Unimor Capital Corporation

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  • How to Deal with Mortgage Arrears

    How to Deal with Mortgage Arrears

    These days, many Canadians are finding it hard to keep up financially, a result of the COVID-19 pandemic which caused many to lose income or their jobs altogether. Prices on many things have gone up and some are now being forced to go into arrears on their mortgage.

    If you signed your mortgage years ago, you would have had no way to predict such an unprecedented global event and now you have to adapt. The biggest fear for many borrowers is to go into arrears and lose their homes. There’s good news, however. Banks are well aware that people’s financial situations can change unexpectedly, especially in times like these. Because of that, there are various options open to you if you feel the need for extra support. In this article, we will cover the current state of mortgage arrears in Canada and options for those in financial trouble.

    After an explosion of mortgage arrears, Canada is slowly starting to recover.
    If you have gone into arrears on your mortgage, just know that you’re not alone. In October of 2020, the rate of mortgages in arrears in Canada peaked at 1.59%. This is the highest rate of arrears in Canadian history, after a previous peak in the 1980’s. In an effort to help borrowers during the pandemic, banks and lenders offered many deferrals on their mortgage payments. In addition, the rate of mortgages being extended went up greatly.

    We will go into deferrals and extensions in more detail below, but one thing important to know is that in the large part they are working. Canada Mortgage Housing Corporation data now shows that of the mortgages that went into deferrals during 2020, the vast majority of deferrals ended and were able to continue payments once again. Additionally, the rate of extensions on insured and uninsured mortgages is in decline.

    The figures for mortgages in arrears are now on their way back down from the peak. Generally, the rate of arrears can be an indicator of economic health. This means a lower rate of arrears indicates that more Canadians are in a healthy financial position, and our economy is recovering from recession.

    How excess mortgage lending puts Canadians at risk.
    For many years now, the ratio between the value of Canadian mortgage loans and the income of borrowers has been high. That means that today, a large amount of a household’s disposable income goes towards their home. This wasn’t helped by the recent boom in housing prices.

    Unfortunately, this puts some financial risk upon the borrower. A slim margin between income and the value of mortgages leaves little wiggle room when financial pressures crop up. This means it is easier than ever for Canadians to find themselves unable to keep up with payments.

    This is one reason why the government instituted the mortgage stress test, to ensure that lenders would be protected from borrowers falling into arrears. This is also why mortgages with a down payment of less than 20% are required to be insured.

    What to do if you are in financial trouble.
    The most important first thing you can do before going into arrears is to attempt to reduce your costs and contact your lender. Be upfront and honest about your current situation and ask about what arrangement you can come to based on what you are able to pay.

    Lenders will be more likely to help you come to an arrangement if you contact them before going into arrears. Therefore, do your best to contact them before you miss any payments if at all possible. If you can not reach a solution with your lenders, your next step should be to consult a lawyer or credit counsellor. They can help you explore alternative solutions that may be available.

    Common Options to Avoid Mortgage Arrears

    Payment Deferrals: A mortgage deferral is a special agreement that mortgage owners can make with their bank when they find themselves unable to pay their regular mortgage payments. The deferral lasts for an agreed period, during which time you do not have to make any payments.

    Once the period is up, you will once again begin paying your mortgage payments and will be responsible to pay off any missed payments and interest. Likely either your regular payment or amortization period will have to be adjusted as a result of the deferral.

    If you expect financial hardships to be a temporary situation for you, a deferral can help you out in a pinch. If you are likely to continue experiencing hardships after your deferral expires, it might not be the best option for you.

    Some of the factors that financial institutions consider when deciding if you are eligible for a mortgage deferral include:

    • Are you or your family unemployed due to the pandemic, or have you suffered a significant loss of income as a result of the pandemic?
    • Is your mortgage insured or uninsured?
    • Is your mortgage in otherwise good standing?
    • Is the property your principal residence or not?

    Payment deferrals can affect your mortgage in a big way. The effects of a deferral can impact your payments, your interest, and your mortgage principal. If you defer your payments, you are effectively keeping the same principal value on your mortgage while it accrues interest. At the end of the deferral, you will still need to pay the same amount plus any additional interest. The bank will collect your deferred interest after the fact by adding it to your mortgage principal, which is then used to calculate your future interest payments. In effect, this means after your deferral you may actually pay interest on interest.

    Extending the Amortization Period of Your Mortgage: By extending the amortization period of your mortgage, you are essentially agreeing to pay it out over a longer period of time in return for a lower regular payment. Depending on your situation, you may be able to extend out to a limit of 25, 30, or 40 years. The exact length available will differ between insured mortgages and uninsured mortgages. Remember that the longer your period, the longer you pay interest. This option may allow you to save on payments but can add up to thousands of dollars in interest.

    Switching to a Blended or Extended Mortgage: A blended mortgage means that your financial institution will allow you to benefit from current, possibly lower interest rates. Now, they won’t give you a lower interest rate outright. Rather, they will blend your current rate with the lower one, thus the name. Unfortunately, this option will only be available if a better rate exists to blend with. In addition, you can often extend your mortgage term to take advantage of the lower rate for longer.

    Locking in a Fixed Rate: If you have a variable rate mortgage, you may be able to opt to convert it to a fixed rate. Technically you can do this any time as a security measure to protect yourself from fluctuating variable interest rates, but it will only save you money if you lock into a lower fixed rate than your current variable rate. If you decide to take this option, make sure you act promptly, as rates can change often.

    Skip a Payment or Make Interest-Only Payments: Your bank may offer other payment options that stop short of a complete deferral. One such option is to skip only one or two payments. This is essentially like a mini-deferral. Another option is to agree to lower your payments temporarily, without stopping them altogether. A third option allows you to pay only interest for a period while deferring the principal payments to be paid later.

    Home Equity Line of Credit (HELOC): A HELOC allows you to borrow and pay back credit against your home’s equity. HELOC’s have a variable interest rate and the credit limit can change at any time as well, so they are not the best option for paying mortgage payments.

    Other options beyond working with your lender include getting a loan or assistance from family, renting out a portion of your home for extra income, selling off valuable assets to raise funds, or taking on a second job. It can be a stressful and scary situation to be in arrears on your mortgage payments. The biggest takeaway is to remember that many people have been there before you. That’s why lenders have many measures in place to help you recover in hard times. If you find yourself in this position, consult your bank as soon as possible on the best options for you.

  • Before You Make a Budget

    Before You Make a Budget

    You’re ready to start a budget — awesome!  You’re probably feeling excited and ready to get your money in order. But here’s the thing: It’s super easy to give up on budgets.  They can get complicated and require some maintenance.  So before creating your budget, take these simple steps to set yourself up for success:

    1. Track Your Spending

    Sometimes it feels like each paycheck disappears into thin air. The money lands in your account, you revel in your balance for one day, then you pay your monthly bills and it’s gone!

    That’s why it’s so important to track your spending. Before you even start a budget, you’ll want to get a clear idea of where all your money is going each month. There are plenty of ways to do this: good old-fashioned check book balancing, pen and paper or checking your accounts each day.  Get yourself used to keeping tabs on your spending by using an app like Mint.com.  This will help you better understand what your fixed expenses are each month and where you might be overspending.

    2. Set Yourself a Few Fun Goals

    Because budgeting can quickly become a dreaded chore, you’ll want to set yourself a few goals to keep you encouraged.  No, these don’t all have to be boring financial goals, like paying off student loans or starting an emergency savings.  Although those are great, work at a fun goal, like a road trip or cruise.  Then, hold yourself accountable by setting up a separate savings accounts and have money automatically come out of your chequing account.  You probably won’t even miss that small amount each week, but over time, it will contribute to your goal.

    3. Bundle Your Debt Into One Bill

    One of the trickiest parts about budgeting is keeping tabs on all your monthly payments, especially if you have debt.  Rather than making four different credit card payments each month and logging them in your budget, make life easier for yourself by combining them under one umbrella.  It will be much easier to budget with one, easy-to-manage monthly payment.

    4. Find Easy Ways to Cut Back Big Bills

    Building a budget will force you to take a good hard look at your monthly expenses. Ask yourself: Am I paying too much for any of these non-negotiables?  The answer: Probably.  Start with a bill that’s super easy to cut — car insurance.  Yeah, there’s no getting around it, unfortunately.  But to get the best deal, you’ll want to compare rates twice a year.  Sometimes you get complacent paying your bills, but there’s usually ways to save or haggle for a lower price.  Cable/internet is another good example, if you call, chances are there’s some kind of promo they can offer.

    5. Pick Your Go-To Budgeting Method

    Yes, there are budgeting methods — plural — but before you panic, we recommend using the 50/20/30 budgeting method for its simplicity.

    Here’s how it works:

    • 50% of your income goes toward essentials
    • 20% goes toward financial goals
    • 30% goes toward personal spending

    Of course, you’ll want to play around with this, but keeping these base-line percentages in mind will help you figure out how to allot your money for the month.

     

  • How to Budget for the New Year

    How to Budget for the New Year

    New Year’s resolutions come and go. A sad and small amount often work out like you’d planned and the rest are forgotten about, or perhaps regretted later on. Losing weight and creating a budget are two of the most common New Year’s goals.

    This year, you can shake off old habits and create new ones that last. The key is being realistic and using a system that works. Only you can decide how to budget your money, but with a little guidance from a financial expert and Mint software, you can set those plans in motion and keep track of your daily progress.


    Baby Steps to Get Out of Debt

    Nationally-syndicated radio talk show host and financial expert Dave Ramsey advises clients and listeners to get out of debt first and foremost, then build wealth. His is one of the simplest, most effective budget approaches, and nearly anyone can follow it. Ramsey explains what he calls the “7 Baby Steps” as a journey to debt control and ultimately living debt free. Each of the steps should happen in order, and include:

    • Start an emergency fund
    • Pay off debt
    • Build your emergency fund
    • Invest
    • Save for college (if applicable)
    • Pay off mortgage
    • Build wealth & give to charity

    There’s a method to the order. Your emergency fund is there to rescue you in case of a dire circumstance. Everyone needs this fund. It’s for those unexpected things that fall into your lap when you’re not looking. Start with $1,000, and you’re covered for some of the smaller things that life can throw your way.

    “Pay off debt” is a small statement, but it’s sometimes an enormous feat of dedication and endurance. This baby step is near the top of Ramsey’s list for a reason — you can’t make much financial progress for yourself while you’re building someone else’s wealth. He suggests paying off the smallest debts first, then working toward larger ones.

    Next comes building your emergency fund to a healthy level. Time was; 3 months’ pay was plenty. It could carry you over in case of job loss, medical bills, or other large, unexpected emergencies. Ramsey recommends a more generous approach, with 6 to 9 months’ pay set aside. Build this up, and you’re ready to tackle the next baby step.

    Investments, college fund, paying off your mortgage, and ultimately building wealth are the last items on the list. You might need an advisor before stepping into investments, and a college fund might not be important to your family for any number of reasons. Paying off a mortgage, if you have one, is that last big hurdle before debt-free living. After that, you build wealth and live generously.


    Mint Can Help You Handle the Particulars of Budgeting

    Getting out of debt is important. But when you drill down, there is a lot more to think about. While you’re saving for an emergency fund, paying off credit cards, and thinking about retirement, you’re still receiving utility bills and buying groceries. Mint software will help take your overall budget course and pull it into sharp focus. You can see an overview just as easily as you can review a single transaction. This gives you control that you might not have otherwise.

    It’s the daily activities that can sometimes cause budgeting hassles. Spending too much at the grocery store, dining out, splurging when you should be saving — all of these, and other things, can throw you off track. With Mint software, that never has to happen, at least not without your knowledge.

    Mint software has all of your budgeting needs, such as setting financial goals, tracking income and expense trends, receiving bill notifications, and bank account alerts, rolled into one tidy, user friendly package. You can start out the New Year with the same plans as last year, or you can make 2017 your year to live with less financial stress and more control than you’ve ever had.