Bite of mortgage deferral

Deferred mortgage payments aftermath

Many homeowners deferred their mortgage payments at the onset of the COVID-19 pandemic and we are now seeing the aftermath of doing that.

Some deferred their mortgage payments even when they were still working as the option was readily available without many questions or an explanation of possible consequences.

It’s unfortunate that clear explanations weren’t provided, but it was a hectic and scary time for everyone and the lenders had to make an about face from their regular operating procedures.

Here’s what we know today. The deferred mortgage payments are now reporting on credit reports and although a deferred payment may not technically affect your credit score, it’s definitely being scrutinized very closely by lenders should you want to make any changes to your mortgage or secure new mortgage financing.

If you have deferred mortgage payments you will now see one of these notations or both on your credit report.

  • Deferred Payment
  • Affected by Natural or Declared Disaster

This will be a red flag to any lender and they are going to take a closer look when reviewing any new mortgage financing request whether it’s a request to refinance your current mortgage or if you are looking to secure a mortgage to buy a new property.

Deferring a mortgage payment is a sign of financial hardship. The lender may:

  • Review your income/employment more closely
  • Ask for more documentation
  • Decline you if you have borderline qualifications, particularly if you’re employed in a higher-risk industry.

If you aren’t able to make your mortgage payments, they will be hesitant to lend to you. When speaking with your mortgage broker or a new lender, always disclose upfront that you have deferred your mortgage payments.

Before applying for a mortgage ensure that you have returned to work and things are back to normal. The lender will request full income documentation to confirm your employment status and they will also make a call to your employer to confirm that you are currently working and will remain so.

They will do this at the time of an approval and again prior to funding the mortgage.

If you are self-employed bank statements will be required to show that you are again generating income. They may also require copies of contracts or receipts to prove you are now back working.

All lenders are going to want to see that you have resumed your regular mortgage payments so you should ensure that you’ve done that before looking to refinance or you start looking for a new home.

These are definitely unprecedented times so if you are considering any type of mortgage financing please reach out and we can review your current circumstances and recommend any steps you may need to take to get you in the best position to move forward with your plans.


Spousal buyout mortgage

You might be going through or considering a separation or divorce, but the end of a relationship does not necessarily mean that you will have to sell your home.

Your home may be able to give both partners a new start.

For many, your home is your largest asset and where most of your net worth has accumulated.

There are mortgage products available that can allow you to buy out the other party while enabling you to stay in your home. A divorce or separation doesn’t always mean you will have to sell your property.

You will require a finalized separation or divorce agreement as that is required by the lenders and the agreement needs to clearly detail the asset allocation and any joint debts that need to be cleared.

The mortgage funds can only be used to buyout the other party’s equity the home unless it is clearly laid out in the separation agreement that some joint debts need to be paid out to a maximum of 95% of the value of the property.

The property must be your primary residence.

Sometimes friends or siblings have bought a home and live together in the property. This program may be used in that circumstance also but this will require an exception for an approval by the mortgage insurer.

There are insured mortgage programs available that could help you stay in your home in the event of a separation, divorce or dissolution of a relationship by purchasing the home from your ex-spouse or partner for up to 95% of the home’s value.

To qualify for this program you must be able to afford the mortgage payment on your own along with your other liabilities. Not only must the lender approve your application but also a mortgage insurer.

Both parties must also be on title on the home prior to the separation.

There are some differences between two of the programs.

With the first mortgage insurer the funds can only be used for a spousal buy-out or the dissolution of a relationship. This could be friends, relatives, etc. There cannot be any matrimonial debts or pre-payment penalties or fees included in the new financing.

With the other mortgage insurer the funds can only be used for a spousal buy-out and no other relationship breakdown, but the new financing can include matrimonial debts if they are listed on the separation or divorce agreement. They will also allow pre-payment penalties and fees to be included.

To qualify for both of these programs you must have good credit and earn sufficient income to support the mortgage payments.

It’s so important to seek the advice of a mortgage broker very early in the process as we can guide you along the way to a successful separation so you can both have the best possible outcome going forward.

If you already have a separation agreement in place we can show you how the value in your home can make it work out for you both.

If you have any questions on this program please give me a call at 1-888-561-2679 or email [email protected]. All inquiries are kept strictly confidential.

Credit repair action list

As a mortgage broker, it is my business to help you get the best rate and terms for your mortgage.

Many don’t understand the importance of a credit rating that can affect their ability to get the best mortgage rates. If you have large credit card balances, too many accounts or have missed making some payments, you probably have some strikes against your credit score.

Here are some credit management tips for making sure that you get the best possible mortgage rate.

Get a copy of your credit report.

You need to know what your credit issues are before you can begin to work on credit repair. You can receive your credit report for free via mail or order on-line from TransUnion here or from Equifax here.  

You should check your report carefully. Are there any errors? Be sure to contact Equifax or TransUnion to have these corrected.

Make your payments on time.

Always, always pay your credit card(s) and other obligations by their due dates and that includes your cell phone bill. Collections stay on your record for six years. Even after you pay them off, they will not disappear.

Focus on your payment amounts.

If you can’t pay the balance in full ensure that you pay at least the minimum payment required. Paying more will save you interest charges.

Have a buffer between limits and balances.

Know the limit on your credit cards and try to keep as far below that limit as possible. The higher your balance, there is an increasing negative impact on your credit score. Try for a balance that is no more than 30% of your limit.

Limit your credit cards.

Try to have no more than three credit cards. Use them occasionally, and pay them off promptly. Keep your oldest and most established account open, even if you no longer use it as it’s an important part of your credit history.

Avoid applying for credit.

Be careful; applying for new credit can hurt your credit report. If you are rate shopping, make sure you shop during a focused period of time (recommended 15 days maximum.)

Build a credit history.

Some people think they have great credit because they have never needed or used a loan or credit card. Unfortunately, that is incorrect. Someone who has no credit history is usually viewed as riskier than someone who has credit and manages it responsibly.

Be proactive.

If your debts get ahead of you, contact your creditors and work out a payment plan with them. They want to know you are concerned and take it seriously. This can help avoid collections which will have a long term negative impact on your credit.

Borrow wisely.

Credit cards can be a trap. Ask yourself "do I really need this?" before purchasing if you are using credit.

Protect your credit.

It’s your passport to financial opportunity. You’ll be rewarded with better rates and faster approvals.

If you are someone who monitors your credit score that’s great. Scores available at some of the online services are a great reference but these scores are now what we use for mortgage lending when a lender assesses your qualifications for a mortgage.

Sometimes the score at the lender and mortgage broker side can differ significantly from the score you see as a consumer as we use a system that includes far more variables in determining the Fico score used for mortgage lending.

As your mortgage broker, I will do a full credit review and let you know if there are any areas that need to be worked on prior to applying for mortgage financing.

Sometimes a few simple steps can greatly improve a credit score so please reach out to see if you need to do a little work on your credit in order to qualify for a mortgage.


Reverse mortgage safeguards

There are many misconceptions surrounding reverse mortgages. There are only two reverse mortgage lenders in Canada and both of them have safeguards in place to ensure that the equity in your property is kept safe and secure.

Here are the four most common misconceptions about reverse mortgages in Canada. Let’s bust those myths.

  1. You will always retain title and ownership of your home. Just like a regular mortgage, your home is used to secure the loan – and either of the banks will register a charge on the title of the property – you do not transfer home ownership to the bank.
  2. Lending amounts are conservative. The reverse mortgage lenders will only lend up to 55% of the value of the home, while factoring in the homeowner's age, property type and property location. The older the client, the higher the loan amount they can qualify for. This is done so that the reverse mortgage never exceeds the value of the home.
  3. Homes typically appreciate in value. The total value of your home is likely to appreciate over time, especially if it is located in a major city. Meanwhile, only the interest on the borrowed amount accrues. Based on that differential, even a modest home appreciation allows for equity preservation. This is why over 99% of homeowners have money left over when their loan is repaid. 
  4. No negative equity guarantee means loan can never be more than the sale price of the home. Many people think that if their home equity depreciates at the time of sale, they/their heirs will end up owing more than the house is worth. However, one of the lenders guarantees that if the home depreciates in value and the mortgage amount due is more than the gross proceeds from the sale of the property, the lender covers the difference between the sale price and the loan amount (as long as the property taxes and mortgage obligations are met and it does exclude administrative fees and the interest accumulated after the due date).

As your mortgage broker, along with the lenders, I am focused on preserving your equity. That's why the lenders have built these safeguards into the reverse mortgage products to ensure that you will not be at risk of losing your home when accessing your home equity. 

Please contact me to find out more about how a reverse mortgage is actually a great way to improve cash flow, while allowing you to stay in your home. Together we will compare the products of both reverse mortgage lenders and also review other possible mortgage options for you to accomplish your goals. We will help to find you the right solution while making the process as stress free as possible.

More Mortgage Matters articles

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.

Previous Stories