Deferrals are being approved on a case by case basis by mortgage holders. I have had many people ask me how the deferral process works for their Fort McMurray Mortgage and thought I would explain that here for those of you who aren’t sure what that looks like.
For most lenders, the deferral works this way:
No payment of interest nor principal is required by the homeowner. The payments are deferred (postponed), usually to the renewal date of the mortgage. Interest continues to accumulate on the outstanding balance.
For example, if you have a 25-year mortgage of $400,000 and your payment is $1800.00 based on an interest rate of 2.60%. Let’s assume you’re paying the principal down by $900 per month and the interest down by $900 per month.
6 payments of $1800 x 6 = $10800. Your mortgage is going to accrue interest for those 6 months at approximately $900 per month for a total of $5400.
When you resume payments, every payment made will be applied to the accrued interest till it has been caught up. When that happens you’ll then start repaying the principal. So, using the above example, you will need a bit more than the $5400 to catch up, because the mortgage is always accruing interest on the outstanding balance and it’ll take some time for you to get enough paid to where you’re now paying something toward the principal.
So, if you had a 25-year mortgage and your mortgage comes due for renewal in 5 years, according to the original amortization schedule you should now have 20 years remaining. If you deferred payments they will probably add the deferred amount onto the balance and will calculate your payment based on those numbers thereby ensuring your mortgage is paid off within the original amortization period.
For easy math, let’s say your mortgage is behind by $8000 at maturity and your mortgage balance is $400000. The lender is going to calculate a principal and interest payment on a mortgage of $408000 dollars over the amount of time you have left in your original amortization period. In dollars and cents, say your renewal rate is 3.50%, balance owing is $408,000 and you have 20 years left. Your payment would now be $2360 per month. So, more than it was because you owe more than you would have had you not deferred your payments and the rate I’ve used is likely higher than the rate you have now.
Alternatively, some lenders will just add the number of deferred payments on to the end of the mortgage and extend their amortization. So a mortgage that had 20 years left would have 20 years and 6 plus months left. The plus for the interest that might add up to a month or more, depending on the rate. Interest will continue to accrue on this scenario as well.
Hope this helps those of you who may have had questions on this.
As always, I’m happy to help in any way I can so don’t hesitate to reach out with any questions you may have.