What people receiving CERB need to know about their mortgage
If you are receiving the Canada Emergency Response Benefit (CERB), here are some things you might need to know if you're buying a new home, renewing or refinancing your mortgage or if you make the decision to defer payments.
Rasha Ingratta is a mortgage agent with Mortgage Intelligence in Windsor, Ontario.
While she recognizes everyone's situation is unique, this is her general advice to people receiving CERB.
Note: This is a rapidly evolving situation. Government programs and specific benefits related to COVID-19 may change in the coming weeks; refer to official websites for the most up-to-date program details and guidelines around eligibility.
Buying a new home
If you are on CERB, you can still start an application to see how much money you would be qualified to borrow. But if you submit that application now to a lender and the lender is aware that you're on CERB, they will want to ensure that you are back at work before you make an offer on a home. They are not going to approve your application based on a CERB income.
Renewing your mortgage
If your mortgage term is ending and you're renewing it, you don't have to re-qualify. You don't have to show any income or any employment. When you get the paperwork from your current lender, just choose the new term, sign the paperwork, and send it back to your lender. CERB shouldn't affect your ability to renew your mortgage.
Refinancing means you're taking out more equity from your home. Let's say you have a $100,000 mortgage remaining on your home and you want to take out an additional $30,000 to pay off debt or build a pool in your backyard or for any reason, you're getting a new mortgage and paying off the existing one.
The lender will require you to re-qualify based on your current income. So if you're on CERB you're not going to be able to submit that application for approval.
I've had a lot of people come to me to refinance their homes, and then they went on CERB, so their refinancing plans are on hold. In the meantime, we called their existing lenders to renew instead of refinance, in an open mortgage. It means higher interest rates but the intention is to stay in the open mortgage for just one or two months.
An open mortgage can be paid off without penalty at any time. So once they go back to work, they can submit their application for refinancing, pay off the existing open mortgage and start a new closed mortgage, without penalty.
Deferring mortgage payments
A lot of lenders are allowing you to defer mortgage payments because of COVID-19. If you don't have to defer your mortgage payment, don't do it.
It's not like you're getting a one-month free pass. They are going to add that monthly payment to your principal. Different lenders are dealing with it differently, but the one common way they're treating that mortgage payment deferral is they're adding it to the balance of the mortgage and then you're going to pay interest on that.
You're going to pay it, somehow, at the end of the day.
Will deferring payments affect my credit score?
That's a question we can't really answer. More than ever, a lot of people are worried about their credit score, if they defer a payment.
A lot of lenders and banks are saying 'no, it's not going to affect your credit.' But I've been doing this for 21 years and I have seen people defer their mortgage payments and we check their credit score to get them a new approval for a mortgage, and it shows a late payment on the credit bureau. And then they explain to me that they had a surgery, and they were off work for two months and their lender told them it wouldn't affect their credit rating, but it did.
So this is what's happening now to a lot of people. They're deferring their mortgage payments and they're being told 'it's not going to affect your credit.' And hopefully that's true.
What I think is going to happen and I'm telling everybody this -- a year or two down the road if any lender is going to pull a credit bureau report and see that there were missed payments on a mortgage in February, March, April, May of 2020, they're going to know it was COVID-19.
So if it's going to affect your credit score, lenders are going to make exceptions for that, in my opinion.