30 Mar

Big Picture Thoughts for Landlords – Early Days COVID-19

Challenging Times

Posted by: Garth Chapman

My Big Picture Thoughts for Landlords in the early days of COVID-19

Aside from one’s own personal sense of obligations to those in need, I believe that society as a whole bears the obligation to help those in need, at all times, and most especially in extraordinarily challenging times.

At this COVID-19 time a great many Canadians are in need. The Federal & Provincial governments are honouring society’s obligations by way of the many and growing supports, now at a point where it appears that no-one is at risk of not being able to pay for food and shelter and medical costs.

Governments leaned on the banks to provide payment deferrals to Canadians, and to support that are providing liquidity to those banks to allow the banks to do what the federal government has asked. This is an extension of the gov’t providing the obligated supports to Canadians in need.

Landlords taking deferrals does not deprive Canadian homeowners of their own opportunities to take deferrals. The banks won’t run out of capacity to offer deferrals because the federal Gov’t won’t allow that to happen.

Through all this, no matter if we were to take mortgage payment deferrals or not, we will stand by our good (mostly long-term) tenants and support them as they work their way through this. The rules Alberta Premier Jason Kenney announced on March 27th are essentially what we believe that we and our tenants should do. And we’ve conveyed that to our tenants.

With all the above in mind, we decided to apply for mortgage payment deferrals on our rental properties to buttress our cash reserves. Once we are through this if we have extra cash remaining we will use it to pay down those mortgages or to pay down any HELOC debt we then have on our rentals. Note- the interest rate is higher on the HELOCs than on our mortgages. If we were in property acquisition mode we would use such funds towards purchases.

On the Income Tax Implications of Payment Deferrals

I have been told by an Accountant that mortgage interest that is deferred is still a tax deductible expense.  Hence, mortgage interest deferred within a tax year will itself NOT reduce taxable income. Check with your own tax advisor to know your tax implications in advance.

So if you believe your cash-flows may become impaired over the coming months due to lost or reduced rents and/or increased vacancies you have the option of protecting your liquidity with mortgage payment deferrals for up to 6 months, and perhaps longer depending on how this goes.  You can always cancel them if at any time you decide you don’t need them.

On working through this with your Tenants

Rent is due. It’s a contract. Nothing stops you from offering deferrals to those in need, but do a proper needs test of that, much as many banks are doing when you ask them for a mortgage payment deferral.

You can of course later forgive any amounts of rents deferred as you choose to, but starting out with forgiveness instead of deferrals will fundamentally change the relationship, and maybe forever.

Provincial and federal governments have done easily enough to ensure nearly 100% of all renters will have enough income to pay their rent.

Think about what tenants’ payment priorities are:

1) Groceries

2) Non-elective child care and medical costs

3) If Applicable: Child support and Alimony payments

4) Rent

And after the rent comes everything else, like auto payments, credit card payments, student loans, personal loans, personal lines of credit – and note, all of those are eligible for payment deferrals.

On Communication

Nobody doesn’t want to pay a landlord who they know, and who they like/respect, and who has treated them well and is responsive to trouble calls on the property.

Have you or your Property Manager personally called all your tenants to check in and ask how are they doing?

30 Mar

Template – Your Second COVID-19 Letter to Tenants

Challenging Times

Posted by: Garth Chapman

We wanted to stay in touch and to reach out today with important new information regarding new or improved benefits that both the federal and Alberta governments have announced this week.  As you are also undoubtedly doing, we are working very hard to cut our costs in every area possible.  We will get through this, and what we do now and in the days and weeks ahead will determine the speed and ease with which our lives return to a ‘new normal’.

NEW – TEMPORARY NEW RULES FOR ALBERTA RENTERS AND LANDLORDS EFFECTIVE APRIL 1, 2020

On March 27th he Alberta government announced temporary measures for landlords and tenants.  Kenney said “For as long as the Public Health Emergency remains in effect landlords will be obliged to negotiate payment plans that accommodate their renters’ financial circumstances. Renters will be obliged to pay their rent as fully and consistently as possible, and both the renters and the landlords will be obliged to take into account the financial supports they are getting from the federal and provincial governments.”  Premier Kenney further said the government expects that before the end of April renters will begin receiving cash from new Provincial and Federal COVID-19 relief programs, and that the government expected that financial relief received by renters be used to pay rent.

Important– If you think you may not have the full amount of rent when it comes due, call us in advance and together we will make a rent payment plan.

Info for renters (scroll halfway down the page)  –  Rent Payment Plans  –   Suspension of Eviction Enforcement to May

All the COVID-19 Support Programs across Canada

This is a great open-source document detailing, searchable, and categorized by need and situation. Updated frequently. 

Financial Relief from non-governmental sources

Banks are offering COVID-19 Relief on Auto & Personal Loans, Credit Cards, Credit Lines

ATB Customer Relief Program

Credit Union customers – access to a variety of programs and solutions designed to ease difficulties with loan payments and short-term cash flow. Check with your Credit Union.

Important note – a payment deferral is not a forgiveness of the amount owed.  It means the payments are deferred to a later time, when we will have to pay them back, plus the cost of interest charges on the interest deferred.

CANADA – COVID-19 Economic Response Plan: Support for Canadians and Businesses

NEW PROGRAM: CERB – This is Big!

CERB: Canada Emergency Response Benefit

CERB will give workers who cease working or are receiving reduced employment income because of COVID-19 a $500 per week for 16 weeks. The income will be taxable, but the gov’t will not deduct income tax at source.

See Dutton Employment Law Group’s CERB review and FAQ

NEW PROGRAM FOR BUSINESSES: CEWS

The Canadian Emergency Wage Subsidy to help Businesses keep & return workers to payroll retroactive to March 15.

It looks like the payment will be capped at 75% of $58,700 annual income, so $1,129 per week for up to 12 weeks.

Canada’s Federal COVID-19 Economic Response Plan

NEW INFO – It appears that the federal government will use the CRA ‘My Account for Individuals’ to register for or to access electronic payments.  Apply here for an individual CRA account unless you already have an account.

Link to all Federal COVID-19 Programs

These appear to be Automatic (but you should double-check on that):

  • Enhanced Canada Child Benefit for the 2019-2020 benefit year, by $300 per child
  • GST Credit increase
  • A one-time special payment by early May 2020 through the Goods and Services Tax credit. The average boost to income for those benefiting from this measure will be close to $400 for single individuals and close to $600 for couples.
  • Delay to Income Tax filing deadline to June 1, 2020 and payment deadline to Aug 31, 2020
  • These you must Apply for:
    • EI Work Sharing Program
    • Federal Student loan 6-month payment moratorium. Note: this is a deferment, not a forgiveness.

ALBERTA – Immediate relief for Albertans affected by the COVID-19 pandemic

NEW INFO – you will need a MyAlberta Digital ID account to receive Alberta government COVID-19 benefits.

There is normally a 10-day waiting period after uploading your driver’s license to the site waiting to receive by mail your verification code.

COVID-19 Supports for Albertans

  • Alberta student loan payments can access a 6-month, interest free, moratorium on payments.
  • Emergency isolation support – a one-time payment of $1,146 will be distributed to bridge the gap until the federal emergency payments begin in April.
  • Residential customers can defer electricity and natural gas bill payments for 90 days to ensure no one will be cut off, regardless of the service provider.

Important note – a payment deferral is not a forgiveness of the amount owed.  It means the payments are deferred to a later time, when we will have to pay them back.

Other Existing Income Supports for Albertans – click the link for details on existing programs

Covid-19 Government Resources for Albertan Renters & Property Owners – courtesy of ‘COVID-19 Resources’

UPDATED – Health Resources official sites

For more information about COVID-19 itself, please check out these resources:

Canada Public Health Services

Check these Alberta Provincial Health web pages:

How to Self-Isolate

Coronavirus Info for Albertans

AHS Help in Tough Times

AHS COVID-19 Self-Assessment

Household Budgeting Apps & Programs

Mvelopes – FREE VERSION is full featured online personal finance App based on the age-old envelope budgeting method, where you put your cash in envelopes, each marked to what the cash is for, and when it is gone, it is gone, resetting during the start of your next pay period.

You Need a Budget (YNAB) – $6.99 / month USD – packs in many features and improvements over earlier versions, and it intuitively teaches some solid budgeting practices.

Quicken – has 4 versions at varying costs Best for Those Who “Want It All”

Vertex42 – FREE – a great variety of Excel Spreadsheet based products. All the Vertex42™ budget templates can be downloaded for personal use and no charge.  See their household budget spreadsheet here

We will stay in touch with you – please keep us up to date as much as you like on how you are doing.  And don’t hesitate to call either of us on any of this with any questions as they come up.  We will always do what we can to help.

30 Mar

COVID-19 Aid Programs: Gov’t, Banking, Utilities & Health related

Challenging Times

Posted by: Garth Chapman

All the COVID-19 Support Programs in Canada in one place

This is a great open-source Google Doc detailing, searchable, and categorized by need and situation. Brilliantly conceived. Updated frequently. https://drive.google.com/file/d/1lOJn7XS6ETIkbLRodYk681M_2dxkkQsc/view

Banks offering COVID-19 Relief on Auto & Personal Loans, Credit Cards, Credit Lines

Details of Major Banks offering relief in various forms

ATB Customer Relief Program

Credit Union customers – access to a variety of programs and solutions designed to ease difficulties with loan payments and short-term cash flow. Check with your Credit Union.

Important note – a payment deferral is not a forgiveness of the amount owed.  It means the payments are deferred to a later time, when we will have to pay them back, plus the cost of interest charges on the interest deferred.

CANADA – COVID-19 Economic Response Plan: Support for Canadians & Businesses

NEW PROGRAM – CERB 

CERB: Canada Emergency Response Benefit

  • CERB will give workers who cease working or are receiving reduced employment income because of COVID-19 $500 per week for 16 weeks. The income will be taxable, but the gov’t will not deduct income tax at source.
  • Dutton Employment Law Group’s excellent CERB review and FAQ

NEW PROGRAM FOR BUSINESSES – CEWS – This should be a big help to Employees and Contract Employees

Canada Emergency Wage Subsidy (CEWS) – to help Businesses keep & return workers to payroll retroactive to March 15.

  • As a Canadian employer whose business has been affected by COVID-19, you may be eligible for a subsidy of 75% of employee wages for up to 12 weeks, retroactive from March 15, 2020, to June 6, 2020.
  • This wage subsidy will enable you to re-hire workers previously laid off as a result of COVID-19, help prevent further job losses, and better position you to resume normal operations following the crisis.CEWS details previously published:
    • CEWS provides a wage subsidy of 75% up to a maximum salary of $58,700 ($847 per week) for up to 12 weeks.
    • It is available to all Canadian businesses that experience a 15% revenue reduction in March and 30% reduction in April and May (compared to either 2019 figures or 2020 figures), or to an average of their revenue earned in January and February 2020. There is no overall limit on the subsidy amount that an eligible employer may claim.
    • The subsidy is retroactive to March 15, 2020.
    • Businesses may measure revenue on the basis of accrual accounting (as they are earned) or cash accounting (as they are received); once a method is selected, it must continue to be used.
    • Once an employer is found eligible for a specific period, they will automatically qualify for the next period of the program.
    • The CEWS will provide an additional amount to compensate employers for their contributions to the Canada Pension Plan, Employment Insurance, Quebec Pension Plan and Quebec Parental Insurance Plan paid in respect of eligible employees who are on leave with pay due to COVID-19.
    • The employer will be required to repay amounts paid under the CEWS if they do not meet the eligibility requirements.

Canada’s Federal COVID-19 Economic Response Plan – click the link for details on existing programs

NEW INFO – It appears that the federal government will use the CRA ‘My Account for Individuals’ to register for or to access electronic payments.  Apply here for an individual CRA account unless you already have an account.

SERVICE CANADA – when their office are closed you can make an online Request For Service here – This online service request form is a temporary measure to ensure continuity of critical services.

Link to all Federal COVID-19 Programs

  • These appear to be Automatic (but you should double-check on that):
    • Enhanced Canada Child Benefit for the 2019-2020 benefit year, by $300 per child
    • GST Credit increase
    • A one-time special payment by early May 2020 through the Goods and Services Tax credit. The average boost to income for those benefitting from this measure will be close to $400 for single individuals and close to $600 for couples.
    • Delay to Income Tax filing deadline to June 1, 2020 and payment deadline to Aug 31, 2020
  • These you must Apply for:
    • EI Work Sharing Program
    • Federal Student loan 6-month payment moratorium. Note: this is a deferment, not a forgiveness.

ALBERTA – Immediate relief for Albertans affected by the COVID-19 pandemic

NEW INFO – you will need a MyAlberta Digital ID account to receive Alberta government COVID-19 benefits,

There is normally a 10-day waiting period after uploading your driver’s license to the site waiting to receive by mail your verification code.

COVID-19 Supports for Albertans

  • Alberta student loan payments can access a 6-month, interest free, moratorium on payments.
  • Emergency isolation support – a one-time payment of $1,146 will be distributed to bridge the gap until the federal emergency payments begin in April.
  • Residential customers can defer electricity and natural gas bill payments for 90 days to ensure no one will be cut off, regardless of the service provider.

Important note – a payment deferral is not a forgiveness of the amount owed.  It means the payments are deferred to a later time, when we will have to pay them back.

Other Existing Income Supports for Albertans – click the link for details on existing programs

Covid-19 Government Resources for Albertan Renters & Property Owners – courtesy of ‘COVID-19 Resources’

UPDATED – Health Resources official sites

For more information about COVID-19 itself, please check out these resources:

30 Mar

Payment Deferrals on your Mortgage & Other Loans – What You Need to Know

Mortgage Help

Posted by: Garth Chapman

The Federal Government announced on March 18, 2020 that it would provide increased flexibility to lenders to defer mortgage payments. Then the big-6 banks announced they would be allowing up to 6 months of mortgage payment deferrals to assist those impacted by COVID-19.  The Monoline lenders followed suit.  Since then they have all been doing as best they can to accommodate the massive volume of calls and emails, while implementing new processes and procedures almost daily to help handle these inquiries.  Lenders are updating us daily/hourly as to what the best course of actions is, and I encourage you to contact your Mortgage Advisor for current advice.

Essential Services –Bankers, Mortgage Brokerages, Realtors and other Financial service providers have been declared essential services in Alberta. So we’re not going anywhere and will continue to be there to help you through this.

Banks are offering COVID-19 Relief on Auto & Personal Loans, Credit Cards, Credit Lines

Student Loans can be also be deferred. They are either Federal or Provincial, so check those programs.

Important note – a payment deferral is not a forgiveness of the amount owed.  It means the payments are deferred to a later time, when we will have to pay them back, with a cost of interest charges on the interest deferred (aka interest on interest).

Credit Union customers – access to a variety of programs and solutions designed to ease difficulties with loan payments and short-term cash flow. Check with your Credit Union.

Here is what we have learned so far:

  • Banks are prioritizing clients based on need and next mortgage payment date.
  • Regardless of how urgent your situation is, it is going to take time to get a response. It can be frustrating to wait on hold, or wait for an email response, but please contact them before you miss a payment, as to not damage your credit.
  • NEVER EVER be late for or miss a mortgage payment.  Do whatever you have to do.  Pay with your credit card.  Borrow from family.  Anything.
  • Effectively the deferred interest is capitalized (added) into the mortgage balance owing.
  • I have heard from clients who have received 6 months of deferred payments with no questions asked.  In fact I am one of those lucky borrowers.
  • Understand this is not always the case.  You may be asked about your employment status and other reasons you have for requesting deferral. Some lenders will ask about your net worth status and liquid assets available. (If you do your regular banking with the same lender that holds your mortgage, they can likely assess this internally).
  • Things like whether or not your mortgage is default insured aka (CMHC), collaterally charged (has a HELOC on it), the loan-to-value ratio, and if you have been set up on accelerated payments or applied any lump sum payments in the past will be considered.
  • Each lender has their own criteria for deciding what criteria they will use in making mortgage deferral decisions.  In my own experience with three lenders so far, and based on many of my clients experiences, the consensus so far seems to be that often the best results are received when speaking directly with a bank representative.  Not always, but most often. So in my opinion it is best to be willing to be on hold for an hour and maybe more, to achieve your desired outcome.
  • Note- if you are a denied a deferral, try again via the same method or the other methods your lender offers (phone, website application or email).  There is still not full consistency within each lender on what is granted and what is denied from day to day and person to person.
  • Some clients are offered a 1-month or a 3-month deferral only and encouraged to re-apply with new status going forward. * PS to Alberta residents * We have had clients in the oil and gas industry report they were asked by the lenders if their layoff was directly due to COVID-19, or other factors. GREAT QUESTION.  I believe the answer may be related to the apparent other challenges within the O&G industry and some lenders being sensitive to this as an area of risk to address.
  • Mortgage distress, like any kind of distress, is relative.  For some people, mortgage distress is due to worry about the coming disastrous economic effects of COVID-19 on their job or business.  For other people, mortgage distress is being suddenly laid off with no income and unable to pay their Mortgage on Tuesday.  All are valid concerns, however, some lenders are prioritizing and only dealing with those not able to pay their mortgage payment due within the next few days.  If you don’t have concern about missing your next payment, consider sending an email or filling out a form for a call back later.  I know waiting can be frustrating.  In these times, exercising a little patience and freeing up the phone lines could help your friends and neighbours keep their home.
  • If you believe you have some equity in your home, you might be able to avoid all of this by speaking to your Mortgage Broker and setting yourself up to access equity for an affordable fallback.  You should do this before there are any negative changes to your income or home value.  I would suggest NOW is the time.  You may be able to refinance to draw out an emergency fund, set up a home equity credit line, a reverse mortgage, or even private financing to bridge the gap at this time.
  • Self employed and commissioned workers: Some lenders will require “proof” that you’ve been laid off or your income has been impacted by COVID-19 in order to defer payments.  For many of you, that is something that you won’t be able to document for months. I encourage you to speak with your Mortgage Broker NOW to explore your financing options outside of or in addition to deferred mortgage payments.
  • Questions to ask your bank when you speak with them about a deferral:
    • Ask your bank about the details of what their bank is offering.
    • Does the deferred pay-down get added into the payments to keep the amortization the same, or is the amortization lengthened to fit?
    • Some banks cap the deferred interest within the remaining term, some within the amortization. If within term then the lower the term the higher the new payment will be after the 6 months is up will be. If within the Amortization then generally the impact is less as the timeline is longer.

See the CMHC webpage on mortgage deferrals here

COVID-19: Understanding Mortgage Payment Deferral

What are the costs to you of a 6-month Mortgage Payment Deferral?

Read my Blog Post on that here

Why You Should Monitor Your Credit Report and Score Once You are on a Mortgage or any other Debt Payment Deferral Program

Read my Blog Post on that here

Here is an article by Money Coaches Canada

Should I Defer my Mortgage Payments?

I hope this information helps you in your decision-making and actions on your mortgage(s).  Do not hesitate to call or email me for further advice.

** And my sincere thanks to my good friend and Jencor Mortgage Advisor Sarah Boudreau for the original idea for this post and for some of the content of this post.**

30 Mar

Mortgage Payment Deferrals: What to do, Who & How to Contact

Mortgage Help

Posted by: Garth Chapman

Many of our clients, their family and friends are looking for information and so we hope you find the following to be helpful.

If you have any questions about the following your Jencor Advisor is available and we will do our best to answer questions, find answers and anything else we can do for you.

Each lender has a separate telephone number and or email address for clients to use to make contact and obtain information regarding payment deferral, skip a payment, miss a payment options.

Please prepare yourself prior to your call or email with the following information:

At this time, due to high call volumes you may want to e-mail your lender, though I personally prefer to speak with a real live human. 

  • Be prepared for the possibility of questions on any loss of income you are experiencing or are about to experience.
  • Have your Mortgage statement handy as it contains your account number and other pertinent information.
  • You may be asked about your current assets and income as well all expenses.

Banks’ Customer Service phone numbers to call if and when you want to explore their mortgage relief programs.

• ATB Financial 1-800-332-8383

• B2B Bank 1-866-684-5637

• BMO 1-877-895-3278

• Bridgewater Bank 1-866-243-4301

• CIBC 1-800-465-2422

• CIBC FirstLine – 1.877.454.9030

• Canadiana 1-877-315-1633

• CFF Bank 1-855-767-3031

• Chinook Financial 403-934-3358

• CMLS Financial 1-888-995-2657

• Connect First 403-736-4000

• Equitable Bank 1-888-334-3313

• First National Financial 1-888-488-0794

• First Calgary Financial CU 403-736-4000

• Haventree Bank 1-855-272-0051

• HSBC 1-888-310-4722

• Home Trust 1-855-270-3630

• HomEquity Bank 1-866-522-2447

• ICICI 1-888-424-2422

• Lendwise 1-866-675-7022

• Manulife 1-855-518-7546

• Marathon Mortgage Corp 1-855-503-6060

• MCAP 1-800-265-2624

• Merix 1-877-637-4911

• National Bank 1-800-361-9522

• Optimum Mortgage 1-866-441-3775

• PC Financial 1-888-723-8881

• Scotiabank 1-866-472-6842

• Servus 1-877-378-8728

• RFA (formerly Street Capital 1-877-416-7873

• Radius Financial 1-866-550-8227

• RMG 1-866-809-5800

• RBC Royal Bank of Canada 1-866-809-5800

• TD Canada Trust 1-866-222-3456

• Tangerine 1-888-826-4374

Lenders with online application options

B2B Bank – 1.866.684.5637 / b2bbank.com/COVID19
Bridgewater Bank – 1.866.243.4301 / Outside of Canada 403.817.7000 / customer.experience@bridgewaterbank.ca
CMLS – 1.888.995.2657 / service@cmls.ca
Equitable Bank – 1.866.407.5859 / customerservice@eqbank.com
First National Financial –  1.888.488.0794 / accounts@firstnational.ca (include name/ mortgage  number / property address and question)
Home Trust – 1.855.270.3630 / 416.777.5820 / homehelps@trust.ca
ICICI  Bank– 1.888.424.2422 / Customercare.ca@icicibank.com
Merix / Lendwise – 1.877.637.49111 / customerservice@merixfinancial.com
Manulife – 1.855.518.7546 / banksales@manulife.com
MCAP – 1.800.265.2624 / MYMCAP Portal
Optimum/CW Bank – 1.866.441.3775 / customer.service@cwbank.com
RMG Mortgages – 1.866.809.5800 / mortgagesupport@rmgmortgages.ca

Scotiabank 1.800.472.6842 https://www.scotiabank.com/ca/en/personal/scotia-support/latest-updates/scotia-support/mortgage-payment-relief.html

TD Canada Trust- 1.866.222.3456 – https://www.td.com/ca/en/personal-banking/covid-19/?fbclid=IwAR1sNUkd8KUISgsRgVtREgfQLaBXj6d-DhXJvOm8r2lAe6JsnUEnO8IpcVQ

Our Personal Experiences and those of some clients:

TD Bank: 

We personally got 6-month payment deferrals on 6 TD mortgages, 2 of which are Flexline re-advanceable mortgages (those have HELOCS attached to them, similar to Scotia Step re-advanceable mortgages).

The bank person was on loan from the branch support dept to their mortgage deferral program. She was fantastic and we told her so. From all the calls she is losing her voice but soldiering on in a very helpful and cheery way.

No questions were asked about qualifying us as to why we needed this.

They are not deferring the interest costs on HELOCS, as one should expect. And even though we have lots of access to capital from those HELOCS there was no suggestion at all about our ability to access those HELOCS to fund our mortgage payments.

The interest deferred is capitalized to the mortgage balance owing, and at the end of the current term they will, upon renewal, re-set the payments to allow for the repayment of that deferred interest and deferred mortgage pay-down over the entire remaining amortization.

This is the most generous way a bank could do this. And, we will have the option of paying off any or all of the deferred amounts to reduce the balance and therefore the payments on the new term.

Scotiabank: 

Non-primary residences, including rentals, vacation/cottage properties, are now eligible for the 6-month mortgage payment deferral program (to a maximum of three non-primary properties per borrower). I have advised clients with more than 3 Scotia mortgages to push back, the argument being that since Scotia originally provided you with ‘x’ number of mortgages, and since Scotia has renewed those mortgages over the intervening years, they have an obligation to offer deferrals on all your Scotia mortgages.  Other banks are not limiting the number of mortgages they will allow payment deferrals on.

First Calgary Financial (Credit Union):

We personally got a 3-month payment deferral on one of our rentals properties.

No questions were asked about qualifying us as to why we needed this – their deferrals are granted without question.

The interest deferred is capitalized to the mortgage balance owing, and at the end of the current term they will, upon renewal, re-set the payments to allow for the repayment of that deferred interest and deferred mortgage pay-down over the entire remaining amortization.

This is the most generous way a bank could do this. And, we will have the option of paying off any or all of the deferred amounts to reduce the balance and therefore the payments on the new term

Royal Bank of Canada: 

RBC commercial mortgages will implement interest only payments for six months. No questions asked. You cannot do it for fewer than 6 months. The principle payment is tacked on to the end of your amortization.

The following information is taken from a Money Coaches Canada article

Should I Defer my Mortgage Payments?

According to Vancouver based mortgage broker Marci Dean, each lender has created a policy around the deferral program. In some cases, the lenders default to a 6-month deferral and it’s up to the borrower to call/email to stop the deferral. For other lenders, it is month to month. In that case, borrowers will login or email their request to skip payment the following month.

Again, depending on the lender, interest will either be added to payments after the deferral or it will be added to the mortgage balance at the end of the term which will result in larger payments later.

Here are a few examples from bank lenders:

TD: Payments will be adjusted automatically at the start of your next term or, if you change anything else before renewal, at that time, to ensure your mortgage is paid off at the end of your original amortization period.

Scotiabank: A mortgage payment deferral means that payments are skipped for up to 6 months, during which interest is accrued to the outstanding balance of the mortgage. The amount is incorporated into the monthly payment when mortgage payments resume at the end of the deferral period.

CIBC: The interest that accrues during the deferral period will be added to the principal balance of your mortgage to provide you with immediate payment relief while experiencing temporary hardships. As a result, once payments resume, you will continue to pay interest on the principal, and your payments may increase after the deferral period.

30 Mar

How to Get Through Tough Economic Times – COVID-19 edition

Challenging Times

Posted by: Garth Chapman

Why this is such a big deal that requires your full attention?

Because in just two months the COVID-19 pandemic has already become:

  • The single largest economic disruption and jobs crisis since the great depression
  • The most concentrated national efforts against a crisis since World War 11 since the Great Depression of the 1030’s
  • All of which is being driven by the biggest health emergency the world has seen since the Spanish Flu epidemic of 1918-1919.
  • This ain’t going away anytime soon.

The good news is that the Federal and Provincial governments along with municipalities across Canada have decided to throw everything we have at this. The federal government has made it clear they will spare no expense or effort to get us through this intact. Good on them.  Now it’s up to us to follow that model. We must do what needs to be done to keep our households and our businesses intact. We will have a vaccine within 12 months according to Bill Gates (look up what he and Melinda are doing on the medical front around the world).  So by sometime in 2021 we will be in recovery mode, and will likely enjoy a boom like we haven’t seen in decades (in most but perhaps not all markets).  So we need to bridge ourselves to that time of recovery.

So what are we to do?

Cash is King, so preserve your cash as best you can. Take all available payment and other deferrals that you can get. Preserve available capital in your HELOCs and PLC’s.

Protect yourself in all your income and debt management decisions, and whatever you do, do it as fast as you can reasonably do it, and based on your risk tolerance. The less tolerance you have the more protective you should be.

Read more on my recommendations as to how to protect yourself in my Blog Post What Direction are Interest Rates Headed, and what should we do?

What is Your Burn Rate?

Are you cash-flow positive or break-even, or negative?  If negative, what is your Burn Rate?  The term essentially means ‘by how much does your cash outflows exceed your inflows?’  For this exercise I recommend you assume all spending is not funded by lines of credit or credit cards etc.  So do your monthly or annual budget in this manner to determine if you have a ‘burn’ or not.  And if you do, you need to act to minimize the burn rate as best you can.  Cut spending, increase income if you can, look for debt payment deferrals, and if that is not enough, then look to other debt instruments to help or sell assets.

Now, let’s get down to the basics:

How to make a Budget (this is pretty complete) http://christianpf.com/how-to-make-a-budget/

So first, we need to take stock of our financial situation, and that means reviewing, or making, a household Budget. Below are 5 good products to help with that.  If you would like further advice or help with this send me an email and I will be happy to assist you.  After all, I’m a numbers guy 🙂

Here are 4 Household Budgeting Apps & Programs

Mvelopes – FREE VERSION is full featured online personal finance App based on the age-old envelope budgeting method, where you put your cash in envelopes, each marked to what the cash is for, and when it is gone, it is gone, resetting during the start of your next pay period.

You Need a Budget (YNAB) – $6.99 / month USD – packs in many features and improvements over earlier versions, and it intuitively teaches some solid budgeting practices.

Quicken – has 4 versions at varying costs Best for Those Who “Want It All”

The Below are Spreadsheet solutions:

Vertex42 – FREE – a great variety of Excel Spreadsheet based products. All the Vertex42™ budget templates can be downloaded for personal use and no charge.  See their household budget spreadsheet here

More Vertex42 Family Budget Planner Spreadsheets

5 Tips for Surviving Economic Uncertainty

from Money Coaches Canada

  1. Figure out how much you need to cover your expenses
  2. Develop new Cash Saving Habits
  3. Build Your Emergency Fund
  4. Remind yourself why you invested, not on what’s happening in the markets now
  5. Get Support (on the many federal and provincial initiatives to assist Canadians)

Also from Money Coaches Canada

Cash Flow in the Time of COVID-19

 

I saved the Best for Last

All the Support Programs available all across Canada

This is a great open-source document detailing, searchable, and categorized by need and situation. Brilliantly conceived. Updated frequently. https://drive.google.com/file/d/1lOJn7XS6ETIkbLRodYk681M_2dxkkQsc/view

30 Mar

What Direction are Interest Rates Headed, and what should we do?

Challenging Times

Posted by: Garth Chapman

What Direction are Interest Rates Headed, and what should we do?

  • Context – Let’s first look at the key elements and actions driving interest rates and economic activity right now
    • Liquidity crisis
      • Remember 2008. The capital markets dried up and the huge gaps had to be filled. Now is similar but with an entirely non-economic cause.
      • “The Bank of Canada (BoC) is meeting twice a week with the senior leadership of the Big-Six Banks. The cost of funds for the banks has risen sharply. CMHC is buying large volumes of mortgages from the banks, which, along with CMB purchases by the central bank, will shore up liquidity.” Dr. Sherry Cooper of DLC
  • CMHC has acted to provide liquidity for the Banks by buying large tranches of mortgages and has bumped the quantity of those purchases once already. This frees up lending capacity for the banks by returning the cash to their balance sheets.
    • The Federal Government has acted to provide liquidity for businesses by way of loans, tax and other deferrals
    • The Federal Government has announced a new program, the Canada Emergency Wage Subsidy (CEWS) program which is to provide to companies that have a 30% loss of revenue up to a 75% wage subsidy to help Businesses keep & return workers to payroll retroactive to March 15.  The initial announcement indicated that payments will be capped at 75% of $58,700 an employee’s annual income, so $1,129 per week for up to 12 weeks (again these are the initial indications, yet to be fully unveiled, because, well they’re more than likely not yet fully decided).
    • The Federal government has acted to provide liquidity for individuals with several programs, the largest being the $2,000 monthly to all with COVID-related loss of income.
  • Bank of Canada has acted to provide liquidity for businesses and individuals by lowering the Overnight Target Rate 3 times in 10 days, a total of 1.50%. Biggest and fastest cuts ever.
  • Commercial financing is largely frozen right now.
  • Paradox – the Prime rate has dropped by 1.50% in the last 2 weeks, but mortgage rates are going up
    • Background
      • Prime directly drives only Variable Rate mortgages and HELOC’s and Personal Lines of Credit (PLC).
      • Fixed rates are driven primarily by Government of Canada Bond Yields.
      • Hi-ratio insured mortgage rates are lower than uninsured rates. That is counter-intuitive to the inherent relative risks and is due to mortgage regulatory changes of recent years.
    • Variable rates are down by 1.50%, but the discounts to Prime have nearly disappeared.
      • Hi ratio insured from Prime less 1.0% or better, to Prime less 0.2% at best.
      • Uninsured from Prime less 0.5% or better, to Prime less 0.0% at best.
    • Fixed rates are wildly gyrating, the first increases ~2 weeks ago was about increasing spreads on banks cost of money. Since then it is supply and demand, due to reduced staffing levels, massive inflow of mortgage payment deferrals calls, and huge volumes of applications (now dropping).
    • Due to the above: Fixed rates are up ~0.50% over the last week, a bit less for hi-ratio insured mortgages, after dropping initially when the Bond market yields crashed.
  • Where we are today – see these self-explanatory three CHARTS below:

https://www.ratehub.ca/prime-mortgage-rate-history

https://www.ratehub.ca/5-year-variable-mortgage-rate-history

https://www.ratehub.ca/5-year-fixed-mortgage-rate-history

  • Normal BoC action: inflation low — rate low; inflation high — rate high (and why)
    • BoC mandate is to keep inflation within a range, that is adjusted from time to time.
    • For the foreseeable future, liquidity issues will be paramount. That will last at least until our economy, and that of our major trading partners, is largely back up and running.
  • Why rates might go up instead?
    • Currently lenders can’t keep up – very high new mortgage applications during February and early March. This will return to near-normal as deferral calls diminish, and buyers stop buying.
    • Risk – Michael Campbell’s MoneyTalks comments this week:
      • “What happens when lenders worry about mid-term and long-term lending? Then you have no market”
      • “How long can Central Banks keep interest rates low when increasing risk demands that they rise? It’s like loading a spring. Will it take 1 month, 12 months, 18 months? No-one knows, but the risk is there.”
    • What happens if Canada’s government takes on so much debt that institutional and international investors who buy those bonds begin to demand higher, perhaps much higher, returns on those bonds. And if the same occurs in most of the rest of the developed world it seems to me the impact of that would be a scarcity of capital.  These things would yield increased inflation and in turn higher interest rates for Canadians.   See the below chart of  the Government of Canada 5-year Bond yields from 2000 to March 30, 2020. How far yields have fallen. These have been an extraordinary last 20 years, especially the last 12 since 2008.

  • What to expect over the next 90-180 days
    • Variable Rate Mortgages: discounts to the Banks’ Prime Rates: Have all-but disappeared, and I don’t see that changing in the short term. I suspect those discounts should return somewhat close to previous levels once the economy is up and running to a reasonable level.
    • Fixed Rate Mortgages: I believe should come back down as the Bond markets settle – BUT – that might not happen, depending on how much higher the costs of supporting Canadian economy goes. And it could go up significantly.
      • Note- as my friend Jeff Gunther said on a call today “when rates move they move quickly”. And I would add sometimes “also by a lot”.
    • Lenders will reduce LTV limits in various markets. Some lenders will (and already have) vacate various markets and/or various products lines. One Monoline is out of the Prairies, another is out of both insured and uninsured lending in the Prairies, and two more are already out of uninsured lending in Alberta. This is driven by investors backing away from perceived risks, and by Monoline lenders’ volume capacities due to reduced staffing etc.
    • Given that more than half of the mortgage industry (Brokers and Bankers) are working from home, allow 30 to 45 days minimum for purchases to close.
    • Anyone who wants to switch lenders and has a maturity date (renewal date) in the next ~30-40 days closing should get confirmation in writing that the new lender can close that quick. If there’s any doubt, ask your existing lender to renew you into an open mortgage, if possible.
  • Crystal Ball
    • I don’t know about yours, but my crystal ball appears to be faulty over the last two weeks. Each day it shows me a different future.
    • We are in uncharted waters. National economies world-wide are more interconnected than ever. There are more moving parts than ever before.
    • Liquidity is the big risk issue over the mid and long term. The risk is whether or not it is manageable. Some pundits think it will eventually prove to NOT be manageable, that the BoC, CMHC and the federal government will run out of capacity to provide liquidity.
    • We have been in an ultra-low interest rate environment for over a decade now. Many in the financial world have been predicting for several years an interest rate rise. Some base this in part on the growing under-funded pension liabilities created by such low rates for so long. John Mauldin is one of those. 
    • No-one knows where interest rates are going in the longer term. Rest assured they will go up and they will go down, but we don’t know when or in what order.
    • I think we are beginning to see the amazing ingenuity and creativity that many people employ when the chips are down, and that makes me believe we will find our way through this without wide-scale destruction of our developed economies. Having said that, the risk is that if this goes very badly, it could well be worse than the 1930’s.
  • What are we to do?
    • Cash is King, so preserve your cash as best you can. Take all available payment and other deferrals that you can get. Preserve available capital in your HELOCs and PLC’s.
    • Some people I know believe banks will selectively lower PLC limits or cancel some altogether. They go so far as to recommend you should take 75% of cash available in your PLCs now and put that money in an account at a different bank.
    • If you want a home equity line of credit, apply yesterday. Recessions are not conducive to getting great deals on HELOC rates, but again, cash is king. And once you are out of work a HELOC will be more difficult to qualify for, notwithstanding the excellent suite of supports from various levels of government.
    • If you get a 5-year fixed rate, try to pick a lender with a fair interest rate differential penalty (aka Monoline lender). The big-6 banks’ IRD penalties are on average roughly 2.5 to 3 times higher.
    • For those who believe Prime will stay low and that Fixed rates will not climb much above current rates, a Variable rate mortgage may be the way to go until the Fixed rates market settles somewhat and those rates drop back down so you lock in.
    • If you are truly concerned about, or if your financial stability is vulnerable to, interest rise shock, consider a 7-year or a 10-year term fixed rate mortgage.  I have seen 7- year and 10-year rates as low as 0.6% to 1.0% above the 5-year Fixed rates recently.
      • Note- These low long term rates tells us the some of the institutional lenders believe rates will indeed remain low for 7-10 years.
    • Protect yourself in all your income and debt management decisions, and whatever you do, do it as fast as you can reasonably do it, and based on your risk tolerance. The less tolerance you have the more protective you should be.
30 Mar

Why Are Mortgage Rates Rising? by Dr. Sherry Cooper

Interest Rates

Posted by: Garth Chapman

As Dr. Cooper writes below this is a time of enormous change and challenge.  Yet I find myself surprised and pleased with the responses from our federal government, and from the Alberta government, as well as several other Provinces and Municipalities. The programs announced as of March 29 are breath-taking in scope and breadth.  We are going to make it through this, but in the meantime there will likely continue to be swings in mortgage interest rates, both up and down.  In another post today I will explore what is happening, why and what I think we should do.

Now back to Dr. Cooper’s article “Why Are Mortgage Rates Rising?”

Over the past month, the Bank of Canada has lowered its overnight rate by a whopping 1.5 percentage points to a mere 0.25%. Many people expected mortgage rates to fall equivalently. The banks have reduced prime rates by the full 150 basis points (bps). But, since the second Bank of Canada rate cut on March 13, banks and other lenders have hiked mortgage rates for fixed- and variable-rate loans. That’s not what happens typically when the Bank cuts its overnight rate. But these are extraordinary times. 

The Covid-19 pandemic has disrupted everything, shutting down the entire global economy and damaging business and consumer confidence. No one knows when it will end. This degree of uncertainty and the risk to our health is profoundly unnerving.

Read more here

30 Mar

My thoughts for landlords on mortgage payment deferrals in 2020

Challenging Times

Posted by: Garth Chapman

Aside from one’s own personal sense of obligations to those in need, I believe that society as a whole bears the obligation to help those in need, at all times, and most especially in extraordinarily challenging times.

At this time a very great many Canadians are in need. The Federal & Provincial governments are honouring society’s obligations by way of the many and growing supports, now at a point where it appears that no-one is at risk of not being able to pay for food and shelter and medical costs.

Governments leaned on the banks to provide payment deferrals to Canadians, and to support that are providing liquidity to those banks to allow the banks to do what the federal government has asked. This is an extension of the governments providing the obligated supports to Canadians in need.

Landlords taking deferrals does not deprive Canadian homeowners of their own opportunities to take deferrals. The banks won’t run out of capacity to offer deferrals because the federal Gov’t won’t allow that to happen. Through all this we will stand by our (mostly long-term) tenants and support them and provide information and advice on the programs and benefits as they work their way through this.

The rules Premier Kenney announced on March 27 are essentially what we believe we and our tenants should do. And we’ve conveyed that to our tenants.

Having thought through all that last week, we prefer to take most or all of the mortgage payment deferrals we can to buttress our cash reserves. Once we are through this if we have extra cash remaining we will use it to pay down HELOC debt on our rentals. Why? Because that interest rate is higher than the rate on our mortgages.

If we were in acquisition mode (we aren’t) we would use any such funds towards purchases.

Important note re Income Tax:

Notwithstanding the tax impact of reduced rent income, we must remember that mortgage interest is a tax deductible expense. Hence, mortgage interest deferred within a tax year will reduce taxable income, meaning income taxes owing will be higher. Bottom line: expect roughly a 40% tax on every dollar of mortgage interest deferred in 2020.

In Closing

In just two months this has already become:

  • The single largest economic disruption and jobs crisis since the great depression
  • The most concentrated national efforts against a crisis since World War 11 since the Great Depression of the 1030’s
  • All of which is being driven by the biggest health emergency the world has seen since the Spanish Flu epidemic of 1918-1919.

So what are we to do?

Cash is King, so preserve your cash as best you can. Take all available payment and other deferrals that you can get. Preserve available capital in your HELOCs and PLC’s.

Protect yourself in all your income and debt management decisions, and whatever you do, do it as fast as you can reasonably do it, and based on your risk tolerance. The less tolerance you have the more protective you should be.

Read more on my recommendations as to how to protect yourself in my post What Direction are Interest Rates Headed, and what should we do?

27 Mar

The Fixed vs Variable Interest Rate Decision

Buying & Refinancing a Home

Posted by: Garth Chapman

Fixed Vs Variable – How to decide…which way to go?

The choice between Fixed and Variable interest rate is one that many borrowers ask about.

This is a very common question and you are not alone. First, let’s help you to understand the differences between the two types of mortgages.   A Variable Rate Mortgage is where the interest rate charged and your monthly payment will normally change when there is any change to prime rate.  The prime rate can change up to 8 times per year.  A Fixed Rate Mortgage is where neither your payment or the interest rate will change at all during the term of your mortgage.

Both fixed and variable mortgages have their own advantages and disadvantages.

Advantages of a Variable Rate Mortgage:

  • When rates go down you benefit from that immediately and will see your payment drop – this means more towards the principal and less interest so your mortgage is paid off faster!
  • Historically variable mortgages have been significantly lower in rate than fixed mortgages
  • Variable rates offer you the freedom to convert at any time to a fixed rate mortgages especially when you see rates rising.

Advantages of a Fixed Rate Mortgage:

  • The fixed rate offers the security of locking in your rate
  • You may prefer peace of mind – the same mortgage payment every month with a guarantee not to change for the term
  • You will know exactly how much principle and interest you are paying with each payment.

There are at least three key elements to be considered when making this decision.

1) The fixed rate premium is the cost of taking the security of a (higher) fixed rate over a (currently lower) Variable rate. The fixed rate is always somewhat higher than the Variable rate.  Think of that rate premium as you would an insurance premium.  You pay the higher rate for the security of that rate not changing during the current term of the mortgage.

The spread does move around, and when it is less than 0.80% it is generally considered to be a ‘good buy’.  In May of 2012 we saw that spread drop to an all-time low, so low that we converted four existing mortgages from Variable to Fixed.  At that time Variable rates were at about Prime – 0.30% which translated to 2.70% and the lowest fixed rates for a 5-year term was 2.79% making the spread under 0.10%.  The spread between Fixed and Variable have remained below the norm from mid-2012 through to mid-2017, when it began increasing along with both Fixed and Variable mortgage rates.  In April of 2017 we converted 4 more mortgages to 5-year fixed rates because we believed fixed rate increases were upon us, and that the Prime Rate would also be increasing.

So on the financial side of this choice you can determine the cost of the rate premium in dollars per month or year, or during the term.  Then decide if the cost of that premium is worth paying.

2) Increased payment risk tolerance is about how well you are able to handle an increase in mortgage payments, which would be created by an interest rate hike following a Prime Rate increase).  I break this risk tolerance down into two components.

Financial risk tolerance is about your financial capacity to absorb an increase in mortgage payments.  This is something you can assess by reviewing your monthly budget. Less tolerance may point you to a Fixed rate mortgage.

Emotional risk tolerance is about how you sleep at night, and by that I mean do you worry about interest rates and your payment going up, and does your level of worry create any stress in your life?  If it does, then you may be more emotionally suited to a Fixed rate mortgage.

3) Qualifying Rate vs Actual rate of the mortgage contemplated.

You must qualify at the much higher Bank of Canada Benchmark rate when taking a Variable Rate mortgage, so that is something to confirm early on that will fit your qualifying criteria.

Understanding what drives Variable rates and Fixed rates

Your Variable Mortgage Rates are driven by your bank’s Prime Rate which is set individually by each Bank.  They normally (but not always) move in sync with changes in the Overnight Rate, which is set by the Bank of Canada (BoC) and is used as a basis for one-day (or “overnight”) borrowing between the major lenders and financial institutions.  The BoC is responsible for monetary policy, the goal of which is to keep inflation near the mid-point of a 1 to 3 per cent target range, ideally 2%.  The BoC is equally concerned with significant movements in the inflation rate, both above the 2% mid-point and below it.  When demand is strong, it can push the economy against the limits of its capacity to produce.  This tends to raise inflation above the midpoint, so the BoC will raise interest rates to cool off the economy.  When demand is weak, inflationary pressures are likely to ease.  The BoC will then lower interest rates to stimulate the economy and absorb economic slack.

So when the economy heats up and there is a threat that inflation could get beyond the 1 to 3 per cent target the BoC may increase the overnight rate, which drives the Prime Rate. The schedule of dates when the BoC reviews and sets the Overnight Rate is found here http://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/

Fixed Mortgage Rates are driven by the Bond markets

Typically, when bond rates (also known as the bond yield) go up, interest rates go up as well. And vice versa. Don’t confuse this with bond prices, which have an inverse relationship with interest rates.

Investors turn to bonds as a safe investment when the economic outlook is poor. When purchases of bonds increase, the associated yield falls, and so do mortgage rates. But when the economy is expected to do well, investors jump into stocks, forcing bond prices lower and pushing the yield (and mortgage rates) higher.

The spread between 5-year Government of Canada Bonds and 5-year mortgage rates varies within a range that has fluctuated in recent years.  You can follow the 5-year Bond Yield in Canada on the BoC website and you will notice that a period of Bond yield increases or drops will almost always be followed by a corresponding change in fixed rates for mortgages.

If I choose a Variable rate and I want to be able to convert that to a Fixed rate, how will I know when it is time to convert to a fixed rate?

Bond Yields and the Prime Rate don’t move in lock-step, so if you choose a Variable rate then you will need a mechanism or methodology to decide when it is time to convert that Variable rate to a Fixed rate. Without one you will more than likely end up making the switch long after you would like to have done so, and you will pay more. that is because we tend to make such financial decisions when laden with emotions such as fear, and we either panic and move too soon or we freeze and don’t act soon enough or at all.

So to manage that decision I strongly recommend that (to use a stock trading term) you set two ‘stop-loss’ orders to act as your trigger points to make the change to Fixed rate. One is your Variable trigger, that being when the Prime Rate reaches ‘x’%. The other is your Fixed trigger, that being when the 5-year (or any other term) reaches ‘y’%. Using those two management mechanisms will ensure you don’t miss the boat.

If you want to be even more sophisticated about this, you could review the Stop-loss rates annually, remembering that as time goes by without significant change in the Prime Rate you will have built up a nice buffer against the cost of an increase during the term of the mortgage.

You can follow what the best market rates are here http://garthchapman.ca/

The schedule of dates when the BoC reviews and sets the Overnight Rate is found here http://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/

For more on the subject read the Fixed or Variable Rate Mortgage? The Decision Checklist post by RateSpy.com

I hope this gives you some clarity on this complex subject, and on how to make and then manage your own interest rate decision.