30 Jun

Happy Canada Day!


Posted by: Debra Carlson

Happy Canada Day!!

“This year isn’t like other years. But even these challenging times are a good opportunity to think about what it means to be Canadian. I’m inviting you, whoever and wherever you are, to take part in all the great activities we have planned. Today Canada’s history—our values, our talents and our creativity—are on display for the whole world. Today is our day. Happy Canada Day!”

—The Honourable Steven Guilbeault, Minister of Canadian Heritage

Quick facts

Canada Day is often informally referred to as “Canada’s birthday”, particularly in the popular press. However, the term “birthday” can be seen as an oversimplification, as Canada Day is the anniversary of only one important national milestone on the way to the country’s full independence, namely the joining on July 1, 1867, of the colonies of CanadaNova Scotia, and New Brunswick into a wider British federation of four provinces (the colony of Canada being divided into the provinces of Ontario and Quebec upon Confederation). Canada became a “kingdom in its own right” within the British Empire commonly known as the Dominion of Canada. Although still a British colony, Canada gained an increased level of political control and governance over its own affairs, the British parliament and Cabinet maintaining political control over certain areas, such as foreign affairs, national defence, and constitutional changes. Canada gradually gained increasing independence over the years, notably with the passage of the Statute of Westminster in 1931, until finally becoming completely independent with the passing of the Constitution Act, 1982 which served to fully patriate the Canadian constitution.

Under the federal Holidays Act, Canada Day is observed on July 1, unless that date falls on a Sunday, in which case July 2 is the statutory holiday. Celebratory events will generally still take place on July 1, even though it is not the legal holiday. If it falls on a weekend, businesses normally closed that day usually dedicate the following Monday as a day off.

  • July 1, 2020, is the 153rd anniversary of Confederation.
  • It is the 40th anniversary of the official adoption of our national anthem, “O Canada,” and we will salute the key role of the Métis Nation in bringing Manitoba into Confederation 150 years ago.
19 Jun

Beware the Siren Call of HSBC’s 1.99% Five-Year Fixed-Rate Mortgage


Posted by: Debra Carlson

The spring real estate market is showing signs of life – and the usual big bank low rate teaser.

There is an annual tradition in the Canadian mortgage market whereby a large bank grabs the headlines with an eye-catching rate as soon as our spring real-estate markets kick into high gear.

True to form, now that our regional real-estate markets appear to be emerging from their extended COVID-induced slumbers, HSBC is offering a five-year fixed rate mortgage at 1.99% to borrowers who are putting down less than 20% of the purchase price of a property (commonly referred to as high-ratio borrowers).

Side note: If you’re wondering why smaller down payments come with lower mortgage rates, it’s because they also include borrower-paid default insurance premiums (which I outline in detail here).

In today’s post, I will use HSBC’s offer to illustrate why the terms and conditions in your mortgage contract can end up costing you much more than a small difference in rate over time.

HSBC’s rate is noteworthy because it is the lowest advertised five-year fixed rate ever offered by a bank in Canada, but any responsible purveyor of mortgage advice should always take care to remind you that your overall borrowing cost often comprises a lot more than just the rate.

Your terms and conditions dictate how much flexibility you have over the length of your contract. Most Canadian borrowers opt for five-year terms, and a lot can change over that length of time. I have been a mortgage broker for the past ten years, and in my experience, the changes are rarely foreseen at the outset. Examples include job transfers, career changes, job losses, changes in family structure, or the simple desire to trade up.

Many borrowers, when they are at their most vulnerable, are shocked to learn that there are huge differences in the fixed-rate mortgage penalties charged by different lenders. In the example I provide below using today’s rates, HSBC would charge you a $23,000 penalty to break your mortgage while a competing lender with a rate that is only slightly higher today would charge $2,000.

Let’s start by using a $400,000 mortgage to compare the difference in interest cost between HSBC’s 1.99% offer and a rate of 2.13% from a lender with better terms and conditions (Ts and Cs):

HSBC’s rate would save $2,612 over the next five years. The question that follows is: How much flexibility are you willing to give up for that saving?

To estimate what it might be worth to you, let’s look at the difference in cost if you want (or need) to break your mortgage contract early. For ease of comparison, we’ll assume that this happens within two years, with mortgage rates the same as they are today.

If you want to break a fixed-rate mortgage, lenders will charge you a prepayment penalty that is the greater of three months’ interest or a formula called Interest Rate Differential (IRD). While every lender uses the same basic wording, the devil lies in the differences in their detailed calculations.

Simply put, the inputs that lenders use to calculate their IRD penalties can vary significantly.

I won’t provide a detailed explanation of the different penalty calculations here because this post does just that for those who are interested (it is one of the most widely read posts I have written). Instead I will just confirm that in the example above, HSBC would charge $23,049 whereas the other lender would charge $1,998.

If you want to review a detailed breakdown of the inputs that I used to come up with the penalty amounts, I have provided them in the charts at the bottom of this post.

With that difference now highlighted, if you needed a mortgage for $400,000, would you choose to save $2,612 in interest in exchange for a break penalty that is about $21,000 higher? Or would you trade that $2,612 saving for a far lower penalty instead?

To help you further evaluate that trade-off, let’s look at two examples of when you might want to break your mortgage.

Scenario #1 – Mortgage Rates Fall

The most common reason for breaking a mortgage is to take advantage of lower rates. Borrowers can often realize a substantial saving if they refinance to a lower rate – but this only works if the cost of the break penalty is reasonable.

Interestingly, despite the fact that rates have been trending lower for decades, borrowers continue to assume they can’t go much lower.

While nobody can know with certainty what will happen next, consider the following points:

  • Five-year fixed mortgage rates are effectively priced on the Government of Canada (GoC) five-year bond yield.
  • High-ratio fixed mortgage rates, which are always the lowest offered, have historically been priced at about 1.25% over the GoC bond yield.
  • Today the GoC bond yield stands at 0.37%. There are COVID-related risk premiums included in our mortgage rates at the moment, but if those eventually melt away, 0.37% + 1.25% = 1.62%.
  • Throw in another 0.12% drop in the GoC bond yield over the next 2 years, and it doesn’t seem impossible that high-ratio five-year fixed rates could hit 1.50%.
  • If that sounds crazy, because it would put us at a new low, consider where the five-year GoC bond yield sits compared to its G10 peers (see chart).
  • In Europe mortgage rates have actually gone negative. I wrote this post last August highlighting the first example of a ten-year fixed-rate mortgage with a negative interest rate in Denmark.

If our high-ratio five-year fixed rates were to hit 1.50%, the borrower with the penalty in the $2,000 range could take advantage. Refinancing down to 1.5% would produce a net saving of $4,575 over the three years they had left on their initial contract, in addition to adding two more years at the new, lower rate on the back end.

(For comparison, that borrower would also save $2,000 more than the borrower who took HSBC’s rate of 1.99%.)

Scenario #2 – You Need to Sell

While this scenario would be less likely, a borrower who is forced to sell their property (without buying another one) because of job/income loss, a job transfer, or a change in any other life circumstances would have no choice but to pay whatever penalty their lender charges. And people are regularly paying those huge penalties, as any Google search on the topic will readily reveal.

In uncertain times like these, having a mortgage contract with a penalty that will result in one less zero after the dollar sign might be worth paying a little more interest to secure.

I am picking on HSBC in this post only because of their recent high profile offering, but to be clear, there are plenty of other lenders who use similar penalty calculation methods. Even lenders who do offer fairer penalty calculations have specific products that come with a slightly lower headline rate and much more onerous penalties.

My advice, after more than a decade of watching the rate/penalty trade-off play out across thousands of real mortgages, is that the terms and conditions will likely matter a lot more than you might think on first pass. (And if you now want to do a deeper dive on all of the key terms and conditions to watch out for, you can check out this post.)

Forewarned is forearmed.

The Bottom Line: Both five-year fixed and variable rates continued their slow decline last week as COVID-related risk premiums continued to shrink. This is now a well-established trend that should continue in the weeks ahead.

Detailed Breakdown of Penalty Calculations

The calculations used in this post are based on the formulas I outline in detail here.

To summarize, here are two charts showing how the lender offering a five-year fixed rate at 2.13% today would calculate your penalty using the Standard Method if you have three years left on your term and if their three-year fixed rate (which is known as the Comparison Rate) is 2.39% (where it stands today):

The lender’s current three-year fixed rate (2.39%) is actually lower than your contract rate (2.13%), as has been the case for some time now, so the Standard IRD penalty calculation in the chart above produces a negative number. Given that, the three months’ interest penalty of $1,998 is the one this lender will charge.

Now let’s compare that amount to the penalty HSBC would charge under the same scenario:

HSBC uses the Discounted IRD method I outline in the post I link to above, and its three-year posted rate is currently 2.89%.

HSBC is discounting its five-year posted rate of 4.94% by 2.95% to get it down to 1.99% and when that same discount is applied to its three-year posted rate of 2.89%, the comparison rate becomes -0.06%.

HSBC uses the greater of three months’ interest ($1,864) or IRD ($23,049), so your penalty would work out to $23,049.

Image credit: iStock/Getty Images

By David Larock

15 May

The Story of Victoria Day


Posted by: Debra Carlson

For many Canadians, the Victoria Day holiday weekend is the time to start thinking about summer. Bonus: It’s a day off school! But why do we celebrate the birthday of Queen Victoria, who died nearly 115 years ago?

Until 1956, the birthday of the monarch—that’s the king or queen—of Great Britain was also celebrated in Canada, sometimes on his or her own birthday, sometimes around that time and sometimes on Victoria Day.

She was queen when Canada became its own country in 1867, and she was the one who chose Ottawa as our capital. After she died in 1901, the Canadian government declared that May 24 would be a holiday in her honour. (If the 24th fell on a Sunday, the holiday would be May 25.)

In 1957, Victoria Day was named the official birthday in Canada of Queen Elizabeth II. (In Great Britain, her birthday, which is actually April 21, is celebrated in June.) And Victoria Day is officially held on the Monday right before May 25.

Have An Awesome Victoria Day Long Weekend!

12 May

Most real estate will emerge OK post-pandemic: Benjamin Tal


Posted by: Debra Carlson

Multifamily, office and industrial real estate will emerge from the COVID-19 crisis as winners, while losers will include the energy, transportation and hospitality sectors.

Those are among the insights offered by CIBC World Markets managing director and deputy chief economist Benjamin Tal during a May 5 Real Estate Forums webinar.

“It’s not a recession, it’s not a depression, it’s something in-between,” Tal said of the unprecedented position Canadians, and people around the world, find themselves in. “It’s basically a frozen economy.”

Tal expects a “recessionary recovery” to be long and in a “zig-zag” pattern, with volatility to be found in valuations, expectations, gross domestic product (GDP) growth and consumer confidence. The end point will be finding a vaccine or effective treatment for COVID-19.

Tal anticipates governments continuing to play a large role in the economy, as relief payments to get people through the crisis evolve into a more permanent universal basic income system.

Deglobalization will continue and two distinct trade blocs, respectively led by the United States and China, will be established. While Canada was trying to diversify its economy by lessening its reliance on the U.S. before this crisis, Tal now expects that to revert.

As well, Tal believes many companies will start thinking less in terms of profits and more in terms of resiliency.

More medical-related products and other essential goods will be produced domestically and there will be a move from “just-in-time” to “just-in-case” inventory systems.

Tal’s Canadian real estate market overview

“What we’re seeing now is not a market that’s functioning normally,” Tal said. “When you have the number of transactions going down so rapidly, and you’re basically frozen, the signal that you’re getting from the market is a misleading signal.

“It’s not a real signal because it’s biased and very small.”

Tal said real estate valuations being made now have very little value and people should be careful about making decisions based on the current economic situation.

“For the real estate market, if this recovery is going to be relatively long, it means that interest rates will remain relatively low,” said Tal. “That’s positive.

“I think the damage to the real estate market isn’t as significant as perceived.”

Tal expects the Canadian economy to emerge from the recovery phase in 2022 or 2023 and that “the demand for real estate will remain very strong.”

Impact on Canada’s housing market

Tal said the Canadian housing market was at a “very, very, very good” starting point before the current crisis.

This is easing the pain brought about by housing activity dropping 70 per cent compared to a year ago. Supply and demand are both down.

“We’re seeing some significant delays in completions, especially in the high-rise segment of the market,” said Tal.

Problems include getting materials from other countries and increased physical distancing on construction sites, which reduces productivity by 40 to 50 per cent.

A total of 30,000 condominium completions were projected in the Greater Toronto Area in 2020, but the final tally won’t come close to that.

Housing starts will slow dramatically across Canada, contributing to a lowering of the GDP. While things will improve next year, Tal doesn’t expect the numbers will return to pre-crisis levels.

There were large job losses across Canada in March and April, a high proportion of them low-paying. Most of those people live in rental housing.

Tal is adamant, however, that the Canadian rental housing market is not in danger of collapse.

Somewhat surprisingly, Tal said the rent payment rate among those low-income earners was higher than for Canadian renters in higher income brackets.

He attributes this to many low-earners now receiving a $500 weekly Canada Emergency Response Benefit payment from the federal government, which they’re using to pay rent.

Many also live in rent-controlled apartments where they’re paying well-below-market-value rents. They’ll do whatever it takes to pay to keep living there.

While reports claim 85 to 90 per cent of apartment rents were collected in April, Tal thinks that number will go down in May.

The number of immigrants and non-permanent residents in Canada will decrease this year. A large percentage of those people are also renters, which will decrease demand for rental housing.

Tal expects that to be balanced out somewhat by a reduction in supply due to a lack of apartment building completions, so the vacancy rate increase won’t be dramatic.

Commercial real estate sectors

There have been predictions of a collapse in office building values because of reduced demand owing to an increased number of people working from home.

The pandemic accelerated that trend but Tal expects it to be offset, to a degree, by the desire to dedicate more space to each employee as a means of physical distancing.

“Vacancy rates might be rising and I think that rent inflation will go down a little bit, as we have seen in every recession,” he predicted.

“But at the same time, I think that those who predicted that this market will collapse are overstating the damage. I don’t think that the move towards people working from home will be as dramatic as perceived, given the productivity aspect.

“Even if you lose 20 per cent of people working in the office, you will have to build bigger, which means that you have a situation in which the demand for space will be relatively steady or maybe reduced a little.”

The momentum of e-commerce started years ago and will continue to build, but at a faster rate. More people have started online shopping by necessity because most stores are closed and people aren’t leaving their houses.

This will have an obvious impact on retail real estate, which has already encountered challenges over the past few years.

“High-quality retail will remain in demand, and in fact it will improve,” said Tal. “I see significant damage to low-quality retail. This means that you will see e-commerce taking over.”

Tal didn’t address industrial real estate, beyond saying he’s still bullish on the sector.

Written by: Steve McLean RENX.ca

8 May

Happy Mothers Day Weekend


Posted by: Debra Carlson

Every year, we fret over the perfect Mother’s Day gift and every year, we’re reminded it’s something that can’t be bought. No gift can ever properly say “thank you” for the countless hours of carpooling, shopping, guiding, consoling, coaching, and folding the dreaded fitted sheet. No gift can match the value of an embrace after a profound hurt, or a lifetime of loving wisdom imprinted on our very being—from the way we see the world to how safe we feel inside it.

So, how do we express what we truly feel?

Don’t get me wrong, gifts are wonderful (and surely welcomed). But I believe what moms want more than anything right now is a loving hug. The unbridled, ungovernable, unstoppable kind of squeeze where everything else just melts away. And it breaks my heart that so many mothers can’t get one this year.

From grandparents isolated from their families, to moms kept two metres from their grown children, to those of us whose mothers have left this world, Sunday won’t be easy for most Albertans. But I do believe it’ll be more meaningful as we all reflect on the importance of physical connection in our lives. We know what it means to have loving arms wrapped around us, and how sharp the sting of their absence.

So, this Mother’s Day, I encourage you to celebrate the women in your life in whatever way you can. Whether it’s a warm catch-up from porch to sidewalk, a virtual chat from living room to living room, or a loving vigil marked by memories, let Sunday be about family. Because family can get us through anything. And when you can’t share a hug (or even when you can!), thoughtful gestures are always well received.

I know this message hasn’t been like my others, but these are unusual times. I simply wanted to pause to recognize all the amazing mothers in Alberta: women working hard to deliver essential services; women staying home to help flatten the curve; and women who volunteer in their community (you’ll absolutely love this story of a Camrose billet mom).

To those we call grandmother, stepmother, mother-in-law and mother, thank you.

Written By: Don Smitten
President and CEO, Alberta Motor Association

8 May

Calgary businesses light up sky to honour shelter, agency staff amid COVID-19 pandemic


Posted by: Debra Carlson

Several businesses in and around downtown Calgary will be displaying orange lights on Thursday evening, showing their appreciation for shelter and agency staff keeping the homeless population safe amid the COVID-19 pandemic.

Twelve organizations will be participating, including the Calgary Tower, Telus Spark Centre, Glenbow Museum and the Southern Alberta Jubilee Auditorium.

Calgary Emergency Management Agency chief Tom Sampson said the city organized the initiative to show appreciation to the continuous hard work that these front-line workers have shown throughout the pandemic

“Since the onset of the pandemic, we have seen tremendous efforts put forward from groups and organizations all over Calgary to help prevent the spread of COVID-19,” Sampson said in a news release on Thursday.

“The staff at our local shelters and other agency partners are working with a truly unique set of challenges.

In order to comply with physical distancing regulations, shelter and agency staff have relocated more than 400 homeless Calgarians to temporary shelter locations and permanent housing in the city.

“Tonight’s small gesture across the city is just a token of the enormous thanks all of us owe the heroes working in our shelters and agencies,” Calgary Mayor Naheed Nenshi said.

Over the last few weeks, several people staying at homeless shelters in Calgary have tested positive for COVID-19 and have been transferred to isolation facilities.

Officials suspect more cases may evolve in Calgary’s homeless population, but hope these isolation facilities and increased testing methods will help stop any outbreaks in Calgary’s shelters.

Written By: Demi Knight Global News

24 Apr

Ultra Low Rate websites – What’s The Story?


Posted by: Debra Carlson

Ultra low mortgage rates, offered through various internet sites, are often restricted mortgages.  You may have higher prepayment penalties than generally available in the marketplace, as high as 3% of your mortgage balance.  Low rate mortgages often do not allow an in-term transfer, which is generally referred to as porting the mortgage with you to a new home.  Many do not allow blend and increases (refinances), you must pay the penalty to do a refinance (get equity out of your home).

Low rate sites are looking for no hassle, no muss, no fuss mortgage applications.  So if you happen to be an hourly worker, does your 2 year average and your YTD income substantiate the required income to qualify?  Does your source of down payment meet new government requirements?  When will you be told if they do or do not?  Self-employed, contract worker, income from a couple of sources, you can spend a week thinking you have sent in the correct paperwork only to find out you have not been approved.  Unfortunately, it may mean your file is just a little too time consuming for the low rate site.

Low rate sites use salaried staff who need to meet production quotas.  They do not have time for problems or complex scenarios.  They are looking for the 20% to 30% of the market who have the perfectly simple scenario.

Low rate sites are not able to work through other issues, a unique property size or type, square footage issues, condo by-laws or financial statement problems, post tension cable or special assessment requirement.  Will the low rate site take the time to find the most suitable lender or insurer?  Lenders will have sliding scales, can you get an exception, can you find a new lender before condition day?

Low rate sites often entice you with the initial promise of an attractive rate and then after you have completed the application and have sent them all your documents will tell you that you don’t qualify for that rate, but that you do qualify for some other higher rate.

Low rate sites do not have the staff to help ensure the rest of the home buyer process gets completed on time.  For example, meet the financing condition date, ensure the lender instructs money to lawyer on time, and insure you get possession on time to avoid late interest charges.

Low rates sites will ask you to sign a non-compete agreement that if they present you with a commitment, you will not obtain your mortgage from another bank, lender, or broker, and if you choose to do so, you will be charged a fee.

Your Mortgage Broker has access to many of these low-rate restricted mortgage products.  So call and ask your Broker what you qualify for, and if a low-rate mortgage is a good fit for you.

15 Apr



Posted by: Debra Carlson

Bank of Canada Maintains Overnight Rate Target and Unveils New Market Operations

The Bank of Canada today maintained its target for the overnight rate at 1/4 percent, which the Bank considers its effective lower bound. The Bank Rate is correspondingly 1/2 percent and the deposit rate is 1/4 percent. The Bank also announced new measures to provide additional support to Canada’s financial system.

The necessary efforts to contain the COVID-19 pandemic have caused a sudden and deep contraction in economic activity and employment worldwide. In financial markets, this has driven a flight to safety and a sharp repricing of a wide range of assets. It has also pushed down prices for commodities, especially oil. In this environment, the Canadian dollar has depreciated since January, although by less than many other currencies. The sudden halt in global activity will be followed by regional recoveries at different times, depending on the duration and severity of the outbreak in each region. This means that the global economic recovery, when it comes, could be protracted and uneven.

The Canadian economy was in a solid position ahead of the COVID-19 outbreak, but has since been hit by widespread shutdowns and lower oil prices. One early measure of the extent of the damage was an unprecedented drop in employment in March, with more than one million jobs lost across Canada. Many more workers reported shorter hours, and by early April some six million Canadians had applied for the Canada Emergency Response Benefit.

The outlook is too uncertain at this point to provide a complete forecast. However, Bank analysis of alternative scenarios suggests the level of real activity was down 1-3 percent in the first quarter of 2020, and will be 15-30 percent lower in the second quarter than in fourth-quarter 2019. CPI inflation is expected to be close to 0 percent in the second quarter of 2020. This is primarily due to the transitory effects of lower gasoline prices.

The pandemic-driven contraction has prompted decisive policy action to support individuals and businesses and to lay the foundation for economic recovery once containment measures start to ease. Fiscal programs, designed to expand according to the magnitude of the shock, will help individuals and businesses weather this shutdown phase of the pandemic, and support incomes and confidence leading into the recovery. These programs have been complemented by actions taken by other federal agencies and provincial governments.

For its part, the Bank of Canada has taken measures to improve market function so that monetary policy actions have their intended effect on the economy. This helps ensure that households and businesses continue to have access to the credit they need to bridge this difficult time, and that lower interest rates find their way to ultimate borrowers. The Bank has lowered its target for the overnight rate 150 basis points over the last three weeks, to its effective lower bound. It has also conducted lending operations to financial institutions and asset purchases in core funding markets amounting to around $200 billion.

These actions have served to ease market dysfunction and help keep credit channels open, although they remain strained. The next challenge for markets will be managing increased demand for near-term financing by federal and provincial governments, and businesses and households. The situation calls for special actions by the central bank. To this end, the Bank is furthering its efforts with several important steps.

Under its previously-announced program, the Bank will continue to purchase at least $5 billion in Government of Canada securities per week in the secondary market, and will increase the level of purchases as required to maintain proper functioning of the government bond market. Also, the Bank is temporarily increasing the amount of Treasury Bills it acquires at auctions to up to 40 percent, effective immediately.

The Bank is also announcing today the development of a new Provincial Bond Purchase Program of up to $50 billion, to supplement its Provincial Money Market Purchase Program. Further, the Bank is announcing a new Corporate Bond Purchase Program, in which the Bank will acquire up to a total of $10 billion in investment grade corporate bonds in the secondary market. Both of these programs will be put in place in the coming weeks. Finally, the Bank is further enhancing its term repo facility to permit funding for up to 24 months.

These measures will work in combination to ease pressure on Canadian borrowers. As containment restrictions are eased and economic activity resumes, fiscal and monetary policy actions will help underpin confidence and stimulate spending by consumers and businesses to restore growth. The Bank’s Governing Council stands ready to adjust the scale or duration of its programs if necessary. All the Bank’s actions are aimed at helping to bridge the current period of containment and create the conditions for a sustainable recovery and achievement of the inflation target over time.


3 Apr

What You Need to Know about Mortgage Deferrals


Posted by: Debra Carlson

The Federal Government announced on March 18,2020 that it would provide increased flexibility to lenders to defer mortgage payments. Then the big-6 banks announced they would be allowing up to 6 months of mortgage payment deferrals to assist those impacted by COVID-19.  The Monoline lenders followed suit.  Since then they have all been doing as best they can to accommodate the massive volume of calls and emails, while implementing new processes and procedures almost daily to help handle these inquiries.  Lenders are updating us daily/hourly as to what the best course of actions is, and I encourage you to contact your Mortgage Advisor for current advice.

Essential Services –Bankers, Mortgage Brokerages, Realtors and other Financial service providers have been declared essential services in Alberta. So we’re not going anywhere and will continue to be there to help you through this.

Banks are offering COVID-19 Relief on Auto & Personal Loans, Credit Cards, Credit Lines. Also Student Loans can be deferred.

Details of Major Banks offering relief in various forms 

Important note – a payment deferral is not a forgiveness of the amount owed.  It means the payments are deferred to a later time, when we will have to pay them back, with a cost of interest charges on the interest deferred (aka interest on interest).

Credit Union customers – access to a variety of programs and solutions designed to ease difficulties with loan payments and short-term cash flow. Check with your Credit Union.

Here is what we have learned so far:

  • Banks are prioritizing clients based on need and next mortgage payment date.
  • Regardless of how urgent your situation is, it is going to take time to get a response. It can be frustrating to wait on hold, or wait for an email response, but please contact them before you miss a payment, as to not damage your credit.
  • NEVER EVER be late for or miss a mortgage payment.
  • Effectively the deferred interest is capitalized (added) into the mortgage balance owing.
  • I have heard from clients who have received 6 months of deferred payments with no questions asked.
  • Understand this is not always the case.  You may be asked about your employment status and other reasons you have for requesting deferral. Some lenders will ask about your net worth status and liquid assets available. (If you do your regular banking with the same lender that holds your mortgage, they can likely assess this internally).
  • Things like whether or not your mortgage is default insured aka (CMHC), collaterally charged (has a HELOC on it), the loan-to-value ratio, and if you have been set up on accelerated payments or applied any lump sum payments in the past will be considered.
  • Each lender has their own criteria for deciding what criteria they will use in making mortgage deferral decisions.  Based on many of my clients experiences, the consensus so far seems to be that often the best results are received when speaking directly with a bank representative.  Not always, but most often. It is best to be willing to be on hold for an hour and maybe more, to achieve your desired outcome.
  • Note- if you are a denied a deferral, try again via the same method or the other methods your lender offers (phone, website application or email).  There is still not full consistency within each lender on what is granted and what is denied from day to day and person to person.
  • Some clients are offered a 1-month or a 3-month deferral only and encouraged to re-apply with new status going forward. * PS to Alberta residents * We have had clients in the oil and gas industry report they were asked by the lenders if their layoff was directly due to COVID-19, or other factors. GREAT QUESTION.  I believe the answer may be related to the apparent other challenges within the O&G industry and some lenders being sensitive to this as an area of risk to address.
  • Mortgage distress, like any kind of distress, is relative.  For some people, mortgage distress is due to worry about the coming disastrous economic effects of COVID-19 on their job or business.  For other people, mortgage distress is being suddenly laid off with no income and unable to pay their Mortgage on Tuesday.  All are valid concerns, however, some lenders are prioritizing and only dealing with those not able to pay their mortgage payment due within the next few days.  If you don’t have concern about missing your next payment, consider sending an email or filling out a form for a call back later.  I know waiting can be frustrating.  In these times, exercising a little patience and freeing up the phone lines could help your friends and neighbours keep their home.
  • If you believe you have some equity in your home, you might be able to avoid all of this by speaking to your Mortgage Broker and setting yourself up to access equity for an affordable fallback.  You should do this before there are any negative changes to your income or home value.  I would suggest NOW is the time.  You may be able to refinance to draw out an emergency fund, set up a home equity credit line, a reverse mortgage, or even private financing to bridge the gap at this time.
  • Self employed and commissioned workers: Some lenders will require “proof” that you’ve been laid off or your income has been impacted by COVID-19 in order to defer payments.  For many of you, that is something that you won’t be able to document for months. Please feel free to e-mail me if you would like to explore your financing options outside of or in addition to deferred mortgage payments.
  • Questions to ask your bank when you speak with them about a deferral:
    • Ask your bank about the details of what their bank is offering.
    • Does the deferred pay-down get added into the payments to keep the amortization the same, or is the amortization lengthened to fit?
    • Some banks cap the deferred interest within the remaining term, some within the amortization. If within term then the lower the term the higher the new payment will be after the 6 months is up will be. If within the Amortization then generally the impact is less as the timeline is longer.

See the CMHC webpage on mortgage deferrals here

COVID-19: Understanding Mortgage Payment Deferral

Now let’s look at the long term costs of a 6-month mortgage payment deferral

We will assume the deferral occurs in the first 6 months of the new mortgage, which is unlikely to happen but provides the most expensive case scenario. We will use the method used by most Credit Unions, and by TD Bank and others, whereby the bank will re-set you payment at the end of your current term, to have you pay back the accrued interest over the remaining entire amortization of the mortgage.  This keeps the amortization period unchanged from its original  length. This method is the most generous for your cash-flow, and is also the most expensive possible method.

  • A $100,000 mortgage at 3.00% interest with a 25 year amortization would have a monthly payment of $473.25. We will assume it is on a 5-year term.
  • If a client defers a $100,000 mortgage at 3% interest for 6 months you would accrue $1,500.00 in interest.  The interest each month for those 6 months is on a static balance rather than on a declining balance, so this amount is slightly higher than the $1,490.70 in interest you would pay if the payments were not deferred.
  • Once the 5-year term ends, and the mortgage renews the balance owing is higher by the accrued interest, plus interest on that accrued interest, plus the principal not paid and the interest on the principal not paid. All of that adds up to $3,266.87. You would have not made 6 payments totaling $2,839.50.
  • So upon renewal the balance owing would be $88,741.17 instead of the $85,474.30 it would have been without a deferral.
  • Therefore the total cost of the deferral at the end of the 5-year term would be $427.37.  So the total cost of a 6-month deferral after 5 years is equal to 90% of one monthly payment.
  • This assumes you pay all of that deferred money back on your mortgage at the end of that term. If you don’t then the cost will increase over time. Let’s look at that next.
  • Assuming the new interest rate at renewal was unchanged at 3.00%, and renewing with a 20-year amortization, your new monthly payment would be $491.33 instead of $473.24, a difference of $18.09 per month.
  • If you renewed again and again at the same interest rate until the mortgage was paid off you would have paid a total of $45,059.69 instead of $41,972.92, for a total cost of $3,086.77


  • Taking a payment deferral on any debt is a defensive and protective move taken at a time of great uncertainty. You may need that money during this challenging economic time or you may not, but you won’t have it if you don’t take the deferrals available to you. And you likely don’t currently know if you will need it or not. If you know you will not need it, then why take it.

Some Thoughts for You:

  • If you take a 6-month deferral and you put that money into a separate bank account and spend of it only what you must, and then when the dust settles you pay what is left in that account directly on that mortgage you will reduce the long-term cost of the deferral.
  • Or, if when the dust settles you decide it is more important to reduce your overall monthly debt payments by the highest possible amount, then take that remaining money and pay down the debt that would reduce your monthly payments by the largest amount, or the debt with the highest interest rate.
  • It’s your money. Use it in the way that best serves you.

I hope this information helps you in your decision-making and actions on your mortgage(s).

Thank you to both Garth Chapman and Sarah Boudreau of Jencor Mortgage for their hard work on gathering and putting this information together to share with everyone.

2 Apr

Covid-19 Aid Programs: Governmental, Banking, Utilities and Health related


Posted by: Debra Carlson

Banks offering COVID-19 Relief on Auto & Personal Loans, Credit Cards, Credit Lines

Details of Major Banks offering relief in various forms

ATB Customer Relief Program

Credit Union customers – access to a variety of programs and solutions designed to ease difficulties with loan payments and short-term cash flow. Check with your Credit Union.

Important note – a payment deferral is not a forgiveness of the amount owed.  It means the payments are deferred to a later time, when we will have to pay them back, plus the cost of interest charges on the interest deferred.

CANADA – COVID-19 Economic Response Plan: Support for Canadians & Businesses

NEW PROGRAM – CERB – This is Big!!

CERB: Canada Emergency Response Benefit

  • CERB will give workers who cease working or are receiving reduced employment income because of COVID-19 a taxable $2,000 monthly payment.
  • Dutton Employment Law Group’s excellent CERB review and FAQ

NEW PROGRAM FOR BUSINESSES – This will be a huge help for Employees and Contract Employees

A Federal 75% Wage Subsidy to help Businesses keep & return workers to payroll retroactive to March 15.

  • It looks like the payment will be capped at 75% of $58,700 annual income, so $3,669 / month.

Canada’s Federal COVID-19 Economic Response Plan – click the link for details on existing programs

NEW INFO – It appears that the federal government will use the CRA ‘My Account for Individuals’ to register for or to access electronic payments.  Apply here for an individual CRA account unless you already have an account.

Link to all Federal COVID-19 Programs

  • These appear to be Automatic (but you should double-check on that):
    • Enhanced Canada Child Benefit for the 2019-2020 benefit year, by $300 per child
    • GST Credit increase
    • A one-time special payment by early May 2020 through the Goods and Services Tax credit. The average boost to income for those benefitting from this measure will be close to $400 for single individuals and close to $600 for couples.
    • Delay to Income Tax filing deadline to June 1, 2020 and payment deadline to Aug 31, 2020
  • These you must Apply for:
    • EI Work Sharing Program
    • Federal Student loan 6-month payment moratorium. Note: this is a deferment, not a forgiveness.

ALBERTA – Immediate relief for Albertans affected by the COVID-19 pandemic

NEW INFO – you will need a MyAlberta Digital ID account to receive Alberta government COVID-19 benefits,

There is normally a 10-day waiting period after uploading your driver’s license to the site waiting to receive by mail your verification code.

COVID-19 Supports for Albertans

  • Alberta student loan payments can access a 6-month, interest free, moratorium on payments.
  • Emergency isolation support – a one-time payment of $1,146 will be distributed to bridge the gap until the federal emergency payments begin in April.
  • Residential customers can defer electricity and natural gas bill payments for 90 days to ensure no one will be cut off, regardless of the service provider.

Important note – a payment deferral is not a forgiveness of the amount owed.  It means the payments are deferred to a later time, when we will have to pay them back.

Other Existing Income Supports for Albertans – click the link for details on existing programs

Covid-19 Government Resources for Albertan Renters & Property Owners – courtesy of ‘COVID-19 Resources’

UPDATED – Health Resources official sites

For more information about COVID-19 itself, please check out these resources:

Compiled by- Garth Chapman – Jencor Mortgage