In today’s world, it’s not uncommon for people to face financial hardships. With the rising cost of what seems like everything, mortgage deferrals are a great way to pause payments on your mortgage for some time temporarily. However, it is essential to note that a mortgage deferral is not the same as loan forgiveness, as interest continues to accrue. Additionally, the deferred amount is then added to your total mortgage balance.
Once a rarely discussed tool, mortgage deferrals gained prominence during the COVID-19 pandemic. Since then, many Ontarians have turned to mortgage deferrals as borrowers struggle with higher monthly payments. Understanding how deferrals work can help alleviate long-term financial stress while protecting your credit. Looking at the possibility of a mortgage deferral? Here, we break down the potential benefits, drawbacks, and how to move forward with a mortgage deferral in Ontario.
What Is a Mortgage Deferral?
In Canada, a mortgage deferral, also known as a mortgage payment deferral or forbearance, is a temporary relief option offered by lenders to homeowners facing financial difficulties. It is a temporary arrangement between you and a lender that allows you to pause or delay your regular mortgage payments during financial struggle. This option generally will enable you to wait for one to six months without affecting your credit score.
Once a mortgage deferral period ends, you resume making your payments as per usual. However, you’ll have to repay the mortgage payments that you deferred. It is crucial to keep in mind that when this occurs, it may result in thousands of dollars in additional costs over the life of your mortgage.
When Can I Request a Mortgage Deferral?
There are many instances when you may request a mortgage deferral. These instances must result in a short-term impact on your income. Some situations when a deferral may be requested include:
- Job loss or temporary layoff
- Reduced income or business downturn, specifically among self-employed individuals
- Illness or injury impacting your income (injured at workplace, unable to work due to illness)
- Family emergencies
- Natural disasters or emergencies, such as the recent pandemic.
It is important to note that, depending on your financial lender, their criteria may differ slightly. It is always important to first speak with them and determine if you are eligible for a mortgage deferral. You always need your approval, as a deferral is not always guaranteed.
How Can I Get a Mortgage Deferral?
If you’re looking to receive a mortgage deferral, your first step should always be to contact your financial institution. This should always be done during financial difficulty if you believe you are at risk of a mortgage default. Federally regulated institutions such as banks will work with you to find the appropriate relief for your financial issues. You may be able to get a payment deferral if the following applies to you:
- Your mortgage is up to date and in good standing
- You’re at risk of a mortgage default
- You’re facing financial difficulties due to unexpected circumstances
- Your mortgage is on your principal residence.
If you meet the above criteria, you may follow the steps below to request a mortgage deferral:
- Contact your lender and explain your financial situation.
- Submit documentation such as proof of income reduction, job loss, or medical issues.
- Lender will then evaluate your request.
- If approved, you’ll enter into a new deferral agreement that outlines the term and new repayment terms.
Can I Cancel My Deferral Early?
If you find you are no longer experiencing financial issues, then yes! You may cancel your mortgage payment deferral before the end of the deferral period. By doing so, you can reduce the additional interest costs resulting from the deferral. With this in mind, it is essential to ask your financial institution beforehand whether cancellation is an option. Some financial institutions allow cancellations, while others do not.
Conclusion
Ultimately, being proactive is crucial when it comes to mortgage deferrals. The moment you believe you will be experiencing financial hardship, it is best to contact your mortgage lender before payments are missed. In most cases, lenders are willing to work with borrowers who communicate early and clearly.
It is essential to remember that deferrals are a short-term tool, not a long-term solution. Remember, when it comes to Ontario home insurance, never hesitate to contact us or request a quote today!
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