These are extraordinary times that require extraordinary measures. And in an unprecedented display of cooperation, Canada’s six largest banks are coming together to meet that challenge.
Canada’s big banks are now offering customers more relief options in response to the COVID-19 pandemic, stating a commitment to working with Canadians on a case-by-case basis to help them
manage this uncertain environment.
The coronavirus pandemic creates many challenges for Canadian homeowners that include not only fighting the virus itself, but also employment and childcare disruptions due to school closures. It’s an emergency unlike any other that Canada has experienced that requires immediate action from
financial institutions.
In light of these challenges, Bank of Montreal, CIBC, National Bank of Canada, RBC, Scotiabank, and TD Bank are committing to offer financial assistance to customers facing challenges. In particular, this support will include up to a six-month payment deferral for mortgages, as well as the opportunity for relief on other credit products. It’s a big move for Canada’s major financial institutions during these stressful and uncertain times.
While some lenders already give homeowners the option to press pause on their mortgage payments or personal loans in case of emergencies, the latest announcement from Canada’s big banks offers even more options to Canadian borrowers. If you’re considering taking advantage of this offer, here’s what you need to know:
• When you’ll owe
Typically, deferred mortgage payments are tacked on to the end of your mortgage term, essentially postponing your payments to a later date.
• Ask the right questions
It’s important to speak to your bank about the long-term effects of deferred mortgage payments. In many cases, interest accrued during periods where you defer payments can be added to your principal.
None of the big banks addressed in their joint press release whether payment deferrals would be interest-free or not, so don’t make any assumptions. Ask if payment deferrals are interest free and see if you’re able to contribute a one-time lump sum payment at a point in the future when your financial situation returns to normal, which will help minimize any excess interest associated with deferring payments.
• Talk to your bank as soon as you can
If you believe that COVID-19 or its effects could impact your ability to make a payment in the future, reach out to your bank now. It’s important you begin the process before you start missing payments to put yourself in a more manageable situation.
Who will benefit
Offering the ability to delay mortgage payments is a huge announcement that will impact the Canadian economy as a whole during what many are calling a financial crisis. Here are a few of the types of people that financial institutions are helping get through this pandemic:
• Homeowners
Should homeowners need assistance during this unprecedented time, they’ll be able to contact their bank and defer mortgage payments. This is also true for customers who belong to some credit unions. This offers more financial flexibility to those facing challenges resulting from the COVID-19 crisis, allowing them to stay in their homes without fear of missing payments or foreclosure.
• Business owners
Delayed mortgage payments give homeowners who also run businesses the opportunity to focus their efforts and resources on their businesses during this challenging time. Keeping businesses open and operating keeps the economy moving and workers employed.
• Employees
Employees in the tourism and hospitality industries will be some of the hardest hit by the economic impacts of the coronavirus, and delayed mortgage payments will help them adjust for any loss of work.
What to expect
While they may generally be considered competitors, the six big banks in Canada are now acting as a united front to provide financial relief to struggling Canadians. More than that, though, they’re also working together to help limit the spread of coronavirus.
In accordance with the recommendations of Canada’s public health authorities, the big banks are committed to “taking new coordinated measures to support social distancing to control the spread of COVID-19.” Banks will be limiting operating hours and closing branches that don’t offer critical services. Special care will be given to branches in rural communities where options are limited, and while not all details have yet been outlined, dramatic moves are being made to limit in-person banking options while also establishing a “reserve” of healthy employees to take care of essential services.
The Bank of Montreal is temporarily closing about 15% of its branches in Canada, while CIBC will do the same for over 20% of its network. The Canadian Bankers Association has stated that the banks will also be working together to limit hours.
What it all means
The ability to delay mortgage payments for up to six months is one of many important economic announcements Canadians are hearing about. But COVID-19 was listed as the main reason for an emergency rate cut from the Bank of Canada on March 4 over concerns about a possible recession and low oil prices.
However, the current situation isn’t all doom-and-gloom, even if it feels that way. There is plenty of
opportunity available. Sellers should see more potential buyers enter Canada’s housing market due to low interest rates. Homeowners can consider switching (if possible) into a lower fixed rate or delaying mortgage payments should they run into economic challenges. And, despite a delay, changes to the mortgage stress test are coming which should allow first-time buyers to enter the market more easily.
Despite the current economic challenges, Canadians — including some of our largest institutions — are coming together as we always do in a crisis.