Covid 19, Mortgage Deferrals and the Credit Score Gamble

Covid 19, Mortgage Deferrals and the Credit Score Gamble

Posted by Matthew Dekort on Tuesday, March 31st, 2020 at 1:18pm.

This post is time sensitive, with implications for your mortgage, cashflow, and credit for April - Sept 2020, all due to Covid-19.

 I am not a medical professional.  I know NOTHING about health.  There are hundreds of news stories out there about Covid-19.  Many more about government actions.  About social distancing.  This is NOT one of those posts.  It should also be noted, that as with everything Covid, the situation is fluid and changing.

 The federal government announced the Covid-19 Mortgage Payment Deferral Program.  Essentially freeing up extra cash flow for mortgage holders NOW, in the middle of the outbreak.  The best page directly from the government describing the program is https://www.cmhc-schl.gc.ca/en/finance-and-investing/mortgage-loan-insurance/the-resource/covid19-understanding-mortgage-payment-deferral

 To be clear, a deferral just means you'll make the mortgage payment at a later date, whether higher payments in the next term (raising about 12.3% based on 5 year terms and 3% interest), or added to the end of your mortgage (adding on roughly 13 months to your mortgage).  Feel free to review the math:

Google Sheets, Mortgage Deferral (I choose a $400 000 mortgage, 25 amortization, 3% interest)

Lots of mortgage brokerages have put together information on the deferrals as well.  Mortgage Connection, Covid Deferral (courtesy of Tracy Glover)

Main Points 

  1. Deferred payments are discretionary.  They do NOT need to agree that you need a deferral
  2. No payments are FORGIVEN, just deferred
  3. True hardship must be demonstrated.  This isn't just a method of increasing cash flow. 
  4. Max Deferral Time is 6 months.  
  5. Defers the mortgage portion of your payment only.  If you pay your property taxes or insurance through your mortgage, this portion is still due
  6. Contact the lenders BEFORE missing payment
  7. Credit SHOULD not be impacted

The last part in regards to credit is one that worries me.  While I agree that you shouldn't need to worry about your credit being impacted by a deferral agreed to by your lender (as part of Canada's Covid-19 Mortgage Payment Deferral Program), I fear that many will be impacted.  You have to remember how incredible new this program is and how so much of financial lives are automated. 

Every month, the credit bureaus (mainly Equifax and to a lesser extent, Transunion) get information from virtually every one of your accounts, if you paid, if you paid late, how much the payment was, and what the outstanding balance is.  They also have information on where you live, your occupation, and other details.  This is ALL automated. Should we trust that all the lenders have been able to update automatic programs they've had in place for years / decades in the last week?  How many lenders will be reporting the payment as "late"?

Toronto Star had a good news article, as did Canadian Mortgage Trends.

My advice.  If you have the funds to make the payment, do so.  If you are just starting to have issues, consider applying for May, allowing the banks 5x longer to fix the systems (1 week to 5 weeks).  If you are suffering TRUE hardship, then call the bank to defer now. 

In a few months, when life returns to normal, consider pulling your own credit and seeing if it was incorrectly damaged.  There are steps to fix errors.

In the meantime, Stay Safe.  Stay Healthy.

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