Mortgage Deferral, Forbearance or Longer Amortization in Ontario

If a job loss, illness or other setback makes your mortgage payment hard to meet, you will hear several terms: deferral, forbearance, special payment arrangement, amortization extension. They are not the same, and they do not cost the same. Choosing without understanding the difference can add real money to your mortgage.

This article compares the common relief tools in plain language, explains the costs and the credit consequences, and sets out what to ask your lender before you agree. It is general information; your own mortgage terms and your lender's policies will decide what is available.

Why you should contact your lender early

A mortgage default means not following the mortgage terms, such as missing a regular payment, and it may eventually lead to the forced sale of your home. The Financial Consumer Agency of Canada advises borrowers to contact the lender early, and its relief guidance applies to federally regulated lenders such as banks.

Credit unions, trust companies and private lenders may have different policies, so do not assume the same options are available. Ask directly what hardship programs exist and how they work.

The main relief tools compared

The word forbearance is used loosely. In everyday use it usually means the lender agrees to hold off on enforcing its rights while you catch up or pay less for a time. Because the label does not tell you the cost, always ask what the arrangement actually does to your payments, your balance and your amortization.

What each option can cost you

A deferral feels like free breathing room, but it is not. The deferred interest is added to principal and repaid afterwards, federally regulated lenders are expected not to charge interest on that deferred interest, and the added cost can add up to thousands of dollars. The lender may also extend your amortization or raise your payments afterward.

Banks must explain the new payment, the total cost and the effect on amortization of a relief measure, and they must obtain your express consent. They are also expected to waive some costs for temporary relief, such as internal fees and certain prepayment penalties, and to avoid charging interest on interest in negative amortization for a limited period.

• Ask for the new payment amount, the new amortization and the total interest over the life of the mortgage, in writing.
• Ask whether any fees, administration charges or prepayment charges apply, and which are being waived.
• Ask when the temporary arrangement ends and what your payment becomes after that.
• Ask whether interest will be charged on the deferred interest.

Credit report consequences

How the arrangement is documented matters for your credit. Banks are expected not to report missed payments to credit bureaus if they are part of an agreed relief measure. That is an expectation set out in guidance for federally regulated lenders, so confirm what your own lender will do and get it in writing.

If you simply stop paying without an agreement, the picture is different. Late or unpaid accounts can stay on a credit report for up to 6 years. Where payments are missed before a plan is in place, ask the lender how it will report the period.

If relief is not enough, and what to do next

Sometimes a temporary measure only delays the problem. Two formal options exist for wider debt trouble, and each affects a mortgage differently. A consumer proposal has a term of no more than five years, the home mortgage is excluded from the $250,000 debt eligibility limit, and you keep your assets if payments to secured creditors such as your mortgage lender continue. Bankruptcy generally does not affect a secured creditor's rights, such as a mortgage lender's. Both can affect credit reporting, so speak to a licensed insolvency professional or lawyer before deciding.

• Call your lender before you miss a payment if you can, and ask about hardship options.
• Write down who you spoke to, the date and what was offered.
• Compare at least two options using total cost, not only the lower monthly payment.
• Do not agree until you have the new terms in writing, including the amortization and the end date.
• Ask how the arrangement will be reported to credit bureaus.
• Have a lawyer review the paperwork if the lender is asking you to sign an amending agreement or has sent any notice of sale.

Frequently asked questions