TD polled 1,001 Canadians in December and found that:
83% would like the ability to lower their monthly payments during an unexpected life or work event
75% would like the ability to skip a payment during an unexpected financial shortfall
65% would like the ability to postpone payments during a planned care leave or extended holiday
Other things being equal, it’s interesting these percentages aren’t higher. Payment flexibility can be a big stress reliever when you need it.
With this in mind, TD has announced a set of new payment options. Customers who qualify can now:
Skip the equivalent of one monthly payment per year, up to four times during the life of the mortgage (amortization period)
Reduce and/or skip payments for up to four months, if they’ve made equivalent extra principal payments (on top of their normal required payments)
"Many customers want to pay down their mortgage ahead of schedule and be debt-free sooner, but they worry about not having the funds available if they need them in the future," says Farhaneh Haque, Regional Sales Manager, TD Canada Trust.
TD adds that “60% (of those surveyed) would be more likely to make a lump sum payment to pay off their mortgage faster if that gave them the flexibility to pay less at a later date if something unexpected came up.”
To use these options, TD customers must have:
Their mortgage and other credit “in good standing”
A mortgage balance at or below their original principal amount
Customers who skip or reduce payments are charged interest during those periods. This interest is tacked onto their mortgage.
TD isn’t the only lender to allow skipped payments. Some, like Scotiabank, have been doing it a while. Other lenders that allow deferred payments include, but are not limited to, MCAP, BMO, ING, Coast Capital and RBC.
TD's options are more flexible than most, however, for three reasons.
TD allows four months of skipped payments annually for any reason as long as equivalent pre-payments have been made
As an alternative, TD lets you reduce your payments up to four months whereas many lenders with skip-a-payment features allow only full missed payments
TD lets you skip one payment a year regardless of whether you've made accelerated payments, and regardless of whether it's a high-ratio insured mortgage (many lenders restrict skipped payments to conventional mortgages with 20% or more equity)
In sum, TD now has some of the most adaptable payments in the business. This is terrific for consumers because it encourages pre-payments. Hopefully other lenders follow-suit and/or broaden their existing payment vacation options.
That said, readvanceable mortgages (available from several lenders) allow even more flexibility. That’s because you can withdraw any amount of equity up to your approved limit, for any reason, and at any time. The trade-off is that borrower qualifications are a bit tougher. If you do qualify and have 20% equity, however, readvanceables are something to consider.