Pattie Lovett-Reid: Need to defer mortgage payments? Know the costs first

'If you need help, you will get help': CMHC's promise to homeowners with mortgages

A word of caution before you defer your mortgage payments amid the COVID-19 pandemic: it will cost you in the long run.

Remember, a deferral isn't mortgage payment forgiveness.

There seemed to be a collective sigh of relief when Finance Minister Bill Morneau, after consultation with the big banks, highlighted potential mortgage payment and credit card deferrals would be available for Canadians.

Understandably, Canadians rushed to the phones only to be met with frustration and confusion and left wondering:

Who would qualify?

Is there an application process?

Does the entire household have to be off work?

Will they require documentation?

None of the banks could initially could answer those questions.​ As days pass, we learn a little more, yet frustration is still high. A mortgage deferral might not be the deal you think it is.



Here’s why.

1. A mortgage deferral doesn't mean an interest-free holiday. ​

2. If you choose to defer, the interest accrued during the skipped periods will be added to the principal balance. This will make a difference in how much you end up paying in interest over the life of the mortgage.

My take away: a deferral is not mortgage relief, it is simply the ability to skip a payment for a specific period of time and will be added to outstanding balance of your mortgage.

Here are some of your other options.

1. If you can't handle a larger payment once the deferral ends, you could try to extend your amortization period.

2. If you are able, you could make extra payments in an effort to get back to where you started prior to the deferral.

3. It might make more financial sense to borrow only what you need from a line of credit, paying the interest amount only, and paying back the principal amount as quickly as you can when you can.

Canadians are scrambling and worried about mortgage payments as many face layoffs in wake of the pandemic. I've been asked about liquidation of registered retirement savings plans (RRSPs), taking out cash advances on credit cards — all in fear of a foreclosure.

During this crisis, lenders have made it clear foreclosure isn't going to be the first course of action and there are solutions that will help keep you in your home.

If you are in a financial crisis, a mortgage deferral is exactly the lifeline you may need. However, it is always best to reach out and ask for assistance before missing a payment. Recognize it isn't going to free, but knowing all of your options can make it less costly.