What is a Mortgage Deferral?

Getting right to the basics, a mortgage deferral is an agreement between a bank and an individual. For a specified period of time, a mortgage deferral also allows an individual to delay their payments. It should be noted that once that period ends, the individual in question must then resume making payments to their mortgage. The individual must repay those deferred mortgage payments, and their bank is the party that determines how that can be accomplished. 

How do I repay my deferred payments?

The financial institution that an individual is working with can have several options available when it comes to repaying deferred mortgage payments. They can include, for example, adding the deferred payments to the individual’s mortgage balance, extending the period for mortgage amortization, or even increasing the amount of payment that an individual needs to make after the end of the deferred period. This may mean that the individual’s mortgage payments can be higher as well. 

During the mortgage deferral period, the bank keeps charging interest on the amount owed as well. This amount gets added to the individual’s outstanding balance. If the principal of the mortgage is higher, then the interest fees are higher as well. Therefore, it is important to speak with a financial advisor or mortgage professional before making any final decisions regarding deferred payments. The interest fees can be significant in terms of an individuals’ funds and other long-term goals. 

Do I fit the criteria for a mortgage deferral? 

By having a conversation with their chosen financial institution, the individual may be eligible for a mortgage deferral. An individual may be eligible for deferral if, for example, they, or any family member, are unemployed due to the pandemic. Another case includes if the individual, or any family member, experiences a significant decrease in income due to the pandemic. Other instances that may make an individual eligible for a mortgage deferral include if they have either an uninsured or insured mortgage, their mortgage is in good standing, and if their home is either their primary place of residence or non-principal residence.

Ultimately, it is the decision of the financial institution, and in order to receive specific information about what the eligibility criteria are for a bank, one should contact that bank directly. In the era of the pandemic, many financial institutions have an online page with this information as well. 

What if I want to cancel my mortgage deferral earlier than expected?

If an individual no longer experiences financial difficulties related to your mortgage, then they may consider cancelling their mortgage deferral earlier than expected. An individual may also cancel their deferral early if, for example, the situation with their bank has changed. While some banks allow for this type of cancellation, some of them don’t allow for it. Therefore, contacting the financial institution in question and asking them for more information beforehand is a step in the right direction. 

If the bank does not allow the cancellation of the mortgage deferral, then an individual should also consider the bank’s other options. For instance, the bank may negate a penalty payment and allow one to repay the deferred amount. Additionally, an individual can take the steps to help minimize the amount of additional interest by either making a prepayment or, after the deferral, increasing their payments.