TD Adds Payment Flexibility

TD-BankTD 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 loan-to-value at or below 90%
  • A mortgage balance at or below their original principal amount

Mortgage-PaymentsCustomers 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.

  1. TD allows four months of skipped payments annually for any reason as long as equivalent pre-payments have been made
  2. 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
  3. 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.

Here’s more complete information on TD’s new features.


Rob McLister, CMT

  1. I think you keep forgetting about Credit Unions. Our CreditMaster mortgage product allows for flexibility and adaptability that allows our members peace of mind, especially when hardtimes arrive.
    To make TD flexibility sound like big news, they are only following what a majority of CU’s do, together with some other financial institutions.

  2. Hi…
    Come on people… Yes this is great flexibility… but is this really “good”? First… all conventional deasl do as a readvancable and protect your client.second.. I don’t know about you but this is the number one reason clients of mine took (or askedfor) extended amortizations… just in case something happened, like job loss or injury, so they could pay meore now and lower their payment later.(especially if variable and paying more than the minimum payment). So on one hand you have the banks lobbying to get rid of extended amortizations, then once that is done TD announces that you can skip a payment, thereby extending your amortizations..and capping interest. Yet again… Cudo’s to the bank for their brilliant play.

  3. >> This is terrific for consumers because it encourages pre-payments
    That’s a stretch. You get one free missed payment a year regardless of prepayment. So how many people are going to skip Decembers payment and go on vacation instead? Or pay off that pesky visa bill?
    Once again mortgage rules are tightened and the banks weasel around it by changing the rules to their benefit.

  4. Hi LS,
    In addition to the one missed payment you mention, folks can also skip up to four more payments in a row, any time. That’s permitted in cases where they’ve made equivalent pre-payments.
    We often come across people who are hesitant to make pre-payments because it reduces their liquidity. These types of solutions address that problem, and promote shorter amortizations among responsible borrowers. If some people skip a payment to allocate funds towards eliminating higher-interest debt, that’s even better.
    Cheers,
    Rob

  5. Correct me if I’m wrong but I think there are three big differences between CreditMaster and TD.
    CreditMaster requires more of an application process to get your money readvanced. TD has a much simpler and faster process to skip payments.
    When you borrow using CreditMaster you usually pay an adjustable rate like prime + 1.00%. With TD you’re charged interest at the rate you sign up for.
    TD also lets its customers benefit from these features on high ratio mortgages. CreditMaster usually requires 20% equity.

  6. RBC doesn’t have all the same features. As far as I know, RBC’s extended skip a payment is “subject to credit approval” and isn’t allowed on high ratio CMHC mortgages. RBC also doesn’t allow reduced payments.

  7. Well Mr. TD guy, I am sorry to say but your are wrong in all your notes regarding a CreditMaster mortgage. So I will correct you.
    A Credit Master mortgage allows Credit Unions to register a mortgage on the property. That’s all there’s to it! Simple and quick. There is no re-advanceable limit..the value allowed is based on the current market value of the property. Raw land purchases can also be included under a Credit Master mortgage.
    There are no terms registered which make this an extremely flexible product. So payment deferrals can be done quickly, you can have the terms you want…competitive fixed rates, open, variable. And this includes high ratio LTV’s as well, so up to 95% LTV with CMHC approval.
    I recommend you study this product a little more, I think you will like what you see.

  8. A reminder… Since Oct 2010, ALL TD mortgages are now registered as collateral charges… I would stay as far away from these mortgages as possible…
    Here’s what Gail Vax-Oxlade says http://gailvazoxlade.com/blog/archives/2230
    She referred to TD’s new mortgages as mousetraps when she said
    “Would I buy one of these suckers? Not on your life! Do I look like a mouse to you?”

  9. In addition to the one missed payment you mention, folks can also skip up to four more payments in a row, any time. That’s permitted in cases where they’ve made equivalent pre-payments.
    Right, and that is a sensible adjustment. I just don’t agree with the “free” missed payments. Having it as a reward for pre-payment makes sense and should have been as far as they went.
    The 30 year mortgage amort limits reduced the amount people can afford by ~7%. Now you can skip a payment every year, so TD has just reversed that by allowing people to reduce their yearly mortgage payments by 8%.

  10. I too prefer the skipped payment as a reward for pre-payments. I worry about these options; they really depend on the financial responsibility of the mortgagees.
    That being said, allowing a few skipped payments in a row provides for some flexibility in the event of a catastrophic life event – e.g. loss of job, critical illness uninsured death of primary earner, etc – to move out and sell-up without incurring a wack of mortgage payments.

  11. I fail to see the good news. Perhaps the new policy provides the homeowner with more cash-flow flexibility by skipping mortgage payments here and there but this privilege isn’t free. The payments are simply added back to the mortgage and the entire balance is compounded, which means homeowners are paying the bank to skip a payment. Skipping a payment on a rare occasion isn’t a big issue and most lenders have some kind of “skip-a-payment” program but do that a few times a year and the cost can really add up.
    According to Rob’s post, qualified TD clients would now be able to “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)”. Just so that I understand this, say a client has a mortgage payment of $1,000 that they want to skip and in the past year they’ve made a prepayment for $1,000. The prepayment goes directly towards principal while the mortgage payment contains interest and principal. So to skip a $1,000 payment now, which likely contains less principal, they’re “sacrificing” (for lack of a better term) $1,000 in pure principal and on top of that the $1,000 they skip is added to the mortgage where it gets compounded again.
    Maybe I’m lost but I don’t see how allowing people to skip mortgage payments more frequently is a good development.

  12. Hi Steve,
    Generally speaking, and given today’s rates, there are too many good alternatives to TD to justify locking into a TD collateral charge. Of course, that can always change if any of the following change: rates, TD’s features, and/or lenders’ reluctance to take TD mortgages on assignment.
    In the meantime, thousands of homeowners and brokers will choose to deal with TD only on exception.
    Many will be watching TD’s 2011 Q1 and Q2 Filogix market share reports. As of Q3 2010, TD was 4th in the broker channel (behind Scotia, FirstLine, and First National). If you start seeing TD deteriorate to 5th, 6th, or 7th then something will have to give.
    Cheers…

  13. It’s expensive indeed. And let’s be real, this change in policy wasn’t made on the whim. I just find the sequence of events to be quite interesting. First, they announce they will register all new mortgages as collateral charge. Then, along with all the other major banks, they carry out a full scale lobbying effort to “reform” the mortgage market, citing it as a major culprit in the so-called personal debt epidemic, which the federal government wholeheartedly complies with. Now, they make it easier for people to skip payments consecutively when they know that the long term cost to the borrower is quite expensive. This seems to contradict what the federal government is trying to accomplish.

  14. Right now, collateral mortgages are transferable.. and TD will not accept other bank’s collateral mortgages for transfer….HOWEVER, a good source tells me they are working on allowing other Bank’s collateral mortgages to be transferred in …
    But how could TD absorb the cost of legal and registration fees (they would need to register a new collateral charge of some sort)…??
    The only answer that I could come up with, ‘They won’t’… This cost will be passed along to the borrower.. either with a higher rate now or later, at renewal or time of refinance…
    Only time will tell.. but this seems like the only logical conclusion…

  15. Those policies must be specific to your credit union because what you say is not true in general.
    Most credit unions make you apply to pull out more equity from the Creditmaster. You can’t just walk into a branch and ask for a cheque or tell them to skip a payment.
    Note that I am NOT talking about a Creditmaster with a line of credit. That is not a proper comparison to TD’s mortgage because TD’s solution doesn’t use a line of credit.
    Most credit unions don’t let you skip a payment unless you have 20% equity. The credit union would have to absorb the skipped payment itself. CMHC doesn’t usually approve skipped payments unless it’s a default management situation.
    Last but not least, if you skip a payment with our TD mortgage you only get charged interest at your normal rate. That might be as low as 3.69% if you got a 5 year fixed today. With Creditmaster the rate on equity withdrawals floats and you never know what you’ll be charged.

  16. They won’t do it. The cost is just too great and charging a higher rate to compensate for the increased cost will put them at a disadvantage. Ultimately it all comes down to consumer awareness.

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