Is mortgage relief right for you? What to know before deferring mortgage payments
During uncertain times like these, many people struggle to pay their bills, including their mortgage payments. Maybe you or your spouse have lost your job. Maybe you’re dealing with a pay cut or fewer paid hours due to COVID-19 restrictions. The silver lining is that in tough times, you do have some options to help you avoid defaulting on your mortgage. These include mortgage deferral or mortgage relief options.
Learn about the pros, cons, and features of mortgage payment deferral options so you can make a more informed decision about whether mortgage relief is right for you at this time.
How mortgage relief works
The key thing to remember when it comes to mortgage relief is that deferred payments allow you to push back your mortgage payments for a set period of time. However, these payments don’t get forgiven or waived – they’re postponed to a future date. Here’s how it works:
While your mortgage payments are deferred, interest will continue to accrue. That interest, plus the deferred payments, is added to your outstanding balance. When it comes time to renew your mortgage, your new payments are calculated based on the increased mortgage balance.
What are your options when you can’t make your mortgage payment?
You might be surprised at the number of options available for homeowners who are concerned about going into mortgage default because of missed mortgage payments.
Skip-a-payment for previous prepayments
Have you ever made a prepayment or extra payment on your mortgage? If so, ask your lender about any “skip-a-payment” options. With this feature you could skip a payment for each extra payment you’ve already made. In fact, some mortgages may even allow a once-per-year skip-a-payment if you haven’t made extra payments.
If your cash crunch is temporary, this could be a good option.
Extend your amortization to lower regular mortgage payments
If you’re looking for a longer-term solution to making your mortgage payments more manageable, it could make sense to talk to your lender about refinancing to extend your amortization. If you’ve been making payments for several years, doing this could lower your regular mortgage payments.
For example, let’s say you’ve been making payments for five years on a mortgage with a 25-year amortization. Your lender might allow you to refinance your current mortgage balance back to a 25--year amortization. This would lower your mortgage payments.
Mortgage payment relief programs
If you have a Manulife One account, you have options. With Manulife One, you don't have to make fixed payments each month. Plus, you have access to the equity in your home, and if you have borrowing room, you can actually stop making payments and also use that room to help cover expenses until things return to normal. This flexibility can play a big role in reducing mortgage stress during challenging times.
If you have a Manulife Bank Select mortgage, you can apply to defer your mortgage payments for up to 6 months if you're facing financial hardships due to the COVID-19 pandemic. And if you have questions or want to discuss other options, give us a call.
What to watch out for with mortgage deferral strategies
Deferring your mortgage payments can help you avoid mortgage default and give your family some much-needed stability during uncertain economic times. However, it’s important to understand that you could end up paying more interest on your mortgage in the long run.
That’s because the accruing interest that’s part of your deferred payments gets added to your principal mortgage amount. This means you’ll pay additional compound interest when you defer mortgage payments. This could lead to a higher payment than expected when it’s time to enter a new mortgage term, or it could result in a longer amortization period – the time it takes to pay off your mortgage.
It’s also important to find out if your lender will report your deferred payment to the credit bureaus when granting mortgage payment deferrals. Doing so could potentially negatively impact your credit score.
How to know when you should apply for mortgage payment relief
How do you know if mortgage payment relief is right for you?
If you’ve exhausted all other options for reducing your mortgage payments or skipping payments and still face challenges making your regular mortgage payment, mortgage relief could give you the financial breathing room needed to figure out your next step.
How to avoid a mortgage payment deferral in the future
While mortgage payment deferral options can be a financial lifesaver, they do come with a cost. You’ll pay more interest in the long run and could lengthen the time it takes to become mortgage-free.
Building an emergency savings fund of six-to-nine months of living expenses by working savings into your household budget could help you avoid the need for a future mortgage payment deferral. Instead, if needed you could fund your mortgage payment with your emergency savings.
Applying a financial windfall like your tax refund, end-of-year bonus, or financial gifts as a prepayment towards your mortgage could let you skip-a-payment down the road if needed.
Deferring your mortgage payments can be a welcome relief in uncertain times, as long as you understand that you’re still responsible for covering the payments and additional interest sometime in the future. However, you could have other options to help you make your mortgage payments - options that might make more financial sense. Talk to your advisor about the best options for your situation at this time.