So I’ve got a lot of people asking me regarding the mortgage relief offer that the big six banks had offered last week. Funny enough, none of these people are my clients, anyway I always answer questions although I don’t get paid for it. So here we go: As a financial advisor, I would highly recommend against taking this mortgage relief offer because it is, at the end, going to hurt you more.
If you can afford it, pay your mortgage.
According to the report CBC had done, A RBC empolyee stated that interest accrued from each deferred payment was being added back into the principal balance of the mortgage, which is a normal practice on most deferral programs, very much like the interest relief on your student loans. That is totally fine with me as banks are still businesses and they have to make money too.
One of the interviewees said nicely, "They're going to make more money because they've just loaned you more," said Peter Gorham, an actuary with JDM Actuarial Expert Services.
"I don't know that I want to say it's profiting. I would say it's not costing them a penny."
Ok, fine, that's how banks work anyway, that's how the credit system works when you need to borrow funds, fine fine fine, we are in the system, we play along.
But my main issue is: this deferral of your mortgage payment will result in negative impact when you renew your mortgage (on top of your mortgage balance will be higher resulting more interest being charged on the interest is charged already) as it may affect your credit score.
If you don't realize, rebuilding your credit score is harder that you think, so, it is in your best interest to protect it. Furthermore, simiply trying to get qualify for the deferral, the bank still need a full credit application!! Com'on, that is not demonstrating any goodwill to anyone. Even to their existing customers... I am sorry, as I said before, banks are not your friend (reference my blog post: Banks can be harmful, too.) Note that when your credit is not good while your mortgage term is up, and you plan to switch to another bank, you might not be able to because of your credit rating. Even if you can switch, you might get a higher interest rate which eventually hurts you more in the long run (and profits the banks again at the same time).
So, my suggestion is: If you can afford it, pay your mortgage.
Here is the conversation I had with one of my long term client when she saw the article, I think I train my clients well :)