act fast and make a decision that best suits you and your family. We at Regalway Homes understand your pain and will continue to keep you updated on the latest unfolding of this global crisis
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