Some people are finding it easier to meet their financial obligations during the pandemic. Lower gas prices and work from home mandates could have a pretty significant impact on expenses, especially for commuters. Others may find that their grocery bill has gone up, but overall they're spending less on food as they aren't eating out as often. Plus, discretionary spending on visits to nail salons, barbershops, travel, and concert or theatre tickets is no longer an option. It's so interesting to realize how much money you spend on non-essentials!
But what if your income has been reduced or has disappeared completely. How will you manage? I have had clients in Stratford asking questions about mortgage deferrals. Initially it may seem like an easy financial solution to mortgage payments during the COVID - 19 outbreak, but there are consequences to deferring payments on your mortgage. A deferral doesn't cancel, erase or eliminate the amount you owe on your mortgage. It is an agreement between you and your lender that you will pause or suspend your mortgage payments for a certain period of time. Payments are skipped during that period of time, but the interest accrues, and at the end of the agreement your mortgage balance will be higher!
Another important consideration before making a mortgage deferral is how it might affect your credit score. The accrued interest is added to your mortgage balance, so a deferred payment if not coded correctly could show up as a late payment on your credit report. In the past, late payment has been enough to essentially get a mortgaged declined. Monitor your credit regularly to see if there are errors. It's much easier to dispute an error now than it is to assume everything is okay, only to discover your credit was significantly impacted by an error.
If you need help with your payments, the deferral program is available. I suggest trying to put it off as long as you can, as no one knows how long this current slowdown will last. It is important to understand that you aren’t automatically approved for the deferral program, nor is the six-month deferral guaranteed. Lenders are granting mortgage payment deferrals on a case-by-case basis. If you are experiencing financial difficulties, taking advantage of the program might be right for you. Accruing interest on your mortgage at 3% or 4% makes sense if you are carrying balances on your credit card at 20 + %. If you think you might risk missing a payment, don’t bury your head in the sand hoping it will go away. Take control call your lender early, as they are dealing with an increased volume of calls and it may take longer than usual.
This downtime gives us all time to look at our finances. Do you have more debt or more savings? How will you catch up on the debt? Where have you saved? Are there other places the savings could be utilized.
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