Mortgage Payment Deferral in Ontario: Your Rights and Options

Money can tighten fast: a job loss, an illness, reduced hours or a sudden repair bill. When a mortgage payment looks out of reach, a deferral is often the first thing people ask about.

This article explains what a deferral is, whether a lender has to agree to one, what it does to your balance and what other relief may be available. It also covers what changes if you fall behind anyway.

Is a deferral something you can demand?

No. A mortgage payment deferral is an agreement with your lender, not a right, and it usually lasts up to 4 months.

Some lenders face stronger expectations than others. Under the Financial Consumer Agency of Canada's Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances, federally regulated lenders are expected to give tailored relief to borrowers at risk of default on their principal residence. Relief can include extended amortization, waived prepayment penalties and internal fees, and allowing a missed payment without reporting it to credit bureaus, and your express consent is required.

Those expectations apply to banks and other federally regulated lenders, and only to an existing residential mortgage on your principal residence. If your lender is provincially regulated or private, you should not assume the same expectations apply to you.

What a deferral does to interest and payments

A deferral delays payments. It does not erase them. Interest keeps accruing during the deferral and is usually added to the principal. Afterwards you will owe more, and your payments or your amortization may increase.

Before you agree, ask the lender to put the terms in writing and to answer questions such as these:

• How many payments are being deferred, and for how long?
• How will the interest that builds up be treated?
• Will my regular payment go up afterwards, or will the amortization be extended?
• Will the deferred payments be reported to credit bureaus?
• Are any fees being charged for the arrangement?

Other relief a lender may offer

A deferral is only one tool. Other options a lender may offer include blend-and-extend, capitalizing missed payments, interest-only payments for a limited time, and a sale-by-borrower plan in which you sell at fair market value and can usually stay up to 90 days.

• Blend-and-extend generally combines your current rate with a current market rate over a longer term.
• Capitalizing missed payments means adding them to the mortgage balance, so you owe more but the arrears are cleared.
• Interest-only payments lower your payment for a while because you are not paying down principal.
• A sale-by-borrower plan lets you control the sale instead of having the lender run it.

Whether any of these is offered depends on your lender, your mortgage and your circumstances. A lawyer or accountant can help you compare the long-term cost of each.

If you fall behind anyway

Falling behind does not give the lender unlimited room to add charges. No fine, penalty or rate of interest may be charged on arrears that increases the charge beyond the rate payable on principal not in arrears, although interest on arrears at a rate no higher than the mortgage rate is allowed.

You also have tools if the lender threatens to call the whole loan. Despite any agreement to the contrary, a borrower in default can stop the lender from enforcing the acceleration clause by paying the amount due under the mortgage, meaning the arrears and not money that is only due later, plus the lender's necessary expenses. You can give written notice requiring a written statement of the arrears and expenses, and the lender must answer within 15 days. If it fails to answer without reasonable excuse, or gives an incomplete or incorrect answer, its enforcement rights are suspended until it complies.

If your mortgage contains a power of sale, the lender cannot give notice of exercising it until the default has continued for at least 15 days. That gives you a window to act, but it is a short one.

What to do next

• Contact your lender as soon as you expect trouble, before you miss a payment.
• Find out who regulates your lender, since that affects which relief expectations apply.
• Ask for every offer in writing and read how interest and payments change.
• Keep a record of calls, emails and dates.
• Build a realistic budget so you know whether a deferral will actually solve the problem or only delay it.
• If you receive any demand or notice, speak with a lawyer promptly.

Frequently asked questions