Understandably, the question of hardship is coming up more frequently, as the Covid-19 pandemic tightens its grip on the global economy. During uncertain times like these, many people struggle to pay their bills, including their mortgage payments. Perhaps you or your partner have lost your job. Maybe you’re dealing with a pay cut or fewer paid hours due to COVID-19 restrictions. Fortunately, there are several solutions available to you to assist you to avoid defaulting on your mortgage. Mortgage deferment or mortgage relief are examples of these possibilities. These include mortgage deferral or mortgage relief options. In this article, we will discuss what you need to know about mortgage repayment deferral.
What you need to know about mortgage repayment deferral
Learn about the benefits, drawbacks, and features of mortgage payment deferral options so you can decide whether or not mortgage relief is suitable for you right now.
How mortgage deferral works
A mortgage deferral is an agreement between you and your mortgage lender. It allows you to delay your mortgage payments for a defined period. However, these payments don’t get forgiven or waived – they’re postponed to a future date. Interest will continue to accrue while your mortgage payments are postponed. Your outstanding balance is increased by the interest plus the postponed payments. When it comes time to renew your mortgage, your new payments are calculated based on the increased mortgage balance.
What are your mortgage repayment deferral options?
There are a lot of options available to homeowners who are concerned about going into mortgage default due to missed mortgage payments. Read your mortgage contract carefully and discuss your options with your mortgage lender. You may be eligible for one or a combination of options available to you. Keep in mind that you may have to pay fees if you make changes to your mortgage contract.
Skip-a-payment for previous prepayments
Have you ever made a mortgage prepayment or extra payment? If this is the case, enquire about “skip-a-payment” possibilities with your lender. You might use this feature to skip a payment for each additional payment you’ve already made. This could be a smart alternative if you’re having temporary cash issues.
Extend your amortization period
The amortization period is the time it takes to completely pay off a mortgage. Extending your amortization period lowers your mortgage payments. Remember that the longer you wait to pay off your mortgage, the more interest you’ll pay. Your mortgage amortization period may only be extended to the maximum amount. The maximum amount depends on whether your mortgage is insured or uninsured. It also depends on your financial institution.
Blend to term or blend and extend option
Some financial institutions offer blended options. With these options, your mortgage lender calculates a new interest rate based on your mortgage rate and the current rate. This lowers your mortgage payments if the current rate is lower than your mortgage rate.
Converting to a fixed rate
You might be able to change your variable-rate mortgage to a fixed-rate mortgage. Your payments may be cheaper if the current fixed rate is lower than the current variable rate on your mortgage. This option also safeguards you in the event of a sharp rise in interest rates. To see if this option is accessible to you, speak with your financial institution and examine your mortgage contract.
Making special payment arrangements
Your mortgage lender may be able to make special payment arrangements for you. With this option, you and your financial institution agree to recover late payments within your ability in the quickest time possible. Reduced mortgage payments for a set period are examples of special payment agreements.
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. 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. 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.