mrtgage deferral costs

Latest in Mortgage News: How Much Could a Mortgage Deferral Could Cost You?

Nearly 600,000 Canadians have so far taken advantage of some form of mortgage deferral assistance due to the COVID-19 crisis, according to the Canadian Bankers Association (CBA).

With the average mortgage payment amounting to $1,326, this has freed up roughly $778 million per month, according to the Canada Mortgage and Housing Corporation.

“This keeps money in the pockets of people who need it now,” the CBA noted. “Banks have publicly reported that more than 90% of those seeking a deferral are approved.”

But, of course, taking advantage of mortgage payment deferrals naturally comes at a cost. And that has been calculated at up to $2,400 in extra interest costs for those taking the full six-month deferrals, according to math from Integrated Mortgage Planners Inc. mortgage broker Dave Larock, published recently in the Globe and Mail.

Mortgage deferral costs for someone with a mortgage rate of 3% and amortized over 25 years (and assuming they just bought a house and immediately deferred payments) would amount to $416.05 in additional interest for a one-month deferral, $1,235 for three months and $2,443 for a six-month deferral, when added back into the life of the mortgage and assuming no extra repayments.

House Sales Down 14% in March

lenders provide covid-19 updateHome sales were down 14% nationally in March on the heels of the COVID-19 pandemic, according to the Canadian Real Estate Association (CREA).

The declines in sales volumes varied by region, with drops of up to 24.9% in Hamilton-Burlington, 20.8% in the Greater Toronto Area, 26.3% in Calgary and 7.9% in Ottawa.

“March 2020 will be remembered around the planet for a long time,” said Jason Stephen, president of CREA. “Canadian home sales and listings were increasing heading into what was expected to be a busy spring [but] after Friday the 13th, everything went sideways.”

Average prices came in at $540,000, unchanged from February and up 12.5% from last year. Excluding the higher priced markets of the Greater Toronto and Vancouver Areas, the average price comes in at $410,000.

Looking ahead to April, CREA senior economist Shawn Cathcart said this: “Preliminary data from the first week of April suggest both sales and new listings were only about half of what would be normal for that time of year.”

Mortgage Rates Falling

After a recent rise in fixed mortgage rates, they have since started to fall back down, with a number of big lenders cutting rates between 5 and 20 bps.

Rates are declining due to falling bond yields (which lead fixed mortgages), as well as a decline in risk premium costs for borrowers, according to a recent post on RateSpy.com.

“…the trend implies we could see conventional 5-year fixed rates dip at least 20 more basis points (under 2.50%), if funding costs don’t shoot much higher,” the rate-comparison site noted. “Few would have expected that a month ago. At the time, spooked investors were forcing banks to pay far more for their funding. Since then, the Bank of Canada, Finance Department and CMHC have committed to buying hundreds of billions in money market instruments, bonds and mortgage securities, putting a lid on rates.”

HELOC Borrowing Growth is Down

HELOC borrowing growthHome Equity Line of Credit (HELOC) borrowing growth continued to decelerate in February, falling to a rate of 1.6% year-over-year, according to data from OSFI.

That’s down from an annual rate of more than 7% in 2018.

“Despite the overall stabilization of home prices in recent years, HELOC borrowing has been persistently slowing since the start of 2019, noted a recent Scotiabank report. “It is unclear if borrowing has been actively declining due to a change of consumer preferences or due to limited ease of accessing these funds.”

Overall mortgage growth remained strong in February, although that will certainly decline as data post-COVID-19 starts to roll in.

“Recent economic turmoil will likely lead to weaker mortgage credit growth in the months ahead,” Scotiabank noted. “In March, the Canadian labour market lost over 1 million jobs and home sales rapidly declined in the month. Mortgage credit growth is expected to stall in the coming months as the Canadian economy remains impacted by the pandemic.”


Note, this article has been updated with revised total interest costs for deferring mortgage payments.

mrtgage deferral costs
  1. Can we see the math on this??? Makes no sense to me. Not my calculations. I get a deferral of this amount being about $3300 if you carry it for 25 years. More fear mongering. Causing s**t to get in the newspaper. We don’t need more calls from clients who read this feeling they are being ripped off. Fact check…see the math before you write an article like this.

    Instead of blasting our partners as crooks why not thank them for helping our clients. We will need lenders when this is all over. The last recession knocked off a lot of lenders and this recession will be 20 times as bad.

    Lenders are the most important asset in our business. You can have all the clients in the world but if you don’t have a lender it is of no use. We seem to forget this.

    Call me I would be glad to calculate the cost if you can’t.

    PS As a shareholder in the banks maybe this will help us make up our 25% drop in share value.

    1. Michael – you should thoroughly check your calcs before firing off a missive regarding someone else’s incorrect math.

      Based on the information/example in the article – monthly payments of $1,326, 3% IR, and 25 year amort – the author’s math is closer to the truth than yours.

      Even using simple interest, and simple math – $1,326 x 6 months of deferral = $7,956 of total payment deferrals. At 3% simple interest, not compounding, you get $238.68 per annum in interest carry, or $5,967 for 25 years. All simple math with no compounding of the annual deferred interest for 25 years (and that obviously doesn’t include the repayment of the actual $7,956 of deferred payments).

      My calcs, using some excel formulas, shows total cost to carry 6 months of mortgage deferral (using the article’s inputs) for 25 years is about $8,389.26.

      Notwithstanding that banks and others are coming together to help in this horrible environment, maybe an apology is due to the author. The author is likely using an online calculator (created by a bank) and very unlikely that he did the calcs in his own spreadsheet.

      Have a nice day.

    2. The math portion is pretty vague.. assuming roughly 50% of the mortgage payment is going towards interest the rest principle your original mortgage balance would increase by about $6,000. From the few files I’ve dealt with regarding mortgage deferrals, lenders readjusting the payment once the term is over based on the new amortization amount. 12K could be pretty close using this scenario but thats over 25 years, still seems high… I think the length of time this is over should have been highlighted a touch better within this article, most people will look at $12,000 and feel like they’re getting taken advantage of. When the math is broken down as its going to cost you on average of $500 a year or $41.66 extra a month, that would better educate readers who don’t necessarily understand what exactly is going to happen over the life of there mortgage because of a mortgage deferral instead of having a small link to a separate article almost no one is going to click on.

      In reality this is keeping people in their homes at a minimal interest cost. The other alternatives for people would be sell investments at a huge loss, dip into emergency savings, take out a line of credit or other higher interest loans to weather a short term issue (lets hope). I’d take a mortgage deferral over any of these scenario’s 10/10 times.

      I think the key point missing in all this bad media attention regarding mortgage deferrals is not painting the entire picture correctly within the articles written about this particular topic. People were on edge before all this started, even more so with COVID and all the uncertainty. My suggestion moving forward is to be a source that highlights all the important information needed for people to make the correct decision for their situation. Providing a detailed example of the math used in the article, broken down by the year, month would go a long way to helping some of your readers out that don’t live and breathe this stuff everyday. Highlighting prepayment privileges and how they work would also alleviate some of the concern.

      If canadianmortgagetrends.ca were to come out with an easy to use spread sheet calculating interest costs of mortgage deferrals with a separate column with prepayment privileges, it would get in the hands of every client with a mortgage deferral or thinking about mortgage deferral as an option. I think this would drive way more traffic to your website and be an asset versus another article that creates a bit of fear amongst its readers.

      I also believe banks are made out to be the villains in all of this. This is absolutely not the case. What would happen to our economy and housing market if payment deferrals wasn’t an option? For the clients I’ve helped with this, it was either payment deferral or they’re losing there house or at worst eating Itchiban and KD 3 times a day.

  2. Hi all,
    I am happy to provide my tables to confirm how I calculated the interest costs that Rob Carrick used in the article linked to above.

    While my calculations may have been a little off at the margin, I maintain that they provided a good estimate of the cost of deferring mortgage interest over 24+ years.

    To further clarify, at no point was I critical of the lenders’ policies (in fact, I have tended to defend them in my blog of late). The goal was merely to provide mortgage consumers facing difficult choices with information they might find useful.

    The tables have been sent to CMT for inclusion in the article.

  3. Benjamin – the math is not vague, mostly opaque to the layperson.

    The proportion of interest versus principal in a monthly payment is irrelevant in this discussion. If an entire monthly payment is deferred for future re-payment, it becomes capitalized and converts to outstanding debt at loan maturity (if not re-paid prior to). All of it, original monthly interest and principal, goes to increasing your mortgage balance which increases your monthly payment in the future.

    The interest on the mortgage payment deferral, nonetheless, will also get capitalized into future mortgage renewals if not paid at mortgage term maturity, or earlier, i.e. increases the total debt.

    If the average Canadian is deferring mortgage payments for 6 months, then that implies they have no rainy-day fund, and unlikely to ever pay it off (the mortgage deferral and the interest charged on it) in the near to mid-term and will opt to tack it on to the mortgage balance at renewal – meaning in perpetuity until the end of the amortization.

    In investment analysis, the ‘dividend re-investment rate’ is used to determine what source of funds are the most appropriate to use in any investment. A mortgage is in essence an ‘investment’. So…the cost of capital at 3% in this scenario (the mortgage IR) is best utilized to decide whether to take the bank’s offer, or use other investment funds like cashing out RRSPs or TFSAs that may have a higher re-investment rate when the market changes to the upside.

    I agree that there is much media misinformation in the past few weeks, I think mostly from non-malicious ignorance as opposed to fear mongering. The media should be doing extra due diligence and be extremely cautious in providing opinions and financial advice.

    Have a great day.

  4. I agree with calculations by Dave Larock. If someone understands the simple rule of 72 (The Rule of 72 is a simple way to determine how long an investment will take to double given a fixed annual rate of interest. By dividing 72 by the annual rate of return investors obtain a rough estimate of how many years it will take for the initial investment to duplicate itself.) he/she would not have problem understanding the caluculation by Dave. Here you can replace investment with interest deferred added to principal.

    If someone defers interests only for 6 months and the total amount of interest deferred is $6000 which is added to the principal, it means that this $6000 @3% interest for over next 24 years would become close to $12,000. Here the assumptions are that clients takes no extra payments for the life of mortgage, which is remaining of 24 years and he keeps on renewing mortgage at3% interest for the remaining life of mortgage. What is hard to understand here.

  5. the math doesn’t matter, the fact is that if you delay a mortgage payment depending on the f/i you’ll end up spending more in interest over the life of the mortgage. if anything it opens up a good discussion to have with clients. Not all clients should get mortgage deferrals, some should use their existing HELOC instead. How many times have we given out HELOCs for “emergencies”! If COVID-19 isn’t an emergency i don’t know what is! It’s a good article because as Lenders and Brokers we need to look at all options for our clients, and payment deferrals aren’t free.

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