Calgary Mortgage Deferral

Posted by Real Estate Partners REPYYC on Monday, March 30th, 2020 at 5:08pm

With new information and changes coming daily, our impact mortgage partner Renee Huse who runs the incredibly popular and busy Spire Mortgage Team took the time to digest and provide her thoughts on one question many Calgarians, and Canadians have been asking in their homes. Should I defer my mortgage? 

 

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To defer or not to defer – it’s the million dollar question! As COVID 19 hit Canada over the past weeks and many non-essential businesses began laying off employees, there has been much miscommunication from the government, both federally and provincially, that lead both homeowners and tenants to believe that mortgages are being “forgiven.” This is just not correct.  Period.  There is ZERO mortgage forgiveness being offered to homeowners.  All those mortgage payments have to be made, eventually.  The major banks and other lenders across Canada have worked to put mortgage “deferral” programs in place to offer temporary payment relief over the next 6 months. But the big question is, “If your cash flow is affected now, or has the strong chance to be affected it the coming months, do you take the stress off with a mortgage deferral now?”

Many mortgage industry members were quick to jump to an opinion on deferrals with some saying things like, “unnecessarily deferring your mortgage is like parking in the handicapped stall without a permit” or “Defer your mortgage and invest in the depressed stock market.”  “I made a commitment to my bank, and I will pay it, come hell or high water.”  Really – there are some good ones out there! We decided that issuing a statement a week ago, from a place of chaos and uncertainty wasn’t in the best interest of our clients (or anyone else reading our blog posts).  Now that we have some more clarity from the government and the lenders, we wanted to put together a quick blog post with our opinions, specifically on mortgage deferrals. Let’s start with “what is cash flow?” Your cash flow is the monthly cash coming in, less the monthly cash coming out.  Obviously, we always want to be cash flow positive, meaning, there is more coming in than needs to go out. Many Canadians have had their hours cut, wages cut, have had to rework their jobs due to homeschooling their children or helping with elderly family; the reasons for income reductions are endless.  We are almost all negatively impacted and many of us have moved to (or are moving towards) a negative cash flow situation. There are only 2 ways to change your monthly cash flow, reduce your monthly cost or increase your monthly income.  Well, what I can tell you is that unless you’re selling ventilators, video conferencing software or surgical masks, you better start looking at how to reduce your costs. Given the many months of uncertainty that will follow it is our strong recommendation that you do all you can to maintain a positive monthly cash flow situation right now. 

When you SHOULD defer your Calgary Mortgage

If you are in a negative cash flow situation, do not deplete all of your savings or emergency reserves if a mortgage deferral is available to you.  Period.  Defer your mortgage.  You’re not taking advantage of a program, you're not gaming the system, you’re still going to fulfill your commitment to the bank, and you’re sure as hell not parking in the handicapped stall. This pandemic could extend for many months, and we could have “round two” in the fall.  It is important that your emergency reserves are available for harder times to come.  If your cash flow is headed to negative, take the deferral. But if we take the deferral – we’ll be paying 25 more years of interest – it will cost a fortune – the bank will make more money – that’s my money – I wanted to pay my mortgage off faster….blah…blah…blah.  Take the deferral. Here is the math: If you purchased a $400,000 home, with 5% down in the last few years, your payments are likely around $1800 per month. Deferring your mortgage for 6 months puts $10,800 BACK in your pockets to help with your negative cash flow situation in the next year.  THIS, IS, HUGE.  That $10,000 could help your situation in countless ways.

The ramifications on month 7 are small in comparison to the massive increase in cash flow you will experience during the deferral term.  If you take the FULL 6 month deferral, you’re looking at an increase in payment (on Month 7) of about $75 dollars.  $10,000 today – for a small increase in 7 months – TOTALLY worth it!

*** Pro tip – you ALSO need to be applying for ALL government programs. (federal & provincial), that are available to you.  Rent subsidies, child tax benefit and Employment Insurance.***

If you need help navigating these numbers, please reach out to Renee Huse

Spire Mortgage Team

Phone: (403) 804-5465

Address: 1922 9 Ave SE # 8, Calgary, AB T2G 0V2 

 

 

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