Mortgage Payments Deferral: Can I Skip Mortgage Payments?

skipping mortgage payment

In times of financial uncertainty or unexpected hardships, the prospect of deferring mortgage payments can offer much-needed relief. However, before considering this option, you must grasp the implications, requirements, and potential consequences.

This blog examines the idea of mortgage payment deferral, discussing the situations in which skipping payments could be possible, the steps of the process, and the important factors to ponder before proceeding with such a choice.

Can I Defer a Mortgage Payment?

A mortgage deferral lets you temporarily delay payments through an agreement with your financial institution. Once the deferral ends, regular payments resume, and deferred payments are addressed based on your lender’s choice:

  • Extending mortgage amortization
  • Adding to the end-of-term balance
  • Increasing post-deferral payments

This can increase your regular payments, depending on your choice. Interest accrues during deferral, upping principal and long-term costs. For post-deferral financial strains, consider alternative solutions.

getting mortgage deferral

Mortgage Deferral Eligibility

Mortgage deferral eligibility is determined individually by financial institutions.

You might qualify for a deferral if:

  • You face the risk of falling behind on regular payments.
  • Your mortgage is insured or uninsured.
  • Your mortgage account is in good standing.
  • Your property functions as either your primary residence or a secondary dwelling.

It’s important to note that relief options are business-related decisions made by your financial institution. For details on mortgage deferrals, get in touch with your financial provider.

having mortgage payment consequences

Understanding the Consequences of Mortgage Payment Deferral

Here’s a breakdown of how deferring your mortgage can influence your financial responsibilities:

1. Principal

When you defer mortgage payments, you delay paying off the principal, which remains outstanding, until a later date. For instance, if you have $100,000 remaining in principle, deferring payments won’t reduce this amount; it will persist at $100,000 after the deferral period.

2. Interest

Interest owed is calculated using your rate, principal, and amortization period. During mortgage deferral, your lender continues accruing interest on the outstanding balance. This accrued interest is then added to the principal, potentially causing you to pay more in interest over your mortgage’s lifetime.

3. Property Tax

During mortgage deferral, property tax payments might be eligible for deferral, too, depending on your agreement and lender. Alternatively, some municipalities help programs for deferred property tax payments.

4. Optional Insurance

The associated fees could be integrated into mortgage payments if you possess credit insurance. While certain lenders permit deferral of credit insurance payments, others might require ongoing payment.

Before deferring your mortgage, clarify with your lender whether optional credit insurance fees are included in the deferral. Remember that the decision to defer rests with your lender, impacting your overall mortgage cost and terms.

learning mortgage options

Common Mortgage Relief Options in Canada

Payment deferrals are just one of the many available solutions when seeking mortgage relief. Here is a compilation of prevalent mortgage relief alternatives accessible to Canadians. However, remember that offerings differ among financial institutions, so consult your lender for specifics.

1. Extend Your Loan Repayment Timeframe

Lengthening your amortization period has the potential to reduce your monthly payments, but it also entails an extended mortgage repayment duration. Additionally, this extension will lead to an overall increase in the total interest paid throughout the life of your mortgage.

2. Blended Mortgage Alternatives

A blended mortgage lets you combine two rates to compute a fresh interest rate. This can potentially reduce your mortgage rate if the new rate is lower than the existing one.

There are two types of blended mortgages: blend to term and blend and extend. In the former, the new blended rate applies until your term concludes.

3. Switch to a Fixed Rate Mortgage Option

If you find it challenging to fulfill your payments and currently have a variable rate, switching to a fixed rate with a lower interest rate is possible. This action can reduce monthly payments and safeguard against abrupt interest rate hikes, such as those resulting from shifts in the Bank of Canada’s overnight rate.

4. Postpone a Scheduled Mortgage Installment

Distinguishing from failing to make a mortgage payment, skipping a payment can be a temporary remedy for cash flow challenges, often provided by your lender. Unlike mortgage deferral arrangements, which tend to span longer, skip payment choices usually entail 1-2 instances during a calendar year.

5. Secure an Extended Deferral for Mortgage Payments

Extended deferrals extend beyond the typical duration of skip mortgage payments. Typically, you can defer payments up to a predetermined limit, after which you’ll need to resume regular payments. For insured mortgages, an extended deferral requires approval from the insurer before your lender grants it.

6. Choose Interest-Only Payment Arrangements

Interest-only payments allow you to postpone repaying the mortgage principal while continuing to cover only the interest instead of your standard payments. However, this could notably raise your mortgage expenses, as the deferred principal accumulates interest throughout the entire mortgage duration.

7. Make Advance Payments and Reutilize Borrowed Funds

Should you have made any upfront payments during your mortgage term, your financial institution might grant you the opportunity to borrow back a portion of those prepaid funds. This arrangement could assist you in meeting your routine mortgage payments.

8. Seek Compensation through Creditor Insurance Claims

If you possess credit insurance on your mortgage, you might be eligible for a creditor insurance claim by meeting specific conditions that vary based on your insurer and contract.

Eligibility can extend to instances of financial hardship due to job loss or illness, requiring timely application. Approved claims generally initiate payments after 60 days, with potential monthly and total duration limits for benefits.

9. Utilize Capitalization Strategies

Capitalization involves adding overdue payments to your mortgage balance, usually allowed once in your mortgage’s lifespan. This can substantially raise your owed amount, incorporating missed mortgage payments, interest, property taxes, utility bills, repairs, condo fees, and other outstanding charges.

10. Leverage Resources from Mortgage Insurance Programs

For down payments under 20%, obtaining mortgage default insurance in Canada is necessary. This insurance safeguards the financial institution in situations where you’re unable to meet payments.

In Canada, the three mortgage insurance providers offer programs to aid if you face financial difficulties and struggle to make timely mortgage payments.

having payment deferral cancellation

Do Deferred Payments Get Removed or Eliminated?

The mortgage deferral agreement does not result in the cancellation, erasure, or elimination of the outstanding mortgage amount. Once the agreement concludes, you’ll need to resume payments as per your usual schedule.

Please note that the interest accrued during the deferral period is still added to the outstanding mortgage principal. This can impact the total amount owed in alignment with the initial payment schedule.

What Happens When the Deferral Period Concludes?

When the deferral term ends, payments resume. No lump sum is required. Like major banks, lenders add deferred interest to your balance and adjust future payments. These ensure on-time repayment, raising your monthly payment.

For instance, a $200,000 mortgage at 3%, initially $1,379 monthly, becomes a $202,981 balance over 14 years and six months, yielding a $1,438 monthly payment. Essentially, this results in a higher payment, like a 4.3% increase ($59 monthly).

Ending Your Mortgage Deferral Ahead of Schedule

Ending Your Mortgage Deferral Ahead of Schedule

You might decide to conclude your mortgage deferral before the designated period concludes. This could be relevant if your financial difficulties have eased, or your situation has changed. Doing so can mitigate the added interest expenses linked to a mortgage deferral.

Cancellation options vary by financial institution. Check with yours for details. If cancellation is unavailable, explore alternatives. Numerous institutions permit penalty-free repayment of the deferred sum.

To curtail extra interest costs:

  • Boost post-deferral payments.
  • Consider prepayment tactics.

These steps can help minimize additional expenses.

Do I Need to Repay the Amounts that were Postponed?

Indeed, you will need to repay the entirety of the deferred payments, encompassing both the principal amount and the accrued interest.

This means that the total of the payments that were postponed will need to be settled, including the original borrowed amount, as well as the additional cost incurred over the deferral period due to accumulated interest.

How Can I Go About Repaying the Deferred Sums?

The specifics of the repayment process will differ based on your particular lender and circumstances. The interest that has accrued on your mortgage during the deferral period will be included in the outstanding principal of your mortgage.

As you resume making payments, your mortgage installment might be recalculated to encompass the total sum now owed, ensuring your mortgage settlement aligns with the initial payment timetable.

learning the consequences of mortgage payment default

Consequences of Mortgage Payment Default

Defaulting has serious consequences, potentially leading to home loss if missed payments aren’t addressed promptly. Lenders’ actions for mortgage defaults vary across Canada, with common options including power of sale and judicial foreclosure.

These enable lenders to seize and sell your property to recover mortgage arrears. While a forced sale won’t happen immediately after the deferral period, it becomes a viable option if payments aren’t resumed.

Is Interest Still Accrued When Mortgage Payments are Deferred?

When you defer your mortgage payments, you choose not to pay the principal amount, and the interest that would have been paid gets added to your outstanding mortgage balance on each scheduled payment date.

You must understand and factor in this aspect when evaluating whether this deferral option aligns with your needs.

will mortgage deferral affect my credit score

Will Deferring my Mortgage Payment Impact my Credit Score?

A COVID-19-related deferred payment is not reported as missed. However, note that your credit score considers multiple factors, including outstanding debt, which could increase due to a deferral.

Considering Mortgage Payment Deferral: Is It Right for You?

Before embracing this initiative, it’s advisable to assess your financial situation by asking several key questions.

  • Is your lender offering a six-month mortgage payment deferral for your property?
  • If you’re a landlord, do you meet the criteria?
  • How does the process function?
  • What are the prerequisites and eligibility rules?
  • How will the deferred payments be reconciled?
  • What are the repayment conditions?
  • Can you opt to defer only principal payments and continue with interest-only payments?
  • Is there a distinction between skipping a payment and deferring it?
  • Can the skip payment option be used in conjunction with or in lieu of deferred payment?

If you opt for the payment deferral, keep these key points in mind:

  • Each lender will individually evaluate deferral requests on a case-by-case basis.
  • Contacting your bank early will provide you with more available choices.
  • Don’t delay seeking assistance until the situation worsens.
  • Maintain honesty and transparency about your circumstances.

Banks will assess all mortgage deferral requests case by case, collaborating directly with clients to alleviate COVID-19-related financial strains.

Explore The Possibilities of Mortgage Payment Deferral Today

Mortgage payment deferral can be a valuable tool during times of crisis, but it’s not a decision to be taken lightly. Every situation is unique, and there’s no one-size-fits-all answer.

To make an informed choice, it’s highly recommended to seek advice from financial professionals and housing counselors. TurnedAway can help you understand the potential consequences, explore alternative options, and create a plan that aligns with your long-term financial goals. Contact us today.

FAQs About Mortgage Payments Deferral Canada

Is it necessary to settle the postponed payments?

Yes. Mortgage deferral extends your repayment timeline, but you’ll eventually need to repay the full mortgage amount, even if you defer payments.

What is the process for repaying the amounts that were deferred?

Repayment methods vary by financial institution. You might extend your amortization period, add deferred payments to the balance, or increase post-deferral payments.

Is it possible to end my mortgage deferral before the agreed-upon period concludes?

Some lenders allow early cancellation if your finances improve. Minimize costs by increasing payments or making prepayments after deferral. Note: Cancellation policies vary.

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