Kitchen Table Real Estate:
Coronavirus mortgage deferral, what are the costs?
Because of the pandemic the Government of Canada has taken some measures to make it easier on Canadian homeowners who need help to ease the financial burden.
For this reason most banks will allow homeowners in difficulty to suspend or pause their mortgage for up to six months.
And apparently there are a lot of homeowners who have decided to pause their mortgage payments. After all why not if you can, and there is no fee to it?
Well, no fee does not mean it will not cost you anything. The amount you deferred will be added to your mortgage. This means your mortgage balance will increase.
When you skip a payment, the interest on the skipped payment is added to your outstanding balance. That means you will pay interest on interest during the remaining period of your mortgage.
Here’s an example: Let’s say you have 19 years left on your mortgage. You owe $270,000 and your interest rate is 2.8 per cent. If you decide to take six months’ vacation on your mortgage you will be deferring your $704.07 Bi-Weekly payments for six months. The total amount you are deferring will be $18,305.82. This amount will be added to your mortgage. At the end you will have to pay $23,581.37 more on your mortgage.
The mortgage deferral program is for homeowners who struggle with their mortgage payment. It is great when you need it. However, if you can make your payment, then you should.