How Mortgage Lenders will Help Homeowners with COVID-19
In these extraordinary times, we are all committed to helping Canadians put food on the table and keep a roof over their heads. To help alleviate the financial pressures that Canadians will face, major Canadian lenders have introduced programs to provide financial relief for customers affected by COVID-19.
These financial relief programs include deferral of payments on mortgages for up to six. Before you contact your bank, here’s what you need to know about these programs.
1. You will pay interest on your Payment Deferral
Banks call these programs a “payment pause” (TD), ‘take a break” (BMO), “miss-a-payment” (Scotia), and “skip-a-payment” (RBC) but be wary of the marketing.
Deferring payments will help you in the short-term, but this isn’t a gift, and you will pay more interest if you take advantage of this option. When you defer payments with a lender, you simply postpone the payment to a later date and you still get charged interest for the month. They’re simply adding the interest charges to the balance of your mortgage that you’ll need to repay.
That’s why you should only defer your payments if you NEED the financial wiggle room.
Contrary to some social media posts we’ve seen, payment deferral isn’t a fresh new strategy to increase the cash flow on your rental. It is an emergency measure to help Canadians in need.
2. Deferring Payments is in the Lender’s Best Interest
These programs already existed to help Canadians in financial distress. The existing programs allowed the deferral of one or two payments, but they have extended them for longer timeframes to address the COVID-19 pandemic. Banks have several reasons to do this for Canadians, and most of them aren’t entirely selfless.
Maintain Customer Satisfaction and Build Loyalty
RBC and TD are two of the largest banks, and both have invested millions in employee training and refreshing mobile/online banking so that they can be ranked at the top of customer satisfaction rankings. Foreclosing on customers in a crisis would squander this customer goodwill while extending a helping hand in a time of need can build lifelong customer loyalty.
Banks are in the Lending Business
Lenders aren’t in the property management business, so they don’t want to foreclose on our homes and have to rent them or sell them. They would rather have Canadian’s keep paying them interest, and deferring payments increases the amount of interest they earn from a customer. Mortgage deferrals increase lenders’ interest revenue and helps them avoid becoming property managers.
Help Stabilize the Real Estate Market
The real estate market is weak, and real estate boards are cancelling open houses. If a lender did foreclose on a home, they would find it difficult to sell it during a pandemic.
As well, predatory buyers will be watching listings during the pandemic containment period. They will judge that only VERY motivated sellers will list in the next while, and that will be an opportunity for them to get good deals for homes purchased sight-unseen.
If banks push more homes onto the market in this environment, there is a higher likelihood the market will crash and the value of the homes which they are holding as collateral for all their mortgages will be compromised.
Keep Politicians and Regulators Satisfied
Six-month payment deferrals are good PR for banks. The Canadian Banker’s Association lobbies the government and regulators regarding issues like:
If they behaved in a way that made politicians' lives more difficult, then they would inevitably face more stringent regulation once the crisis is over.
3. Contact your lender for more details
Each bank has set up advice hotlines so you can reach them for more information.
BMO Bank of Montreal 1-877-788-1923
CIBC 1-800-465-2422
First National Financial 1-888-670-2111
Home Trust Company 1-855-270-3630
HSBC 1-888-310-4722
MCAP 1-800-265-2624
National Bank 1-888-835-6281
RBC Royal Bank 1-800-769-2511
RMG 1-866-809-5800
Scotiabank 1-800-472-6842
Street Capital (RFA) 1-866-939-5005
TD Canada Trust 1-888-720-0075
Like this post? Like us on Facebook for the next one in your feed.
