The COVID-19 crisis is impacting every Canadian and it’s an unprecedented time in our history. There’s the direct health scare posed by the deadly virus, of course. Then there are other real issues at play that follow. They relate to stress, anxiety and loneliness. We must all ensure we take care of our mental health.
Important: Don’t Let Anxiety Lead to Rush Decisions on Home/Investment Financing
Although our government is injecting billions into the economy, let’s remember the banks are in business. They’re offering to “work with clients” and that’s great, but be sure that it works for you today – during the pandemic – and afterwards. Help should NOT mean you’re paying more in interest and fees than you would otherwise. That’s not help at all.
A great article was published yesterday in the Toronto Star, and we want our clients and friends to take a careful read. It doesn’t mean your bank is out to get you, but it does mean you should be fully informed when seeking financial relief. We’re sharing it here in it’s full text:
Mortgage, loan relief could end up costing you thousands more as big banks continue to charge interest
When Anthony Grande’s banker at RBC called him last week to discuss relief for his business loans, something didn’t add up.
The banker said Grande could skip the principal portion of his loan payments for up to six months, but the interest would still be due.
A quick calculation confirmed that if he accepted the bank’s help, Grande would pay less right now, but over the course of his loan he would owe thousands of dollars more.
Put another way, by offering customers “relief,” banks stand to increase profits.
“This isn’t really a deal. They’re making more money off me if I say yes,” said Grande, who runs a number of physiotherapy clinics across the GTA.
With the economy in free fall, businesses’ cash has become scarce. Lowering or deferring payments now could keep many businesses afloat that might otherwise go under.
But Grande thinks it’s deceptive to profit off a program that is marketed as providing relief.
“This seemed especially egregious and underhanded,” he said. “It’s vulture banking.”
RBC spokesperson AJ Goodman would not confirm if the bank continues to charge interest during relief periods for all customers. He referred the Star to the Canadian Bankers’ Association, “as this program is not unique to RBC.”
When contacted by the Star, CBA spokesman Mathieu Labrèche initially said each bank’s relief program was different, but the organization later put out a statement that applies to “Canada’s largest banks.”
“Customers should understand that this is not mortgage forgiveness. Mortgage deferral means that payments are skipped for a defined period of time, during which interest which would otherwise be part of the deferred payments is added to the outstanding balance of the mortgage.
“The added interest is incorporated into the monthly payment, either when payments resume at the end of the deferral period or upon renewal at the end of the mortgage’s term,” reads the CBA statement.
The so-called big six banks — BMO, CIBC, National Bank, RBC, Scotiabank and TD — reported more than $46.5 billion in profit last year.
It’s unclear whether all the banks are continuing to charge interest on other financial products, such as business loans and credit cards.
After being approached by the federal government, the big six banks put out a joint statement last week stating they would provide financial relief to Canadians impacted by the economic consequences of COVID‑19.
The statement said the relief would include “up to a six-month payment deferral for mortgages,” and “a commitment to work with personal and small-business banking customers on a case‑by‑case-basis to provide flexible solutions.”
Anyone considering taking a relief package from their bank on their mortgage or loan should be aware that lower payments today could mean they will end up paying more in interest.
It’s short-term gain for long-term pain.
Here is how it works: If you skip your mortgage payments for the next six months, the interest will continue to accrue, so you’ll actually owe more when your restart your payments. This will translate in one of two ways: higher payments immediately or a larger balance on your mortgage. Either way, it will result in thousands of dollars in additional interest payments to the bank over the life of your mortgage.
For business loan customers like Grande, relief from only the principal portion of his payments would mean he still has to pay the interest, which can be more than half of the total payment, especially early in the loan. And because the principal isn’t being reduced, the interest payments stay the same. In six months, he’ll have exactly the same amount of principal and interest due as today, only he’s paid thousands of dollars in the meantime.
What to do? Check for other Help First (Government’s CERB)
Every family circumstance is different so the best advice is toe stay informed and do what works best for you. You may consider taking advantage and calculating how much the Canadian Emergency Response Benefit will help you – dollar wise. If it provides your family a sufficient the immediate storm by supplementing your income to cover your current bills, then perhaps seeking mortgage relief – at a cost – is not the best idea.