The interest we pay for Mortgage Payment deferrals
April 13, 2020
Amanda Merle had just quit her job in January, so when the pandemic hit and the job market dried up, she was relieved to see her bank was offering some relief by allowing her and her husband to defer the mortgage payments on their Toronto home.
"It gave me some hope," said Merle. "I thought, 'Well, this will be some breathing room.'"
CBC News asked the bankers' association about deferring mortgage payments altogether.
In a statement, CBA spokesperson Mathieu Labrèche did not address that question, but wrote "deferrals provide immediate relief for people and can help cushion the sudden impacts of COVID-19's effect on the Canadian economy."
With Canada Mortgage and Housing Corporation (CMHC) data showing the average monthly mortgage payment for homeowners is $1,326, the CBA calculates that the banks' mortgage deferrals add up about $778 million a month.
"This keeps money in the pockets of people who need it now," wrote Labrèche. "That number will grow in the weeks ahead, as more deferral requests are processed by banks of all sizes."
But her relief quickly turned to frustration and then anger when she learned the details of the deferred mortgage program her bank, CIBC, was offering.
Mortgage payments can be deferred for up to six months — but the interest on those payments will be added back to the outstanding balance, resulting in customers paying interest on top of deferred interest and increasing the total cost of borrowing.
For the Merles, that means deferring their mortgage payment for four months will result in $7,400 in interest being added to their principal, which will then incur additional interest over the life of their mortgage.
"It is a PR stunt, in my view," said Merle. "The way they are touting the deferrals like they are our heroes in some way, all the while 'helping' us, as a country, into heaps more personal — and fabricated — debt."
It's not just CIBC that's offering a deferred mortgage that adds accrued interest to the outstanding principal and then applies interest — all six big banks implemented similar programs after federal Finance Minister Bill Morneau requested they defer mortgage payments for up to six months for people suffering financially due to COVID-19.
Canadians owe more than $1.6 trillion in mortgage debt — that's about 65 per cent of all household debt.
According to the Canadian Bankers Association (CBA), 600,000 Canadians have applied to their banks for deferred mortgages or to skip a payment, and with new figures showing one million Canadians lost their jobs last month, that number is expected to grow.
"It feels greedy," said Merle. "We need to be focusing on getting everyone through this together. And it feels like the banks are flying in the face of that."
In a statement to CBC News a CIBC spokesperson said, "Clients have the option of paying accrued interest at the end of the period or adding the unpaid interest to their mortgage," adding that those deferring a mortgage for six months "will benefit from an average of $10,000 in immediate payment relief, which can help a lot at a critical time."
Sidra Liaqat of Calgary is a self-employed health care aide who is now out of work due to the pandemic and has reluctantly decided to defer payments on her RBC mortgage for six months, which means $5,300 in interest will be added to her principal and will incur additional interest until her mortgage is paid off.
"Basically, it's just the bank profiting off this emergency," said Liaqat, who says she will be struggling to make ends meet. "I don't think it's fair. It's not right. And I think something should be done about that."
In a statement to CBC News, RBC did not address Liaqat's concerns but said, "We've connected with more than 250,000 Canadians to provide mortgage, credit card and loan relief through principal and interest payment deferrals."
Call for temporary halt of mortgage payments
A watchdog group for corporate and government ethics says Canada's financial institutions need to take more action to help people hit hard by the pandemic.
"The banks are doing the minimum now," says Duff Conacher, co-founder of Democracy Watch. "And the federal government should require them now to do much more."
Conacher says not only should banks not be charging mortgage interest on top of interest, but now is the time for them to forgo some of their "staggering" profits and temporarily forgive mortgage payments altogether.
"The mortgage deferrals are just piling more debt onto people later. So the banks are not really going to lose a dollar," says Conacher.
"And really what should be happening instead is that people's loan payments should just be stopped now — and the banks could afford to do it."
Merle likes that idea.
"I think that there would be some merit to a forgiveness angle type of program for, say, the next three months," she said. "And I think that wouldn't be super detrimental to the banking sector."
CBC report by Erica Johnson