Many things are in flux because of the COVID-19 outbreak that resulted in unemployment for a significant number of people across the country.  Some of the relief measures by financial institutions include:

• Deferred mortgage payments

• Credit card interest rate reductions

• Lower minimum payments on credit card balances

• Lines of credit adjustments

Mortgage Payments

The programs were launched in mid April with the option of skipping a payment.  At this point there are no deadlines and the deferrals are available indefinitely.  The customer needs to contact their bank or credit union for more information.

It is important to remember that this does not mean the payment is erased, but merely put off to a later date.  It is also necessary to remember that this is not a government program so the lenders are allowed to establish their own procedures and requirements.  So, applications may vary from one financial institution to another, as well as the terms of repayment.  Banks do not like to lose money, so you may expect that this deferral will come at a cost to the recipient.

Banks can require that those missed payments be resolved by either increasing the future payments so the repayment (amortization) schedule is not affected.  Or, they can just extend the term of the loan.  Deferring six months payments could mean around 5 additional payments to make up the difference.

While you are not making those payments, interest is still accumulating on the outstanding principal.  It will depend on how much you still owe on the loan, how long you defer the payments, and the term of the mortgage.

Credit Score

Since we are still in the early stages of this process, it is difficult to know whether these deferred payments will show up as late payments.  Since much of the information that is fed into the reporting system is automated, it would stand you in good stead to review your credit reports should you opt for a deferral program.  Catching errors early can save a lot of trouble in the long run. 

Considerations

As you are weighing your options, you may want to think about some other things:

• Total Debt – Prioritizing payments is difficult.  Cash flow can be increased and applied toward paying down credit cards, car payments, or just for ordinary living expenses.

• Other Bills – There are other issues like property taxes that may become due during this period.

• Savings – Are your savings sufficient to help you ride out the wave?

• Other Programs – It might be worth looking into other government-sponsored programs to see if they can offer you some relief.

Before coming to a decision, you probably want to sit down and analyze the options against the numbers.  Prepare a budget based on current income and a second one based on income when isolation restrictions ease up.  There are online calculators that help with providing the blanks that you can fill in.  

When you speak with the representatives at your financial institution, ask as many questions as necessary so that you thoroughly understand the implications.  If he or she simply replies with the same phrases, explain that you need them to use other words because you are confused. 

Credit counsellors and insolvency trustees may provide some insights.  Be sure you are confident in any decision you make.

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- The Capex Team