In wake of COVID19, many families, business and individuals will be bleeding money. With many individuals loosing their jobs, or clients, there are and will continue to be hard times ahead. The major Canadian banks are doing whatever they can to help us out, the new deferral mortgage program is here! Whether it is a good idea or not is for another article, here is how it works.
Today we are using Sally and Bob as our Examples.
Bob and Sally and their kids!
Sally and Bob having a mortgage at their house 123 Main street with a remaining balance of $400,000. They have a 5 year fixed mortgage of 2.69%. Their maturity date for their 5 year fixed rate is 2.5 years from now (30 Months). Their Monthly mortgage payment is $1833.00 (interest and principle total).
Sally and Bob are having a hard time staying at home financially, one of them has lost a job due to COIVD19 and they call their bank to initiate their 6 month defferal opportunity, which could from any of the major banks (CIBC, SCOTIABANK, RBC etc…).
If today is April 1st, they get approved and from today until October 1st they no longer have to pay ANY of their $1833.00. They will however accrue daily interest that is added when a mortgage is deffered. It is calculated like this:
DAILY INTEREST calculation for Deffered mortgages
Mortgage Balance x interest /356 = Daily interest.
400000 x 0.0269/ 365
= 29.48$ Daily.
$29.48 x 30 days = Monthly
=$884.38
Since April has 30 days, Sally and Bob would pay daily interest to the tune of roughly $884.38 Monthly. This is added onto their remaining deffered balance at the end of this 6 month term.
After 6 month their daily interest is
$884.38 x 6 = $5306.30
After 6 months their daily interest payment that is added to their balance is $5306
Calculating the total Balance after 6 months of Defferal.
Balance of Mortgage + all deffered money owing including daily interest =
Sally and Bob 123 Main street
$400000 + (1833 x6 months) and ($883.38 x 6 months)
$400,000 + 10,998 + 5304.30 = $416302.30
Sally and bob have a new balance of
$416302.30 after deffering their mortgage
for 6 months.
MOST IMPORTANT- What Bob and Sally will be paying back and how
The system to paying that money back is adding it on the total amount owing for the remainder o their term and averaging it into the monthly payments. Sally and Bob had 30 months left when they deffered, so when the defferal period is over they have 2 year left on their mortgage agreement there 24 months. The differeal balance is $16,302.30 which is 6 months mortgage plus 6 months daily interest.
Here is the formula for how differals repayments work for this example we use monthly payments.
Monthly mortgage payments + (balance of differeal / month remaining of mortgage agreement)
$1833 + (16,302.30 / 24 months) =
$1833 + 679.26 =$2512.26
For the final 24 months after deffering their mortgage payments, Bob and Sally will be paying a new monthly amount of $2512.26
Summary
Deffering a mortgage maybe useful if it means surviving, however after up to 6 months the cost is very high. Bob and Sally’s new month mortgage payments when up 37%, which may not be affordable for a lot of Canadians. Ask yourself if it is worth it!
If you have any more questions about Mortgage defferal, would like help calculating yours, please contact us. We will be happy to help
