What Does the COVID-19 Crisis Mean for Your Mortgage?
The COVID-19 crisis has changed so much of everyday life that it’s hard to believe some things are carrying on as normal. You’re concerned about everything going on in the world around you, but the bills still need to be paid.
If COVID-19 hasn’t affected your job security, you should keep making payments on your mortgage as usual. However, if you’ve experienced income loss, you need to consider how this will affect you.
Fortunately, the Canadian government has offered some financial support, and banks are willing to work with people. You just need to figure out what’s best for you.
What Do Your Finances Look Like?
Each family has experienced the crisis differently, and it’s important to look closely at your finances. This will allow you to match the solution to your specific needs. For instance, if you lost your job and have no income coming in, you need to look at solutions that are going to postpone your payments. If you’ve just seen a slight dip in income, you might be able to get by with a lower monthly payment.
It’s important to be realistic about what your finances look like now and what they might look like in the near future. This should influence the decisions you make.
The government and banks are allowing some borrowers to defer their mortgage payments for up to six months. This is something you should strongly consider if you have no income right now.
Doing this will extend the term of your loan for six months (or however long you defer the mortgage), and you will still be accruing interest during the time you’re not making payments. However, not having to make your mortgage payments when you’re under such extreme financial stress can bring you a lot of relief.
Refinancing your mortgage is a good way to lower your monthly payments to something more reasonable for you to handle. Prime rates have recently been decreased in response to the pandemic, so you may be able to get a much better deal than what you currently have.
Additionally, refinancing will extend the term of your mortgage, which could significantly reduce your payments. For instance, if you had 10 years left on your mortgage, and you refinanced for another 15 or 20 years, there will be a big decrease. Of course, that does mean it’ll take longer to pay off the balance and there’s more interest to pay, so you have to carefully weigh the costs and benefits.
Finally, in taking this option, you may be able to use some of your equity as cash to tide you over. Let’s say that you had $100,000 left on a $300,000 home with 10 years left to pay. Instead of refinancing only the $100,000 that you owe, you could refinance $150,000. The bank would then give you $50,000 you could use for repairs or regular living expenses. Again, you need to balance your need for the money with the cost of borrowing it.
Adding Missed Payments to the Principal
Let’s say you missed a payment or two while you were off work, but now that you’re getting payments from the Canada Emergency Relief Benefit fund or you’re back at work, you’re in a better position to stay on top of your payments. If you make a normal payment, you’re only covering that late payment, and the current month might incur more late fees.
Instead, talk to your bank about simply adding those missed payments to the principal and paying an additional month or two at the end of your term. Most lenders are willing to offer this option and work with you.
Options Through Your Lender
Your lender may have other options available to you. Contact them as soon as you realize you’re going to struggle to make your payments. Lenders always prefer to work together than to have to foreclose on a borrower, so they’ll be able to talk you through the options that will work for your family.
Most likely, they’ll cover the things we’ve already talked about, but they may have other suggestions that are the perfect fit. Don’t be afraid to call. The sooner you do, the sooner you can get through this.
Everyone is under a lot of additional stress from the COVID-19 crisis, but you shouldn’t have to worry about losing your home. Be proactive about finding a solution with your bank, and you’ll be able to reduce the stress you feel.