Everything You Need to Know About the Mortgage Deferral Payment Program
A mortgage deferral payment program is an agreement between you and your financial institution in which the borrower agrees to reduce the number of their monthly mortgage payments for some time. During the deferral period, interest will apply to the remaining balance of the mortgage. After the end of the deferral period, you have to repay the mortgage payments that you deferred, as your financial institutions will add that amount to your mortgage balance.
It includes :-
– Increasing the mortgage amortisation period.
– After the end of the term, the mortgage payments will be deferred to your mortgage balance.
– Once the deferral period is over, your regular payment amount will be increased.
As the principal of the mortgage payment increases, the interest rates also increase.
In Which Situations Can One Apply For a Mortgage Deferral?
Mortgage deferral is a great option for those who are struggling to make ends meet and need some time to get back on track. In the following cases, you should consider applying for a mortgage deferral.
– When there is an unexpected expense, such as an illness or hospitalisation.
– You or any of your family members are suddenly fired from their jobs.
– When you decide to sell your home
– When you want to make improvements to your home.
– If there are major life changes in the family and they need to move.
Who Can Apply For a Mortgage Deferral Payment Program?
To qualify for this program, borrowers must meet certain requirements and apply to their private lenders.
- You can apply if your mortgage is insured or uninsured.
- The home mortgage is in good standing.
- If your home is your principal residence as well as your non-principal residence.
What Should I Expect During the Mortgage Deferment Process?
Mortgage payments include both the principal and the interest amount. When the mortgage payments are deferred, it will impact both the principal and the interest amount.
Principal Amount
It is the amount of money that you borrowed from a financial institution. When you defer the mortgage payment process, you are not currently paying the monthly mortgage; you are just postponing the payments that you are obliged to make later.
Thus, the principal amount of the loan is not impacted by deferring because it's based on the original principal amount of the loan. The amount accumulates, and you have to pay it later on.
Interest Amount
The interest is the cost you pay on the borrowed money from the lender. To calculate the interest cost, you need to take into account the following parameters
- The principal amount of the mortgage
- Current interest rates
- Amortisation period
When the amount is deferred, financial institutions still charge some interest on the amount that you own. Financial institutions can add the same deferred amount to the principal amount.
Thus, when you pay the principal amount (if the amount is non-deferred) you pay the normal interest rate. After the end of the deferred term, your principal amount increases, which includes the interest rate that was deferred.
This new payment method is interest on interest, i.e., interest that you pay on the deferred interest. Some of the financial institutions agreed to refund it.
Ask your financial institution if they also calculate it and if any refunds are available.
Other factors that are impacted by deferred payments.
Real Estate Tax
Paying the property tax through the financial institution can be a necessity for some institutions, or it can be just an option. This amount becomes a part of the mortgage payment when financial institutions pay this amount on your behalf.
Your institution can also allow you to defer your property tax along with your home mortgage. If they don’t defer it, you need to pay it continuously.
Credit Insurance
When you have purchased credit insurance. Financial institutions add insurance fees to mortgage payments. Similarly to real estate taxes, your financial institution can allow you to defer your insurance credit or may not. In case both the real estate and insurance credit is deferred, the amount starts on accumulation, which you are obliged to pay later.
Cancelling the Mortgage Deferral
If you have previously deferred your mortgage payments and now wish to cancel the deferral because of circumstances around you, you need to contact your financial institution to find out if they allow it or not and what kind of information they need. Some may require you to provide certain information, such as proof of income, while others may simply require you to submit a request to cancel the deferral.
In case your financial institution doesn’t allow you the option of cancelling the mortgage deferral. There are some other options that you can consider to lower the payment.
- Increasing the principal amount after the deferral amount.
- Creating prepayment.
Other Mortgage Relief Options
Increasing the amortisation period
The amortisation period refers to the length of time over which a loan is repaid in full. Increasing the amortisation period means extending the length of time required to pay off a loan, resulting in smaller monthly payments but higher total interest costs.
For example, if you have a mortgage with a 25-year amortisation period and you increase it to 30 years, your monthly payments will decrease, but you'll end up paying more in total interest over the life of the loan.
Fixed Interest Rates
Increasing the amortisation period
The amortisation period refers to the length of time over which a loan is repaid in full. Increasing the amortisation period means extending the length of time required to pay off a loan, resulting in smaller monthly payments but higher total interest costs.
For example, if you have a mortgage with a 25-year amortisation period and you increase it to 30 years, your monthly payments will decrease, but you'll end up paying more in total interest over the life of the loan.
Blended Options
Some financial institutions offer blended options that help in calculating a new interest rate based on current and mortgage rates. This would help lower your mortgage payments if the current rate is lower than the mortgage rate.
Reborrowing After Prepayments
When you have pre-paid the amount, your financial institution may allow you to re-borrow the amount that you have pre-paid. It will help you manage your monthly mortgage payments.
HELOC
A Home Equity Line of Credit (HELOC) is a type of revolving credit that allows homeowners to borrow against the equity they have in their homes. It is a form of second mortgage, where the lender uses the equity in the home as collateral for the loan.
HELOCs can be a good option for homeowners who need to access funds for home improvements, debt consolidation, or other expenses.
Alpha Mortgage House Corporation is a Mortgage Broker in Surrey, BC. We provide mortgages for Home Purchases, Project financing, Second mortgages, Commercial mortgages, Mortgages for first-time home buyers and more. Alpha Mortgage is a one-stop solution for all your mortgage needs. Our team works with top lenders to provide you with the best financial options.