The COVID-19 pandemic has sent many people into positions of financial stress, from lost jobs, to general financial uncertainty. One of your biggest expenses each month is likely your mortgage. Most Canadian financial institutions understand those worries, so many have implemented relief programs, such as payment deferrals on mortgages.
Deferring your mortgage payment may reduce your financial load for the moment, is it the right thing for you during this time?
First thing you should think about is about your monthly income. Has it changed?
Where are you at today? Did you get laid off, or without a job? If your employment status hasn’t changed due to the pandemic, you likely should stick to your normal savings practices.
If you’re unemployed, or have recently been laid off, have you been able to access Employment Insurance, or the Canadian Emergency Response Benfit?
If you’ve been required to self-isolate during COVID-19 and have lost income because of this, the Government of Canada has financial supports to help you.
There are fixed expenses that likely won’t change, from your groceries to utility or your internet expenses. If you add in your mortgage, how does it compare to your monthly income? If your expenses outweigh your income, look at where you might be able to cut back. If you can’t, a mortgage deferral just might make sense.
If you have emergency savings and depending on your employment status this may be able to sustain you. Calculate how long this money will last, based on your fixed costs.
So what will happen to my mortgage?
A mortgage deferral is a temporary agreement when you’re struggling to make payments. A deferral doesn’t erase the amount owed on your mortgage, and payments resume after an agreed date. Deferrals will not affect your credit bureau scores either.
Encompass will not charge interest on deferred mortgages during the COVID-19 pandemic. Deferring payments will increase total interest costs in the short-term (because you’ll still pay the interest eventually), but you won’t pay extra interest because you’ve deferred.
Will this affect me long term?
If you’re leaning towards deferring your mortgage payments, consider the impact long term. Mortgage deferrals aren’t loan forgiveness and payments continue after the deferral period. If you can afford to make those payments, you probably should, otherwise it will extend how long you will have to pay on that mortgage. This might affect your finances in other ways, including contributing to your retirement savings.
Financial situations fluctuate, especially during this time. If a mortgage deferral is your best option, then after all this is over, consider working with your financial account managers on a plan to lighten the long-term financial impact of a mortgage deferral.
For more information, contact Encompass Credit Union at 1-877-842-1774, or at askus@encompasscu.ca
