COVID-19 & your mortgage

I want to share my perspective on the mortgage market and how this virus might affect your mortgage and your ability to pay your mortgage due to layoff or other reasons.

The spring market is still active, so I’ve included some advice if you are either completing a home purchase or will be placing an offer on a home in the near future.

It was announced this week that Canada’s big banks will allow mortgage payment deferrals for up to six months. Other mortgage lenders, including credit unions and mortgage companies, have also put measures in place to assist clients that are in financial distress as a result of the virus.

If you need assistance with your mortgage payments, please reach out directly to your lender. Most lenders have options available to skip a payment or put a hold on a payment.

Each lender has different options.

The phone lines are very busy, so please ensure you are prepared to answer their questions when you get through to discuss assistance and please have your mortgage number handy.

Here are some guidance on how many lenders will be considering your request for payment relief as they will be reviewing on a case-by-case basis.

If you have been laid off by an industry directly impacted by COVID-19

If your income has been directly impacted and you need immediate assistance, please reach out to your lender right away to discuss payment relief for up to six months.

If you are still working but have other factors impacting your ability to make a payment

You may have been financially impacted by COVID-19 and are still working but are in immediate need of assistance, please reach out to your lender immediately to discuss options which may include payment relief.

Were you laid off from an industry not directly impacted by COVID-19?

The lender may request further information regarding the lay-off, so please be prepared with that information. The lenders will work with you for a solution.

Do you have questions, but aren’t facing immediate hardship?

If you have a general question please either reach out to your mortgage broker for assistance or delay calling the lender to give them time to work with those who have immediate needs.

If everyone follows the above guidelines, this will help alleviate the volumes and stress for all parties involved.

Perhaps you are in the middle of a property purchase or will be making an offer soon.

Here are a few items to consider that also might help relieve some of your stress.

What is the source of your down payment and closing costs?

If the funds are coming from upcoming wages, investment funds or are being gifted by a family member, please move the funds so they are easily accessible. Bank branches are closing. Earnings are being interrupted.

The funds need to be available so you can get them to your lawyer in time for closing. Check your investment statements as the values have been impacted by the market conditions.

Need a property inspection or appraisal?

This is changing daily and some providers are no longer willing to enter homes.

Your subject for financing date

The lenders are extremely busy right now. Ensure that you have completed a pre-approval and all of your required lender documents are ready in advance of placing an offer.

We are now recommending a minimum of 10-14 business days to finalize financing requests.

Lawyers and notaries

Please ensure that your lawyer or notary will be available to sign documents for you so give them a call. As of right now, this meeting has to be done in person.

Everything is changing rapidly. Our lenders are adapting and modifying their policies to help everyone through these difficult times and will continue to do so as we move forward.

All your professionals, including mortgage brokers, lenders, realtors, home inspectors and appraisers, etc. will do all that they can within their control to assist you.

If you or someone you love has any questions about what to expect or other things to consider for your mortgage in the future such as an equity take-out, refinancing at today’s low rates, consolidating debt, etc., please reach out to me directly as I’m happy to assist.

Prime rate drop, now what?

The Bank of Canada made a big announcement this week and dropped the overnight lending rate by 50 basis points to 1.25%.

Many banks and other mortgage lenders quickly reacted and also dropped their prime lending rate by 50 basis points to 3.45% other than TD Canada Trust that is higher at 3.60% for their variable rate mortgages.

It’s important to know that lenders control their prime lending rate, so you will have to wait for notification from your mortgage lender as not all lenders automatically lower their prime lending rate when the big banks do. It can take weeks or even months for some of the smaller credit unions and non-bank lenders to make any adjustments after the Bank of Canada has announced a rate change.

This is good news for those who have a home equity line of credit or a mortgage that adjusts with any changes in the prime lending rate. Your rate has just dropped by 0.5 per cent.

What should you know about this rate decrease, and what should you do – if anything?

The first thing you need to determine is whether you have a variable rate mortgage or an adjustable rate mortgage. Many believe that these two products are the same but they are not. The primary difference is how your payments are calculated which will determine what’s going to happen with your mortgage because of this rate decrease.

Here’s the difference:

Variable Rate Mortgage – the payment does not change when the prime rate decreases. The only time the payment would change is if interest rates rise so much that there is no principal reduction in the balance when a payment is made. Your payments won’t change.

Adjustable Rate Mortgage – the payment rises and falls with any change in the prime rate unless you have specifically requested that the payment be set at a specific amount. You should see some payment relief.

There are many strategies being recommended for variable and adjustable rate mortgage management, including making payments like you have a five-year fixed-term mortgage. The idea being that if you pay more then should interest rates rise you won’t be facing payment shock with a much higher payment at renewal time. Is it a good idea? Sure – why not, if you have nothing better to do with the extra funds? But it’s really just prepaying your mortgage.

Maybe a lower mortgage payment is best so you can pay off higher interest debt with the cash flow or invest the funds somewhere else for a higher rate of return on your money. 

Do have dead equity in your home? Perhaps it’s time to consider investing in real estate with these low interest rates. We will no doubt see a hot real estate market this spring with the now lower interest rates combined with a new lower mortgage stress test. Please reach out for a review and a mortgage preapproval so you are in the best position for a hot market.

Now that the rate has dropped on your mortgage, the best thing to do is have a review completed by your favourite mortgage broker. Have them crunch the numbers for you and discuss the best strategy to accomplish both your short-term and long-term goals. It’s a good idea to have a mortgage review regularly anyhow to ensure your current mortgage product is still working for you.

Good debt vs. bad debt

Until recently there was no such thing as ‘good debt’ or ‘bad debt’ as all debt was ‘bad debt.’ Owing money for any reason wasn’t a good thing and it was important to focus on paying off everything. 

But now we are hearing about having ‘good debt’ and having ‘bad debt.’ So what’s the difference?

‘Good debt’ is considered to be funds that you borrow to purchase an appreciating asset. Something that may grow in value such as real estate, a business or investments.

‘Bad debt’ would be money you borrow to purchase a depreciating asset – cars, boats, clothes, consumables – or something that you can’t afford. Something that quickly loses value or doesn’t generate any revenue. It is most likely at a higher interest rate and even if the rate is low today you should also factor in a higher rate and potential fees to ensure that you can afford it in the future. 

High interest rate credit card debt is considered ‘bad debt.’ Credit cards themselves are not evil if they are used prudently and balances are not carried over.

Mortgages are considered ‘good debt’ because real estate generally appreciates over a period of time although there are no guarantees. You are also borrowing at lower interest rates.

Home equity lines of credit, which are a type of mortgage, can be either ‘good debt’ or ‘bad debt’ depending upon what they are used for. If you are using your line of credit to purchase depreciating assets or using it for your day-to-day expenses, it would be considered ‘bad debt.’ Consolidating your high interest credit card debt into a home equity line of credit would be ‘good,’ as there would be a significant lowering of the interest rate.  

Car loans would be ‘bad debt’ as you are purchasing a depreciating asset, but unfortunately the reality is that this is the only way that most people can afford a vehicle. The best thing to do is pay cash or as much cash up front for a car as possible. Does everyone really need a fancy new car?

Pay day loans or cash advance loans are definitely ‘bad’ as the interest rates and fees are astronomical.

In reality, it can be argued that no debt is ‘good debt’ – but used in moderation and with an educated approach, debt can assist in many things, including investing for retirement planning.

Using credit cards for everyday expenses and not paying them off right away is a dangerous path. Recently TD Canada Trust announced changes to how interest on their branded credit cards will be calculated. With the change, the bank will start to add any unpaid interest charges to the cardholder’s balance at the end of each statement period. Currently TD calculates interest based on a cardholder’s average daily balance until that amount has been paid in full. As a result you will now be paying interest on unpaid interest.

Prudent borrowers maximize ‘good debt’ and minimize ‘bad debt.’ It is possible to overuse good debt so be careful. 

If you are experiencing any financial challenges and currently own your home please reach out, as there may be solutions to relieve financial stress.

Mortgage check-up time

Hey, I get it. Mortgages are boring! Why would you want to revisit your mortgage every year?

Your mortgage is likely the largest investment you will ever make; yet, most Canadians don’t even think about it after first signing off until renewal time is approaching or they are considering a re-finance to access equity.

About 80% of Canadians visit their doctor at least once a year to help ensure they remain physically fit, but far less are checking their financial fitness annually. 

It’s time for a mortgage checkup. Thankfully, this checkup doesn’t require you to face your weight on that maddeningly accurate doctor’s scale, or sit in a cold and drafty little room with an open hospital gown. Actually, it’s a mortgage checkup that’s in order, and making time for a quick review may yield some amazing results.

Life changes, families grow, jobs move, retirement objectives shift. There are any number of reasons why your mortgage, and possibly your entire financial picture, should be evaluated from year to year. Maybe there are no changes needed, but if there are, it’s better to identify them early.

The mortgage that you signed up for a few years ago may no longer be the best fit for you. Doing a financial checkup is a very smart thing to do annually. Many often just wait for the renewal letter before they look at their mortgage and then go back to their current lender without considering whether that mortgage meets their current needs.

There are so many things that a mortgage can do for you. It can help you become more tax efficient, build wealth for retirement, renovate your home, consolidate high-interest credit card debt or perhaps invest in a business, purchase a vacation or rental property, and so much more.

When you obtain a mortgage, it is most likely the largest financial transaction of your life. Here’s a thought for you: instead of focusing solely on the interest rate, perhaps it might be important to consider various strategies that you can utilize within your mortgage that will assist you with your goal of ‘mortgage freedom’ and ‘financial freedom’ when you are ready to retire.

Having the same mortgage strategy your entire life is not always the best financial decision. If you are applying different mortgage strategies at different stages of your life, just like your other investments, it can lead to the financial wealth and the independence you are hoping for in retirement.

Don’t wait for your mortgage to come up for renewal and don’t wait until after you have made a major change in your personal situation. By reviewing annually you will ensure you stay financially fit.

Give me a call today for a review. I promise it won’t hurt!

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About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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