Benefits and Impacts of Deferring your Mortgage Payments

By Randall Orser | Budget

The impacts of Covid-19 have been felt by everyone in Canada, and many are struggling financially due to loss of work or decreased hours.  For those needing help there are financial relief programs that can offer much needed breathing room.

The ability to defer a mortgage payment is an option that has been offered by most lenders. It enables people to free up cash for the short term by deferring a significant financial obligation but it is not the right decision for everyone.   Here are some of the pros and cons of deferring your mortgage payments:

1. Being able to defer your mortgage payments can provide much needed peace of mind in these difficult times.  It will improve your monthly cash flow which will cover your urgent life expenses if you are experiencing a reduction of income .

2.  Don't just miss a payment as this comes with negative consequences such as your mortgage becoming delinquent causing a negative impact to your credit rating and risking potential foreclosure.  It is important to seek advice sooner rather than later to explore your options and make informed decisions.  Work with your mortgage lender to set up the deferral if you decide that this the best action for you to take.

3. When making the decision to defer your mortgage payments it is important to understand that the unpaid interest accrued during the skipping period will be added to the outstanding principal on your mortgage, which means that you will owe more on your mortgage in the long run than if you did not defer any payments.  Reducing your monthly payments will also lead to a longer repayment period and payment of more interest over time.

4. There are other ways to free up funds if you don't think that deferring mortgage payments is a good idea for you:

  • Refinancing your Mortgage - if you have equity built up in your property you may be able to access it to pay out other debts or create some cash flow.
  • Increasing your Mortgage Amortization - this will help you to lower your monthly payments but you will be spreading out your payments over a longer period of time.
  • Adjusting your Monthly Budget - staying at home will probably have decreased your monthly spending so it is a good idea to identify where you are saving money and make sure you allocate it to necessities rather than things that you don't need.
  • Look at other deferral options - you may be able to defer your property taxes, utility payments and payments on credit cards and loans these might be better options than deferring mortgage payments.

Deferring your mortgage payments can help your immediate financial situation but you need to carefully consider the potential future financial impacts.  You should speak with your financial advisor to determine if this is the best thing for you to do or if there are better options for you to free up cash to tide you over.

From an article by Diane Amato

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President/CEO Number Crunchers® Accounting Inc. Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.