Sometimes, life poses unexpected financial challenges that could make it difficult to keep up with mortgage payments. If you’re one of many Canadians facing hardship, mortgage payment deferrals can offer a temporary solution, giving you time to get your finances back on track. 

This post explores mortgage payment deferrals, who is eligible, how to apply, and what alternative strategies may exist to help you find the best solution for your situation.

Key Takeaways

• Mortgage deferrals are temporary financial relief options where deferred amounts must be repaid.
• Each lender will have specific eligibility criteria you must meet to defer your mortgage. 
• Other options are available if a deferral is not your ideal solution.

What Is a Mortgage Payment Deferral?

A Mortgage payment deferral is a mutual agreement between you and your lender that temporarily pauses or delays your regular mortgage payments for a set timeframe. This is often called a mortgage payment deferral agreement or mortgage forbearance. 

Deferred payments are not erased; they will need to be repaid later. Once the deferral period ends, you resume making regular mortgage payments, including the principal and accrued interest. 

Mortgage deferrals can help when you experience financial challenges like job loss or periods of reduced income. If you are going through a difficult financial time, this can be a lifeline offering immediate relief.  

Eligibility for Mortgage Deferral

The eligibility criteria for mortgage deferrals will depend on the lender. The most common eligibility requirements include: 

• Financial hardship: You must have reasons like job loss, reduced income, illness, or other unexpected circumstances that disrupt your finances.
• Mortgage type: Certain mortgage products may have limitations on deferral options based on the lender.
• Good standing: Your mortgage must be in good standing with the lender before applying for a deferral.

What Happens When a Mortgage Is Deferred?

A mortgage deferral can offer temporary financial relief, but it comes at the cost of more interest and the potential for higher mortgage payments over time. Before you decide to defer your mortgage, it’s essential to understand the potential impact deferring payments can have on your overall mortgage costs. 

Interest will continue to accrue on your outstanding mortgage balance even when you’ve deferred payments. This means the total interest and outstanding mortgage balance you owe will increase. Your amortization, or the time it takes to pay off your mortgage in full, may be extended by the time you defer payments to accommodate the deferral period. Once the deferral period ends, your monthly mortgage payments may be adjusted to cover the accrued interest and principal. 

Mortgage Deferral Relief Options

There are a few ways you can defer your mortgage depending on the lender and the solution you need. You may be able to: 

• Defer mortgage payments, delaying them for a specified time. 
• Extended mortgage payment deferral (there may be a maximum time limit).
• Special payment arrangement to reduce payments for a set time. 
• Capitalization is where you add missed payments to the principal, increasing the mortgage balance.
• Interest-only payments are where you defer the principal temporarily but continue to make payments on the interest portion of your mortgage payment. 

Pros and Cons of Deferring Mortgage Payments

Pros

Deferring mortgage payments helps provide immediate short-term financial relief during challenging times. This allows you to prioritize essential expenses and improve your cash flow, reducing financial stress. 

Cons

Deferring mortgage payments leaves the unpaid interest to accrue, which is added to the principal, increasing your overall mortgage debt. This can lead to higher borrowing costs (interest) over the life of your mortgage. Deferring payments may also result in a longer amortization period, which may take longer to pay off your mortgage. 

Alternatives to Deferring Mortgage Payments

There are alternative solutions that you can explore instead of deferring your mortgage. You could refinance and access the equity you have built up in your property to pay off debts or cover other expenses. You could extend your amortization to lower monthly payments, but this will come at the cost of more interest paid over the life of the mortgage. 

If changing your mortgage isn’t an option, you can consider creating or adjusting your budget. This would allow you to review your spending habits and identify areas where you can save. If allowed, you could also defer other expenses, like your property taxes, utility bills, or other loan payments. As a last resort, you could sell your home or consider downsizing and using the equity from the sale to cover expenses or debts. 

Options for Renegotiating Your Current Mortgage

• Renegotiate your mortgage terms to improve your financial situation or refinance to take advantage of lower rates. 
• Covert your variable rate to a fixed rate for stable, predictable payments.
• Take advantage of blend and extend or blend to term options to lower mortgage payments. 

Leveraging mortgage features

You may have the following mortgage features available to you:

• Re-amortize prepayments you’ve already made during the current mortgage term.
• Skip a payment – this feature is usually available if you’ve made prepayments or double-up payments. 
• Home equity line of credit (HELOC) – allows you to access the equity in your home. 
• Mortgage creditor protection claim – if you have coverage, this claim may cover mortgage payments in case of job loss or disability. 

CMHC / Sagen / Canada Guaranty Mortgage Default Management

Canada’s mortgage default insurance providers have established government-approved processes for deferring mortgage payments on insured and insurable mortgages. These processes highlight that lenders must assist borrowers facing financial hardship. 

Before applying default management tools, lenders must conduct thorough due diligence by carefully assessing each situation. This involves collecting updated financial information and analyzing debt service ratios. To minimize claims, lenders should actively manage borrower defaults. 

Lenders must explore all possible options and utilize various default management tools to assist borrowers in resolving their situation before defaulting. Any remedy with payment deferral should not negatively impact the collateral security or any first or second mortgages against it. Lenders must keep thorough records of the borrower’s financial assessment and reasoning behind any determination for payment default management.

Lender Mortgage Payment Deferral Solutions

RBC Skip-A-Payment Mortgage

RBC’s Skip-A-Payment feature allows you to skip mortgage payments once every 12 months. To be eligible, your mortgage payments need to be up-to-date. Your total mortgage balance plus any missed payments cannot exceed your original mortgage amount. With this feature, you can miss up to 4 consecutive weekly payments, 2 consecutive bi-weekly or semi-monthly payments, or 1 monthly payment.

Choosing this option at RBC comes with no fees, but be aware that skipped payments will accrue interest and be added to your principal. This will result in a higher mortgage balance and increased interest payments. Your regular payments will stay consistent throughout the term but may increase at renewal because of the larger balance. Remember that you are still responsible for paying creditor insurance premiums and property taxes.

TD Flexible Mortgage Payment Features

TD’s flexible mortgage payment features aim to help Canadians facing financial challenges skip up to 4 months of payments. Subject to approval, you can request a payment pause, the equivalent of 1 partial or full monthly payment once a calendar year and up to 4 times during your amortization period. 

You also have the option to take a payment vacation, during which you can defer your payments for up to 4 months partially or in full if you have already made a prepayment that has reduced your amortization schedule. Deferring payments is temporary, and interest will continue to accrue with both options.

BMO Flexible Mortgage Payment Options

BMO offers flexible payment options to temporarily alleviate financial pressure by allowing you to defer mortgage payments. They offer a Take a Break option where you can skip up to 1 month of mortgage payments per calendar year. 

BMO also offers families a Family Care Option, where you can skip up to 4 mortgage payments once per year if you or your partner leave your job to care for a new baby or sick family member. Remember that skipped mortgage payments will continue to accrue interest; however, you can pay the skipped payments at any time without a prepayment penalty. 

CIBC Mortgage Payment Relief

CIBC offers short and long-term mortgage payment relief options if you’re facing financial hardship. These options allow you to temporarily suspend your mortgage payments. Short-term options include reducing mortgage payments, paying only interest temporarily, and deferring mortgage payments. Long-term options include refinancing your mortgage, extending the amortization period, and making a lump sum payment.

Frequently Asked Questions

Final Thoughts 

Mortgage payment deferrals can provide temporary relief, but it’s essential to consider the pros and cons carefully and explore alternatives like refinancing or adjusting your budget if possible. If you’re considering deferring your mortgage payments, contact your lender to discuss your situation and their available options. 

Contact our mortgage professionals for personalized guidance on assessing your financial situation, exploring the best options that meet your needs, and navigating the complexities of mortgage deferrals or other long-term solutions.