Managing your mortgage during COVID-19

When Caitlin’s husband, Ryan, was laid off from his job as an assembly worker at an automotive plant in January, the couple had concerns about their financial stability. Still, between his Employment Insurance benefits and her income as a home daycare provider, they were able to make ends meet in the weeks that followed. 

That all changed when COVID-19 resulted in the temporary closure of public schools, eliminating Caitlin’s income overnight. Coronavirus, as it’s commonly called, is actually a family of viruses that includes the common cold, SARS and the new COVID-19, which originated in a market in Wuhan, China, but has since spread to more than 100 countries. Canada saw its first case in late January and, as this article was being published, almost 600 confirmed cases have been reported across the country. As many businesses and community spaces temporarily close to help prevent the spread of COVID-19, Canadians are feeling the financial impact.

“My daycare business caters to teachers, and they don’t need me while schools are shut down,” explains Caitlin (who asked that her name be changed). Her husband’s job prospects have also dried up as a result of economic uncertainty related to the virus. With four young kids at home, it’s a stressful time.

“Paying our mortgage is a priority right now, along with our other bills,” Caitlin says. “Things were tight prior to the pandemic, but there was also a lot of hope of my husband getting hired and we had my income to get us by. I’ve been struggling to sleep, and I’m very scared for our family.”

Caitlin isn’t alone. Nicole (whose name has also been changed), a 26-year-old nanny, is currently losing significant income due to COVID-19. Her spouse is steadily employed, but being the higher earner in her household and pregnant with the couple’s first child, she’s worried about keeping up with their mortgage payments. “We have a small amount of money set aside that was to allow me to take a couple months off after the baby was born. We may need to use that money now, and I would have to return to work immediately.”

Many small business owners, contract workers, hourly wage employees and freelancers have been hit hard by the early economic impact of COVID-19, leaving them feeling anxious—and worried about how much worse things could get. Mortgage payments are a common concern, and Canadians are wondering what their options are. While the situation is evolving, there are strategies you can implement starting now to be proactive and ease your mind. Here’s where to start.

“Can I defer my mortgage payments?”

Many lenders already have the option to press pause built into their mortgage terms in case of life emergencies, notes Melissa Leong, author of the award-winning financial book Happy Go Money. “If you are stressed about missing a payment, call your mortgage provider and ask about the terms of your mortgage,” she says. “You may [already] have the option of skipping a payment or a few payments every year.” It’s important to look at the specifics of your mortgage agreement, as this option can differ between lenders. For example, RBC allows clients to skip a mortgage payment once per 12-month period, but only on certain amortization terms and if the payment is not already in arrears, among other clauses.

In a joint press release on March 17, 2020, the six major Canadian banks—Bank of Montreal, CIBC, National Bank of Canada, RBC Royal Bank, Scotiabank and TD Bank—announced new measures to support Canadians facing financial hardship due to COVID-19. These institutions have committed to enacting immediate, flexible solutions to help Canadians manage challenges such as pay disruption, childcare disruption or illness due to COVID-19, stating, “This support will include up to a six-month payment deferral for mortgages, and the opportunity for relief on other credit products.”

This is comforting news for many Canadians, and Leong advises reaching out to your financial institution early—before you run into financial trouble. “Contact your bank for more details before you get into trouble. Don’t wait until you are in arrears to call.” Additionally, she reminds those using this option (or their bank’s standard payment deferment option) to consider the long-term effects. “If you choose to defer any payments, just be mindful of the fact the interest accrued during the skipped periods will be added to your principal balance. It’ll make a difference in how much you end up paying in interest over the long haul. So, while you’re on the phone with your provider, ask them about your mortgage payment options when it comes to doubling up or topping up or one-time lump sums for when things have returned to normal.”

MCAP also released details of their COVID-19 relief plans, telling clients, “For homeowners affected by income loss, Hold-a-Payment or Skip-a-Payment options are available to assist you. There will be no negative impact to your credit rating for using MCAP’s Hold-a-Payment or Skip-a-Payment options.” 

“What else should I ask my mortgage lender?”

You might not be sure if deferring mortgage payments is the best move for your family—and there are other options through CMHC insurance that could benefit your family. Mortgage lenders are encouraged to make timely decisions and find solutions for their clients. In addition to asking about payment deferrals, consider asking your lender about the following options:

• extending your mortgage amortization in order to lower your monthly mortgage payments;
• adding any missed payments to the mortgage balance and spreading them over the remaining mortgage repayment period;
• offering a special payment arrangement unique to your family’s specific financial situation, such as reduced payments for an agreed-upon period of time;
• converting a variable interest rate mortgage to a fixed interest rate mortgage in order to protect you from a sudden interest rate increase, should one occur.

These are excellent options for many families, though each should be weighed against your personal needs and goals. David O’Leary, the founder of Kind Wealth in Toronto, offers a great example. “While converting to a fixed rate mortgage might be beneficial in the long run [if your fixed term is very low right now], it will likely increase your mortgage payment since your variable rate will be lower than any fixed rate you might get right now.” His firm, along with several others, is currently offering complimentary financial consultations to those affected by COVID-19.

Watch for government assistance

Both the federal and provincial governments have committed to substantial financial measures to help individuals and small businesses, though many of the finer details remain unknown at this time. On March 18, Ottawa announced an $82-billion COVID-19 emergency response package that includes extended deadlines for tax filing and payment of income tax you owe; an Emergency Care Benefit; and temporarily boosted Canada Child Benefit payments. One of the first announcements involved the federal government committing to buy up to $50 million in mortgage of insured mortgage pools from CMHC—essentially, stimulating the banks so they’ll continue to offer loans and keep interest rates from changing dramatically. Their release noted, “This action will provide stable funding to banks and mortgage lenders in order to ensure continued lending to Canadian consumers and businesses.” We can expect more information in the hours and days to come, so it may be beneficial to keep watching the news and delay any major decisions until there is a clear understanding of additional relief measures.

As we wait for additional details on these measures, O’Leary knows what he’d like to see from the government. Referencing a LinkedIn article by Jon Shell of Social Capital Partners, he quickly delivers a wish list of actions. “Businesses will need relief for the next three, four, five months…. Credit card providers should waive interest fees for a few months. Property tax collection should be suspended.” He believes that the Prime Minister’s office sees the need for effective action and will act appropriately. “There isn’t a perfect solution, but these are ideas that should be heavily considered. They’re really promising ideas.”

However, patience may be required. “This is a really extraordinary circumstance,” O’Leary emphasizes. “I do think that whether this particular intervention by the government meets your needs perfectly, immediately or not, there will likely be a series of interventions.”

MORE ON COVID-19:

• How to prepare for a recession
• 3 ways the coronavirus is already affecting your finances
• Understanding the chatter around negative interest rates
• 6 times when a GIC is a smart investment choice

About Erin Pepler

Erin Pepler is a freelance writer based in the Toronto area. A frequent contributor to MoneySense, she is also the author of Send Me Into The Woods Alone: Essays on Motherhood.