Your mortgage payment deferral is over. Now what?

Mortgage payment deferral, a six-month measure offered to Canadians this spring in response to the coronavirus pandemic, is coming to an end on September 30, 2020.

The relief was offered to Canadians to help them stay in their homes while the job market recovered. And, according to the Canadian Bankers Association (CBA), as of July 2020, a whopping 775,000 Canadians took advantage of this program. (To put that number in context, there are currently 6 million homeowners with mortgages in Canada.) The result? A total of $180 billion worth of mortgage deferrals.

Experts fear a payment drop-off may be looming. Despite the mortgage deferrals, people will still be unable to make mortgage payments these next few months. While you can still apply for the program up until the end of the month, the vast majority of deferrals will be ending in October—more than 500,000 actually. That’s from the CBA, too.

So, what can you do if mortgage payments are starting back up and you’re not ready? That depends on your situation. Here are some options for tackling the upcoming mortgage payment deferral deadline.

If you can’t pay in the short term

If you’re looking to bridge a three- to six-month gap where you can’t pay:

Reach out to your lender, ASAP

First order of business: Contact your bank or your mortgage broker as soon as you realize there could be a hiccup and explain your situation. Lenders are often open to bringing on a co-signer for your mortgage, says Joe Pinheiro, treasurer on the executive committee of Mortgage Professionals Canada, and a 30-year mortgage veteran. Adding a co-signer with equity (assets that could be used as a lien against the mortgage) can help you keep your mortgage if you recently lost your job or have a reduced income. “The one thing banks don’t want is people ignoring them—they really want to keep Canadians in their homes.”

Ask for an extension

The bank may be able to extend your deferral, but it won’t be quite as easy as before the mortgage payment deferral deadline. It is no longer a matter of signing up; you’ll have to prove that you need the extension and that you have a plan to keep paying your mortgage in the near future, says Wes Pauls, co-owner and lead mortgage agent with Mortgage Teacher in Hamilton. “Some lenders will consider extending deferrals on a case-by-case basis for people who absolutely require it.” 

Seek additional financing

If a further deferral isn’t an option, borrowing might be your best bet. Pauls suggests using an existing line of credit or borrowing money from family to make your payments for a few months. Once you’re financially stable again, you can attempt to refinance your mortgage, perhaps pulling out some equity, to pay off that debt. You could also consider applying for a home equity line of credit (HELOC), too. Like a regular line of credit, the payment schedule is flexible. But unlike a regular line of credit, the interest rate tends to be lower and uses home equity to secure the loan. (That’s the difference between the current value of your home and the unpaid balance of your mortgage.) If you need to use a credit card in the meantime, just be aware of the interest you will be paying. For example, it may not be worth using a high-interest credit card to pay off short-term debt; seek a low-interest option instead. 

If there’s no end in sight

Let’s say you can’t make your mortgage payments, and you won’t be able to for the foreseeable future. Even if you’ve exhausted your savings and lines of credit, there are still options to keep your home. 

Consider refinancing

Consulting a mortgage broker or financial expert to discuss refinancing could help to pinpoint the best solution for you. “They can look at your overall cash-flow situation. Maybe it’s actually your debt obligations that are causing the problem, not your mortgage payment,” says Pinheiro. “For example, your mortgage payment could be $1,000 but your minimum credit card payment has risen to $800 during this time. They could then find a way to get that credit card payment down and see if you can now afford your mortgage.”

He adds: “Depending on the situation, you could refinance the home and extend the amortization.” (To extend the amortization is to lengthen the time over which the payments are spread so that individual payments are smaller and more affordable.) “If it’s not an insured mortgage, you could increase [the amortization] up to 30 years. And so it would give you some time, and help manage the payments.”

Consider private lending

If you don’t want to sell, and you have a decent amount of home equity but don’t qualify for a HELOC, you can consider a private mortgage to hold you over. 

A private mortgage is typically an arrangement with an individual or through a mortgage investment corporation. Equity is their main criteria, and they’re less concerned with your income and credit than your bank would be. (Yes, this would be considered a “second mortgage,” which just refers to the order in which debts secured by a property are subsequently paid out in the event of a sale.) “Basically if you have enough equity, you could borrow $50,000 from a private lender at 10% to 12% interest,” says Pauls. “You can then use that money to pay off your high-interest credit cards and [continue paying] your mortgage.” 

This strategy could keep you in your home a little longer, but there are caveats. Private mortgages typically have higher rates, as they will be measured on the title behind the first mortgage and would be paid after the current mortgage lender in the event of a sale. And since these rates are higher, a private mortgage is not a permanent or long-term fix. 

“It is a Band-Aid solution to get through tough times,” Pauls advises. “You need to make sure you have an exit strategy.” When you’re back to work or life stresses ease up, that strategy could include remortgaging the home with the current lender to pay out the private mortgage—an option that wouldn’t be available initially, since you might be out of work and private lenders aren’t as concerned with your income. 

Pauls advises looking at this option before you consider trying to sell your home in a potentially saturated market or sacrificing your credit. “In a year’s time, when you have a new job, you now have no debt, good credit and can refinance that loan to one normal mortgage. No harm, no foul.”

When to consider selling

In some cases, staying in your home isn’t possible, or even wise. How do you know when you’re at that point? The first step is to take long-term, realistic stock of the situation.  “Look at your finances three to six months out,” says Pauls. “Ask yourself: How many months do I have to keep going? What’s on the horizon for me, employment-wise?” 

For people who don’t have a lot of time, and you’ve spoken to your bank and exhausted resources like lines of credit, he encourages them to sell before they touch their retirement savings. “You’ve been dealt a poor hand, but you don’t have to drain yourself,” says Pauls. “Sell your house, find a nice place to rent, and start again when you get a new job, with some money in your pocket and your retirement savings intact.”

If you end up with some cash in your pocket from the sale, don’t risk it getting drained before you buy again. Consider some short-term investments or a high-interest savings account.

If you must sell

While this is a reality for some, Pinheiro says there are likely very few people who’ll need to sell their home. “There’s a lot of resiliency in the Canadian economy and with Canadian homeowners.” 

If you do have to sell, the important thing is to do minimum damage to your credit, and get as much money as possible for your home.  That means getting ahead of the bank, and selling before they decide to foreclose. “The worst scenario is to have the bank come and take your home, because now you’re in a power of sale situation and that’s going to affect your credit,” says Pinheiro. 

Not only that, but you’ll earn less for your home that way. “The second they start power of sale default proceedings, you’re now incurring costs and equity is being ripped away from you,” says Pauls. “And if you’re going to rent, you’re going to want as much cash available” from the proceeds of your home sale.

Even if you feel hopeless, hang in there. “Don’t just let your house go [into foreclosure] because you’re tired and frustrated,” says Pauls. “If you manage this process well, you could be a homeowner again in a few years when things turn around.”

No matter what your status: plan, plan, plan

You’ve probably heard finance professionals tout the importance of having three to six months of living expenses saved, and they’ve never been more vindicated than during this pandemic.

“If you’re in an industry that could be problematic [like service or hospitality], you need to be ready for a possible second wave,” says Pauls. He suggests that banks might not offer so much leniency the second time around.

If you can’t seem to get a handle on savings, he recommends automatically depositing some funds into a separate account that’s not accessible by bank card. “Set it up like a bill payment,” says Pauls. “It becomes habitual and that money is elsewhere“ so you are less likely to dip into it.

All in all, this has been a financial wake-up call for many. “It’s really important to talk to a mortgage broker about the overall financial picture, not just the mortgage,” says Pinheiro. “They can [help you] figure out how to get you back on track and probably put you in an even better situation than you were prior to the pandemic.” 

This article is presented by CIBC Pace It, as part of the MoneySense guide to debt management. 

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• The new mortgage rules in response to COVID-19
• How the pandemic is affecting the real estate market
• The unexpected ways COVID is affecting your finances