*This post was created in collaboration with Alpine Credits
With home prices and interest rates rising, many Canadians are struggling to keep up with their mortgage payments. Many homeowners are looking for ways to pause their payments. Luckily, some lenders offer mortgage deferral options to give homeowners a financial break.
What Is A Mortgage Deferral?
With a mortgage deferral, your lender will allow you to pause your mortgage payments for a certain time period. Once this deferral period ends, you’ll begin making mortgage payments again.
If you’re having temporary financial issues that are making it difficult to come up with the funds needed to cover your mortgage payments, a mortgage deferral plan may help until you’re back on your feet.
How Does A Mortgage Deferral Work?
Simply put, a mortgage deferral or mortgage forbearance is when you strike an agreement with your lender that, when accepted, allows you to temporarily delay your payments for a specific period.
Do note, that not all banks offer this option. If they offer this program, it will generally be on a case-by-case basis. That means your mortgage will be reevaluated before being approved for a deferral agreement. During this evaluation, they may also examine various financial elements, such as your household income and credit history.
Mainly, this inspection is to determine how easy it would be to afford your larger mortgage payments once they resume. After all, you’ll still have the same balance remaining on your home. Depending on your lender, you may be able to extend your amortization period which may involve your mortgage having to be refinanced.
The Cost Of Deferring A Mortgage Payment
Remember, the most important thing to understand about deferring your mortgage payments is that while you won’t have to pay them in the short term, they will be tacked on to your mortgage and interest still accrues. Here are some of the main costs you will encounter once you start making deferred payments again:
- Principal – Whatever amounts you defer will need to be factored into your new mortgage plan, which can lead to larger payments.
- Interest – The longer you defer your mortgage payments for, the more interest you’ll accumulate over time.
- Fees – Although the upcoming mortgage principal and interest will make up the largest portion of your debt, it’s still important to factor in whatever administrative costs could be associated with the deferral and refinancing processes.
Here’s an example of how much a deferred mortgage payment could cost you:
- Let’s say you have a 20-year amortization period left on your home and a $500,000 mortgage, with an interest rate of 3.00%. That would bring your average mortgage payment to somewhere around $2,770 per month.
- For whatever reason, you defer your mortgage payments for a 6-month period. This would effectively increase your monthly payment by about $100 and your new mortgage price by about $5,500.
Luckily, if you defer fewer payments and don’t have as many years remaining on your primary mortgage, you generally won’t be subject to as many additional costs. That said, if you don’t wish to take on larger payments, you’ll have to check if your lender will increase the length of your original amortization period.
Alternatives To A Mortgage Deferral: Skip-A-Payment Option
Similar to a mortgage deferral, your bank or lender may offer a “skip-a-payment” option. With this arrangement, you can skip one mortgage payment every so often, usually every 12 months. To qualify for this option, your mortgage must be in good standing, which means it cannot be in arrears.
Do note that when you skip a payment, the interest will be added to your remaining loan balance and interest charged on that amount. That means your overall mortgage balance will increase, making your mortgage more expensive.
Do All Banks Offer Mortgage Deferrals?
While most banks don’t advertise mortgage deferrals as an option, you can always call their representative to discuss your options.
The skip-a-payment option, on the other hand, is more widely accepted and shown as an option with banks, including RBC and BMO.
RBC Skip-A-Payment Mortgage Option
RBC allows borrowers to skip a mortgage payment (including both principal and interest) once every 12 months. The number of payments you skip depends on your payment frequency. You can skip in one of the following ways, every 12 months:
- One monthly payment
- Up to 2 consecutive bi-weekly or semi-monthly payments
- Up to 4 consecutive weekly payments
To qualify for this option, you must meet the following criteria:
- Your mortgage cannot be in arrears.
- Your current mortgage balance is less than your original mortgage amount, including the payment amount you want to skip.
Your payment amounts won’t change during your mortgage term. However, any interest skipped is added to the principal.
BMO Flexible Payment Options
BMO offers two ways to defer your mortgage payments:
Take A Break Option
With this option, you can skip up to one of the following once per year:
- One monthly mortgage payment
- Up to 2 bi-weekly or semi-monthly payments
- Up to 4 weekly payments
Family Care Option
You may qualify for the Family Care Option if you or your spouse/partner have to take time off work to look after a new baby or sick family member. This option allows you to defer as much as 4 months’ worth of mortgage payments. You can skip your mortgage payments in one of the following ways:
- Four consecutive monthly payments
- Eight consecutive bi-weekly
- Eight semi-monthly payments
- Sixteen consecutive weekly payments
What Should You Do If You Think You’re Going To Miss A Payment?
The first thing you should do if you think you’re at risk of missing a mortgage payment is speak with your lender. Doing so can help you avoid the repercussions that come with missed payments, including a ding on your credit score.
Most banks and lenders have a contact number you can call to discuss your options. The following table provides a list of Canada’s 5 big banks and their contact numbers you can call if you think you’ll miss a payment and need financial assistance:
| Bank | Contact Number |
| RBC | 1-800-769-2511 |
| CIBC | 1-855-990-1011 |
| BMO | 1-877-225-5266 |
| Scotiabank | 1-800-472-6842 |
| TD Bank | 1-877-230-6275 |
HELOC: An Alternative To A Mortgage Deferral
If you’re able to handle the extra financial commitment that comes with deferring your mortgage payments, it can be a good temporary solution. However, you may not want to have larger payments or longer amortization. In that case, a home equity line of credit (HELOC) may be an alternative that’s worth looking into.
What Is A HELOC?
A HELOC is a revolving credit line that you can open once you have at least 20% equity, an asset that your home generates when you pay down your mortgage or increase the real estate value of your property. If you’re still in the middle of paying down your primary mortgage, the HELOC becomes your “second” mortgage.
Similar to a credit card, you can withdraw from your HELOC whenever you want, up until you reach a designated credit limit, and repay your outstanding balances on a monthly basis, with the option of only making minimum or partial payments. You can then use your HELOC to cover your primary mortgage payments while your finances recover.
Where Can You Get A HELOC With Bad Credit?
Bad credit can make it difficult to qualify for a HELOC with big banks and other traditional lenders. However, if you apply with an alternative lender like Alpine Credits, you may still qualify. Alpine Credits base their approval on the amount of equity you have in your home rather than your credit or income. You can even get a no-obligation quote to see how much you qualify for.
Bottom Line
If you think there’s a chance you might not be able to cover an upcoming mortgage payment, reach out to your lender right away. They may offer mortgage deferral options that will allow you to delay your payments until your financial situation improves.
Mortgage Payment Deferral FAQs
Do I have to repay my deferred mortgage payments?
Am I eligible for a mortgage deferral?
Will deferring my mortgage payments affect my credit score?
Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.
