When COVID-19 shut down the Canadian economy in March, homeowners across the country, facing the prospect of falling behind on their mortgage payments, through no fault of their own, panicked. These borrowers were thrown a lifeline by Canada’s major financial institutions, who offered them the possibility of deferring those payments for 6 months.
Many Canadians made use of the deferral programs. The Big Six reported that they had allowed deferred payments on more than $180 million of residential mortgage and real estate-secured loan balances in the three months prior to April 30th.
Mortgage deferment has so far helped prevent a wave of panic selling, that could have sent the housing market into a catastrophic freefall. In that regards, it has been an overwhelming success. It seems though that many Canadian borrowers are still unaware of what deferring their mortgages means, or what effects the process might have on their future relationships with lenders.
Needless to say, it seems there has been a communication breakdown. Did the country’s biggest banks failed to educate their borrowers fully on the implications of mortgage deferrals? Or did borrowers rush into a program that sounded good without actually checking the implications?
A recent CBC story about borrowers who were blindsided by the extra interest they would have to pay back to their lenders, highlighted this fact. The Lender, in this case, confirmed that the client had the option of either paying their interest off once their deferral period ended, or rolling those charges into their remaining balances. The choice was always up to the client. The main concern however, is that the wording ‘Mortgage Deferred Payment Plan’ was now reflected on this client’s Credit Report.
Alerting other lenders to a client’s inability to pay a mortgage, is neither new nor nefarious, but it’s worth asking: How many homeowners who opted to defer their mortgages, did so, under the assumption that their situations would be looked at differently because COVID-19 was the sole reason behind their inability to pay?
It is possible borrowers are confused. A mortgage expert explained that Credit Bureaus like TransUnion and Equifax have said deferrals won’t show up as negative credit events on the Credit Scores they manage, but banks never made the same promise.
A Scotiabank spokesperson explained that customers who defer mortgage payments with the bank “can continue to renew or refinance their mortgage with Scotiabank during the mortgage deferral period and are subject to their standard adjudication criteria. Mortgage application and refinance decisions are based on a number of factors including income an employment status, amongst others.”
While no bank can conceivably lay out every potential effect of a mortgage deferral for every client, financial institutions need to assume their clients know less than they do, and provide the most stark, blatant and easily digestible facts possible, around deferrals.
Original article: www.mortgagebrokernews.ca
