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Ask a Mortgage Broker: Covid-19 Edition


Ask a Mortgage Broker: Covid-19 Edition

There’s no denying that these are unusual times and many of my clients have questions about their mortgage. I reached out to an expert to help find answers! 

Cynthia Dreger

Cynthia Dreger has been in the financial industry since 2001, working at Bank of Montreal, First National Financial LP, and Canada Guaranty, holding various senior positions. Cynthia is now a self-employed Mortgage Broker with Mortgage Alliance, one of the largest brokerages in Canada. Through her experience she has gained in-depth knowledge of the markets across Canada, and most importantly, here in British Columbia.

Would deferring my mortgage payments damage my credit score?


The way the information is updated on the credit bureaus is through the application process when you apply to borrow money. Or when the lender reports back to the credit reporting agencies information such as; you are paying on-time, late, or the debt went bad. So technically, if the lender has approved your deferral then, no, it should not negatively impact your score. However, if the lender does not report the deferral properly in their system and it shows as a missed payment, then yes, it will impact your score. My advice is to get the deferral approval in writing, keep it on hand. Human error does occur. Also, make sure you understand which payments you can miss, get the exact dates. And never miss a mortgage payment otherwise.



How can I get through to my lender, the phone lines are currently jammed?


The best way to get in touch with your lender right now is through email. Some lenders  are automatically approving deferral requests simply when clients send in an email. It’s tough right now, some lenders are receiving around 80,000 phone calls and emails per day. They are all doing their best to help you.


Should I apply, and would I be approved, for a deferral?


Everyone’s individual situation is different. If you are finding it hard to pay all your bills, your mortgage, and put food on the table, then I would say it may be something you may want to consider. Each lender is approaching this differently, some are extending the amortization, some are increasing your payments so that your amortization remains the same. Make sure to see how this affects your mortgage personally. Some of the ones I have seen will see maybe a $50 – $100 increase per month when the payments resume.


If I were approved, how would a mortgage payment deferral work?


Each lender is approaching this differently, some are extending the amortization, some are increasing your payments so that your amortization remains the same. Make sure to see how this affects your mortgage personally. Some of the ones I have seen will see maybe a $50 – $100 increase per month when the payments resume.


With your history and insight into the real estate market from a lending perspective, how do you foresee the markets in the next 3, 6, 12 months?


I do watch this closely, I am someone who loves statistics and numbers. I was in the industry back when we saw the 2008 financial crisis. I am not a Realtor, I always say they are the best to talk to about the market. What I have witnessed and know, is that our real estate markets, historically, run in 10-year cycles of peaks and valleys. But since 2012 there has been a lot of government intervention in the mortgage world adding regulation upon regulation, which is not always a bad thing, but does impact the markets. The last time we hit a low like this it took us 3+ years to climb out of it. In 2017 things started to drop off again and continued in 2018 and 2019. For the last few years people have been waiting on the sidelines for various reasons. Reasons like not enough supply, saving for their down payment, or deciding to move to an area that is more affordable. Going into 2020, things were very optimistic, 2020 was said to be the year of pent-up demand, as stated by several chief economists. Then Covid-19 arrived and put a temporary damper on things. Some of us are still seeing quite a bit of movement in the market still. Some want to take advantage of what they perceive as a “dip in the real estate market values” and now is their chance to get into the market. That is their perception though, I am still seeing purchases and sales at or above BC Assessed values. At the same time there are others that have the “wait and see” approach. With things starting to open up in May and June, in the next 3-6 months, I would not be surprised if we see a rush of people trying to buy prior to prices going up. It’s heavily driven by people’s perception, government regulation, and supply. What I do know from my past experience is that British Columbia is the most desirable province to live in all of Canada. The future will always be bright for our market here in B.C., in my opinion.



With current mortgage rates at a historic low, is there a chance they will drop further?


Interest rates are always an interesting topic, it’s largely misunderstood what drives them. And if you hear about rates in the media, you are likely only hearing about variable rates, but that is never clarified. Rates are a huge topic, but I will touch on some main points here. Variable rates, which you are referring to in your question, follow each lender’s prime rate, currently 2.45% typically offered with a discount. The last time it was this low was ten years ago, it dipped down to 2.25% in April 2009. Prime rate is based on the Bank of Canada’s overnight rate, this is the rate at which lenders borrow money. The Bank of Canada uses this rate to help support the economy and keep it going. We haven’t yet come out of quarantine, with only talks of this beginning in May, we will have to see how this all plays out. I have heard murmurs of another possible drop to prime rate, but based on what I have seen so far from our current Finance Department, they will save another drop for the very last minute. There are set dates on which the overnight rate is reviewed, the last one April 15th we didn’t see any movement, the next one is scheduled for June 3rd. However, we did see 2 unscheduled drops already this year.


Fixed rates on the other hand, went up. They have an inverse relationship with the bond market. The bond market dropped which forced fixed rates up initially, but the Bank of Canada was to the rescue again and so we are seeing the fixed rates return to normal levels, with some great rate specials.


Giving the current uncertainty, personally I’m looking to switch from my home line of credit to a 5 year mortgage. Traditionally I have always opted for a variable rate on mortgages, do you think this is a good idea for anyone who wants to take advantage of the low rates? Will I be paying less per month? 


These are two great questions that I will address separately. If you have a large balance on your line of credit, regardless of what the rates are doing. Unless you have an end game plan to pay off that line of credit in full by way of selling your property, an inheritance, receiving a large sum of money, or you are highly disciplined, then I highly recommend converting that into an amortized mortgage. Lines of credit require a minimum payment of interest only, so you are never paying down the principle. When you turn it into a mortgage, then it requires a payment of interest plus principle so you are paying down your mortgage. Also, it tends to free up cash flow because you are not making a mortgage payment plus a line of credit payment.


I am a huge fan of the variable rate mortgages, if it makes sense for the borrower. There was a very good paper written by Moshe Milevsky, a professor of Finance at York University’s Schulich School of Business,  on how Canadian mortgage holders would have been better off 90% of the time with a variable rate rather than a fixed rate between 1950 and 2000. People focus too much on the rate and then tend to overlook the hidden costs or potential fees. A mortgage is much more than just a rate, although the rate is important. 65% of people will break a 5-year fixed term mortgage at the 36-month mark. A fixed mortgage means high penalties especially where there is a huge spread between the posted rate and your contract rate. Where a variable rate mortgage has only a 3-month interest penalty. A huge cost savings right there. It’s extremely important to look at these, it is a potential additional cost of your mortgage on top of the interest you are paying.

Fixed rates are still very good right now. But prior to locking into a fixed rate, make sure to factor in your short-term and long-term goals, like selling and upgrading or downsizing. Portability is an option but again you become a victim to the lender because they know you don’t have a choice but to take the rate they are offering you, or you will have to pay a penalty. But if it works out, then that is great.


Should anyone wish to speak to you directly, what’s the best method of contact for you in these busy times?


I always love to start with a phone call to make sure I can help. Phone is always best 604-787-5136. Email works too And in the meantime, you can email me and request to be added to my monthly mortgage update emails. And follow me on Facebook @cynthiamortgages  Instagram @cynthiamortgages and LinkedIn.blank

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