Covid-19 update: your mortgage, what you need to know

Since being labelled a pandemic by the World Health Organization (WHO), the effect of COVID-19 has begun to ripple through the world’s economy, including Canada, and has caused several effects.

With the quarantine, self-isolation, cutbacks, temporary business and store closures, many people will need assistance with their existing mortgages and mortgage financing.

Financial effects

The one most people are talking about is that the Bank of Canada has lowered the overnight rate from 125 to 75 bps, to reduce the interest cost burden for businesses and consumers alike.

What does this mean for you?

This will affect anyone with variable rate mortgages, home equity lines of credit (HELOC), and lines of credit. Most lenders have started reducing their prime rate to 2.95 per cent from 3.45 per cent before the first Bank of Canada announcement on March 4. However, lenders have reduced the discounts on variable rate mortgages.

Fixed mortgage interest rates are dependent on the bond market, which has dropped considerably. Typically, fixed mortgage rates move upwards or downwards in parallel to the bond market. Currently, lenders (including banks, credit unions and mono-lenders - lenders that are federally regulated and have access through them via mortgage experts only) have increased fixed rates as of March 24 and again this week. The reason being is that the lenders need liquidity. Therefore, fixed interest rates are increasing.

In addition, the OSFI (Office of the Superintendent of Financial Institutions) has suspended the proposed revision in the qualifying mortgage rates slated to begin April 6. Therefore, mortgages with less than 20 per cent down payment (high ratio) will continue to qualify based on the Benchmark of Canada rate, currently at 5.19 per cent, but it is expected to fall soon to 5.04 per cent. For mortgages with over 20 per cent down payment (conventional) will continue qualifying at the greater of the benchmark of Canada rate or the contract rate plus two per cent.

What your lender can do for you?

Due to the COVID-19 outbreak, many lenders are providing homeowners with beneficial options during this time to help alleviate some of the financial stress.
Depending on your lender, the following are some options available for you during this time:

• Deferred mortgage payments (some lenders up to six months)
• Re-amortization of the loan
• Capitalization of outstanding interest and costs
• Special payment arrangements

Lenders are asking that you contact them if your financial situation is due to the COVID-19 virus and if you are in true financial stress. Each lender has their own formal process that you would need to go through for them to defer your mortgage payments. And at some point, you will need to make good on those missed payments.

Mortgage payment deferrals are not being offered to clients that are still actively employed and are not experiencing financial hardship. The lender can require you to provide third party verification such as a record of employment, letter from employer confirming layoffs, etc.

It is important for you to contact your lender before you miss a payment, as it will affect your credit report.

At this point, it is critical that you stay informed from reliable information sources. Information is power and the more information you have at your disposal as the situation develops, the better prepared you will be to manage your household and finances.