by Dan Adair, Island Savings Brentwood Bay –
During these unprecedented times, it may be tempting to take advantage of deferring your mortgage payments, especially if your income has been reduced as a result of COVID-19. However, there are lasting impacts to doing so.
Be mindful that a deferral is not mortgage forgiveness: the payment is being delayed and the interest accrued during that period is added to the balance owing, directly impacting the total interest you’ll pay over the long term.
Although mortgage deferment might make sense for some, homeowners should first consider alternate ways to make their mortgage payments more manageable.
Temporarily reduce your investment contributions. Becoming unemployed or having to close your business not only reduces your income but also likely reduces the amount of tax you’d be looking to defer in 2020. Reducing contributions while your income is lower may provide enough relief to keep your mortgage repayment plan on track.
Reallocate your household expenses. As you settle into your new “normal,” obtaining an accurate picture of your household budget might help you find ways to keep your mortgage payments on track. With many families staying home, some miscellaneous expenses have been drastically cut back or removed. Once you’ve determined what’s coming in and going out, you’ll have a clearer financial picture of where you’ll be each month with your payments.
Review the terms of your mortgage. At a time when interest rates are at a historic low, now could be a good time to review the terms of your mortgage with your advisor. It might make sense to break the terms of your mortgage to take advantage of a lower rate and reduced monthly payments. With rates as low as they are, the savings could outweigh the possible penalties associated with your mortgage.
Make an interest-only payment. Your mortgage payment is comprised of two parts: principal and interest. By paying only the interest, your payment will be temporarily lower, meaning you might be able to afford the payment. Keep in mind that you’ll still have to pay back that principal portion down the road, but your interest won’t be added back to your mortgage, of which you then must pay interest on.
I always recommended that you work with your financial advisor to review your options and find the solutions best suited for your financial needs and goals.
Dan Adair is the Brentwood Bay branch manager at Island Savings, a division of First West Credit Union.
