Category: Mortgage Rules

With the COVID-19 pandemic ongoing, many debts have been deferred or suspended.

For instance, Canada’s big banks have been offering mortgage deferrals on a case-by-case basis. The Government of Canada has temporarily suspended federal student loan payments. Some credit card providers have offered deferrals on payments. Some car loan lenders and utility providers have also offered deferrals.

But here’s the thing — deferral doesn’t necessarily mean erased. The payments will come due at some point. And what happens if you can’t afford to pay?

The Truth About Deferred Debts

The Toronto Star reported early on that some mortgage deferrals could cost you thousands of dollars more in the long-term. While some lenders are deferring the principal sum of the debt, they are continuing to charge interest.

“Customers should understand that this is not mortgage forgiveness,” the Toronto Star reported a Canadian Bankers’ Association spokesperson saying.

“Mortgage deferral means that payments are skipped for a defined period of time, during which interest which would otherwise be part of the deferred payments is added to the outstanding balance of the mortgage.”

The same could be true of any loan deferrals or suspensions. It’s important to look at the fine print of your deferral and understand what is truly being put off — and when it will come due.

For instance, when the deferral period ends, will you be required to pay a lump sum? Will the balance be added to the rest of your loan (creating larger monthly payments)? Will your loan period be suspended?

You need to know the answer.

You also need to know about any associated interest or fees applied to the deferral or suspension. This is not a time for surprises.

While deferrals may be necessary for some right now, go into it with your eyes open and make a plan.

You need to make a plan now to deal with debt when the payments come due.

Step 1: Assess Your Debts – Even Deferred Ones

The first step is to assess all of your debts — including those that have been deferred or suspended.

You need to know exactly how much you owe and exactly when you will owe it. This is how you can start to assess your true ability to repay.

Make a list and ensure you have answers about any deferral fine print, then tally up your monthly payments. Now you will have an idea of how much you will owe each month (even if it is on hold for now).

Step 2: Track Where Your Money is Going

When you know how much you will owe each month, you will have an idea of how much income is needed to pay it off. You can assess whether your pre-COVID-19 income would cover this amount, and if your current assistance will do the same.

If you don’t have enough income, don’t panic. This is just for information purposes right now.

To make a payment plan, you need to understand where your current funds are going. If your income has been reduced, this may be easier to assess as necessities like rent and groceries may be making up the bulk of your expenses.

But it can also help to look at a month of pre-COVID-19 spending to see where your income normally goes — and how much you were saving each month before the crisis hit.

From here, you will understand how much income you are putting towards debt payments already and how much you can realistically afford to contribute when your income is returned.

Step 3: Make a Savings Plan

In the previous step, you will have hopefully seen if you have any leeway in your budget to set aside savings for when payments come due.

Even if you can only set aside a small amount, every little bit can help. However, if you do not have enough income to realistically pay off your debts — now or if your income is returned — it’s time to look at other measures.

Step 4: Deal with Debt

If debt payments have been taking up a large chunk of your budget even before COVID-19, you need to look at dealing with them for good.

The solution can depend on the type of debt you are carrying. For instance, mortgage debt could be dealt with through a refinancing, if enough equity is available.

Unsecured debts might be eligible for settlement, and if your income is reduced you could get a better settlement right now.

Outstanding utility bills and the like could be handled through a debt consolidation loan or filing for insolvency — bankruptcy or consumer proposal.

The key is to consult with a debt counsellor who can walk you through your options and make a plan that works for you.

At DebtCare Canada, we provide just that — we offer free consultations to help Canadians get out of debt for good.

Don’t wait until the COVID-19 crisis is over to make a plan for your debt. Deal with it now so you can ensure you come out the other side stronger.

DebtCare Canada is available 100% remotely. We have helped thousands of Canadians deal with problem debt. Call 1-888-890-0888 or visit www.debtcare.ca to contact our debt counsellors.