Mortgage Deferral Question?
- Thread starter homer
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but they are accruing interest and tacking it onto the principal so they'll be paying interest on the interest. This is a scam by the banks.Approx 600,000 approved mortgage payment deferrals and growing.
Individuals are able to stay in their homes and not having to worry about how they are going to be able to make their mortgage payments during this time. It is ridiculous to think that people who have hundreds of thousands, and even millions of dollars in mortgages not being responsible for the cost of home ownership. If you want to forgive the interest of all mortgages then every person who has a mortgage will want payment relief whether or not they need it. Why wouldn’t they? Peace of mind has a price and with historically lower mortgage interest rates, the price being paid is not huge for those needing the relief.but they are accruing interest and tacking it onto the principal so they'll be paying interest on the interest. This is a scam by the banks.
Finally, a major media outlet has published a story on the banks’ PR scam. Canada’s Big 6 banks made over $46 Billion in profits last year. Don’t tell me that they can’t do their part during this unprecedented crisis. It’s not even a question of wealth distribution. It’s about doing what’s ethical. The banks always tout their corporate social responsibility efforts - well now is the time to really show that they mean it.Most of the banks already offer a ‘Skip a payment’ option, which is essentially a mortgage payment deferral.
Financial advisers say to never do this, because the interest is still calculated, and then when it’s amortized over the life of your mortgage, you end up paying a lot more in interest costs.
As such, if you can afford to keep making your mortgage payments, continue to do so to avoid paying more interest.
However, if you are cash strapped due to the COVID-19 situation, you gotta do what you gotta do.
https://www.cbc.ca/amp/1.5529399
Banks use funds that they receive from others to lend out to others. For those funds the banks pay interest and the profit they earn is the spread between the two. With mortgage rates so low, the spread is pretty thin but because they have large volume, they can make less per mortgage transaction (don't forget Banks have huge expenses to maintain their mortgage portfolio). The Bank's did make a lot in 2019 but they also paid a lot of taxes (approx $12 billion). They also continue to pay their employees who in turn are paying taxes on their earned income. Are those individuals with deposits with the Bank going to forgo their interest earned on their investments? Everyone has to do their part , right?
Individuals who are earning government benefits are at least earning some income. They can use some of those funds to make a partial mortgage payment to cover the amount of interest that would normally be owed. But the bigger issue is that under 10% of individuals who deal with the Big Six banks plus a few of the smaller players currently have deferred mortgage payments. If Banks ever announced "forgiving" interest payments on their mortgages, the other 90% plus individuals will expect the same thing, even those who are still working or earning other income. There is no way to manage that and forget about Banks having no profits in 2020, they will have no funds and additional massive lay-offs will happen and government tax revenue will decrease and EI and benefit (CERB) expenses will increase further. Canada needs a strong banking system and what they are doing now is satisfactory. For the under 10% of individuals who are deferring their payments, you are the minority and those pushing for something that can do more harm than good are not looking at the big picture. Yes it hurts but what is in place right now is the best solution, imho.
Something to think about:
$1,000,000 mortgage at 3% = $30,000/year interest or $2,500/month
$1,000,000 GIC at 2% = $20,000/year interest or $1,666.67/month (and with interest paid monthly, individuals are earning interest on interest)
The difference is $833.33/month. The funds from this spread are used to pay employee salaries and benefits and to cover expenses. Banks have large profits but not on a single transaction basis. They make profits due to volume.
And while the example below has been simplified it will give you an idea of what the extra "accrued" interest costs would be where someone has a $1,000,000 mortgage and the interest portion is $2,500/month. Are those people complaining in the article because they don't want to pay any interest for 6 months or just the accrued interest above what they would of had to pay. If the former, that is just unrealistic. If the latter, the numbers seem to be greatly exaggerated. Based upon the numbers below, the additional accrued interest would be $75.00 + $152.25 + $229.56 + $291.56 + 383.76 + $446.52 = $1,578.67. If you make no payments on your mortgage for 6 months, assume in the scenario below that the P and I payments are $5,000/month. After the 6 months are over, you will owe the Bank $1,000,000 + $15,000 (principal payments) + $16,578.67 = $1,031,578.50.
1st month - Interest on $2,500 = $75.00
2nd month - Interest on $2,500 + $2,575.00 = $152.25
3rd month - Interest on $2,500 + $5,152.25 = $229.56
4th month - Interest on $2,500 + $7,229.56 = $291.89
5th month - Interest on $2,500 + $10,291.89 = $383.76
6th month - Interest on $2,500 + $12,383.89 = $446.52
If the numbers above are incorrect, I am sorry. I have actual amortization schedules but the above was simplified and is easier to illustrate the "real" extra cost of deferring a mortgage. And if you don’t want to pay interest on the accrued interest for the payments you deferred, use the money you have received from the government to reduce your mortgage by that amount which in the above scenario is approx $1,578. Best to do it when mortgage rates are so low.
Individuals who are earning government benefits are at least earning some income. They can use some of those funds to make a partial mortgage payment to cover the amount of interest that would normally be owed. But the bigger issue is that under 10% of individuals who deal with the Big Six banks plus a few of the smaller players currently have deferred mortgage payments. If Banks ever announced "forgiving" interest payments on their mortgages, the other 90% plus individuals will expect the same thing, even those who are still working or earning other income. There is no way to manage that and forget about Banks having no profits in 2020, they will have no funds and additional massive lay-offs will happen and government tax revenue will decrease and EI and benefit (CERB) expenses will increase further. Canada needs a strong banking system and what they are doing now is satisfactory. For the under 10% of individuals who are deferring their payments, you are the minority and those pushing for something that can do more harm than good are not looking at the big picture. Yes it hurts but what is in place right now is the best solution, imho.
Something to think about:
$1,000,000 mortgage at 3% = $30,000/year interest or $2,500/month
$1,000,000 GIC at 2% = $20,000/year interest or $1,666.67/month (and with interest paid monthly, individuals are earning interest on interest)
The difference is $833.33/month. The funds from this spread are used to pay employee salaries and benefits and to cover expenses. Banks have large profits but not on a single transaction basis. They make profits due to volume.
And while the example below has been simplified it will give you an idea of what the extra "accrued" interest costs would be where someone has a $1,000,000 mortgage and the interest portion is $2,500/month. Are those people complaining in the article because they don't want to pay any interest for 6 months or just the accrued interest above what they would of had to pay. If the former, that is just unrealistic. If the latter, the numbers seem to be greatly exaggerated. Based upon the numbers below, the additional accrued interest would be $75.00 + $152.25 + $229.56 + $291.56 + 383.76 + $446.52 = $1,578.67. If you make no payments on your mortgage for 6 months, assume in the scenario below that the P and I payments are $5,000/month. After the 6 months are over, you will owe the Bank $1,000,000 + $15,000 (principal payments) + $16,578.67 = $1,031,578.50.
1st month - Interest on $2,500 = $75.00
2nd month - Interest on $2,500 + $2,575.00 = $152.25
3rd month - Interest on $2,500 + $5,152.25 = $229.56
4th month - Interest on $2,500 + $7,229.56 = $291.89
5th month - Interest on $2,500 + $10,291.89 = $383.76
6th month - Interest on $2,500 + $12,383.89 = $446.52
If the numbers above are incorrect, I am sorry. I have actual amortization schedules but the above was simplified and is easier to illustrate the "real" extra cost of deferring a mortgage. And if you don’t want to pay interest on the accrued interest for the payments you deferred, use the money you have received from the government to reduce your mortgage by that amount which in the above scenario is approx $1,578. Best to do it when mortgage rates are so low.
If the government cracked down on the banks and the landlords and the insurance companies, deferring and freezing interest, and free rent for all who are out of work due to corona, reduced insurance premiums for unused cars, etc., then the government would only need to fund basic necessities like food, so when this is over the economy would not be hopelessly in deficit and the businesses would still be viable. And yes, I will happily give up the interest on my chequing account!Individuals are able to stay in their homes and not having to worry about how they are going to be able to make their mortgage payments during this time. It is ridiculous to think that people who have hundreds of thousands, and even millions of dollars in mortgages not being responsible for the cost of home ownership. If you want to forgive the interest of all mortgages then every person who has a mortgage will want payment relief whether or not they need it. Why wouldn’t they? Peace of mind has a price and with historically lower mortgage interest rates, the price being paid is not huge for those needing the relief.
When they say "up to 6 months," it means you have the option to defer your mortgage payments for a maximum of 6 months. But you don't have to defer for the full 6 months if you don't want to. You can choose to defer just a couple of payments if that works better for you. Reach out to a Mortgage Advice Coventry for additional advice.
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