It's Your Money  

Is deferring mortgage best?

Approximately half a million Canadians have already requested to defer their mortgage payments after lenders announced last month that they would offer some financial “relief.”

But is deferring your mortgage actually relief?

There has been a lot written on the mortgage deferral options already, but most of it leaves consumers more confused than ever.

Many of these people requesting deferrals are still under the false impression that the bank is actually forgiving a few months worth of payments, which is definitely not the case.

A deferred mortgage is still accruing interest and this interest will be attracting further interest on itself – something known as compounding.

So, what does a mortgage deferral really cost? Let’s look at the numbers:

For this example, we are going to use an outstanding mortgage balance of $500,000 and a fixed interest rate of 3.75% for the remaining 25 years of amortization.

If you continue to pay the mortgage off as is, you would be paying the following:

  • $2,570 monthly payment
  • $771,196 of total payments made over the 25 years

If you decide to defer the mortgage payments for the next six months, you would pay:

  • Same $2,570 monthly payment but it would go for 1.5 years longer
  • $819,268 of total payments over the next 26.5 years

You would defer six months of your $2,570 a month payment, which is a total of $15,420 of money you keep in your pocket right now - something that may be necessary in these very unique times. But the total cost of that deferral is an extra $48,072 of payments over the life of your mortgage.

Understand that the total extra costs to you are not $48,072 minus the $15,420 “saved”. The $48,072 figure is the overall extra amount of payments that you end up making to fully pay off your mortgage debt.

In explaining all of this, I am not trying to persuade you that a mortgage deferral is not the right decision at this time, but instead want to make sure that you fully understand how much it will cost you.

Is this the best way to free up cash flow right now or are there other things to consider doing first?

In order to properly make this type of decision, consider seeking out the guidance of a professional financial planner. I understand, however, that for many people, accessing the services of a professional planner is not something they can readily do.

With that in mind, I am looking forward to announcing a new pro-bono financial advice program later this week that will allow anyone affected by the COVID-19 pandemic to access a no-cost, 30-minute phone or videoconference session with a professional financial planner to ask these types of questions.

Stay tuned for more info!


File your tax return now

While the government has extended the 2019 personal tax filing deadline to June 1 from April 30 because of the COVID-19 pandemic, you may still want to consider filing on time or even early.

If you’re expecting a tax refund this year, why wait?

Filing your taxes now could give you immediate access to some extra much-needed cash owed to you.

A tax refund typically arises when the amount of taxes you’ve paid during the year from taxes withheld by your employer is larger than the amount of tax you actually owe.

The amount of taxes your employer withholds will typically be calculated to include various standard tax credits, but doesn’t consider additional eligible expenses you may be able to claim or RRSP contributions that you’ve made.

These additional deductions result in you paying more tax than you have to.

Filing now can also help ensure that you qualify for additional income tested benefits such as the GST/HST credit or the Canada Child Benefit – both of which are going to be bolstered as part of the pandemic stimulus program.

The CRA is continuing to process tax returns during this pandemic and you can file your return electronically. They can facilitate and encourage you to utilize the direct deposit option for receiving your tax refund as well.

As of March 9, the CRA had received approximately 3.4 million personal tax returns and 92.5 per cent of them were filed electronically.

Of the nearly $4.7 billion in tax refunds that have been paid to date, 85% were paid via direct deposit – to the tune of an average refund per person of $1,820.

Any 2019 tax slips that you need can be accessed remotely as well using the CRA’s “my account” or even the auto-fill feature that allows you to download tax information into professional tax preparation software.

A full list of CRA-certified software can be found on their website including some programs that are completely free.

If you find out that you owe money after filing your return, you now have until Sept. 1, 2020 to pay, which is four months later than the normal April 30 deadline.

The government has confirmed that no penalties or interest will be incurred during this time and likewise for delaying your June 2020 quarterly personal tax instalment to the same Sept. 1 date.

As the pandemic situation rapidly evolves, so too does the government’s financial response plans. Be sure to take the time to keep up to date on the latest developments and take advantage of any financial relief programs that are being offered if you need help.

And consider filing your return now even if you don’t have to – there is really no downside to doing so, but it may help you access some extra funds at a time when they’re most needed. 

Financial survival tips

The world has changed significantly during the past few weeks as we deal with the health and financial implications of the COVID-19 outbreak.

Businesses of all sizes are struggling to cope and many (most?) employees and business owners are understandably concerned about their ability to make it through these challenging times.

While you may not be able to control your income earning potential right now, there are many things that are still under your control.

For this week’s column, I wanted to provide tips to help get through this crisis as best you can:

Stop consumer spending

As much as possible, you should cut down on any discretionary spending at this time. While bored at home in isolation, it may be tempting to cruise the web for online shopping deals, but this is the absolute last thing you should be doing right now. Any discretionary income should be directed toward debt reduction and building up an emergency fund. 

Review your debt from all sources

Now, is a great time to consolidate higher interest debts to a lower rate and make sure you’re paying as little interest as possible.

Much like debt, do a thorough review of all recurring monthly payments that you make

Are there any that can be suspended or cancelled? Are you still paying for that monthly gym membership that you haven’t used in over a year?

Do you really need to pay for Netflix, Amazon and Disney+ at the same time? Anything you can do to cut down your monthly carrying costs should be done right away.

If you are or are expecting to have trouble making ends meet, reach out to all of your creditors and request temporary relief

Most if not all mortgage providers in Canada are offering payment deferral and other such relief measures to those that need them. Make this call now instead of waiting until things are really bad.

Consider setting up a line of credit type product if you don’t have enough set aside in your emergency funds

This would likely be far better than leaving a balance on your credit card or withdrawing (taxable) money from your RRSP account. Having said that, each person’s situation is different and a Certified Financial Planner (CFP) professional should be consulted to determine what source of funds makes the most sense for you.

Be extra vigilant for fraud or phishing schemes

It’s sad to say but there are many scammers out there working to take advantage of this situation. Watch your credit card and bank statements extra close over these next few months and report anything unusual right away.

If additional funds are available, consider investing more into the markets while they are down

While not an option for everyone, catching the inevitable rebound of the market is important. For those that are already invested and thinking of cashing out, remember that your losses are only realized if you decide to sell while the markets are down.

When possible, help out your neighbours

Check in to see if they need help picking up groceries or with any other daily living activities. We are all in this together and it is times like this when the goodness of humanity can shine.  

Finally, try not to panic

Blaming doesn’t help and dwelling on poor past decisions won’t either. Focus on what you can control and try to stay positive. Do what you can to help flatten the curve and keep your family safe and healthy.

Oh, yeah, wash your hands.


Keep calm and carry on

Global capital markets experienced significant volatility last week and officially tipped things into a Bear Market. 

Key developments included:

  • A continued rise in coronavirus case counts, particularly in Italy (which has now expanded travel and activity restrictions country-wide) and most recently the U.S.
  • A marked drop in oil prices after Saudi Arabia and Russia couldn’t come to an agreement on production cuts as a response to lowering demand due to coronavirus concerns.
  • Government bond yields dropping to all-time lows.
  • Stock markets dropping sharply lower most of the week - though stabilizing a little bit on Friday.

While the week was a tough one, it’s important to note that the volatility is in reaction to a health issue, and not to any underlying economic, financial or political crisis.

A major market event can be Endogenous or Exogenous, and it’s important to understand the difference in implications.

An Endogenous Event originates in a financial model like the 2008 financial crisis and we typically try to use fiscal tools and stimulus to aid recovery.

An Exogenous Event is determined outside a financial model.  While fiscal tools don’t work as effectively, they are normally of shorter duration.

So, what should you do?

The Second World War poster created by the British with the words “Keep Calm and Carry On” comes to mind. We’re continuing to advise investors to stay invested, stay focused on their long-term objectives and stay disciplined.

It is no doubt troubling to see the wild swings in the markets, but you need to stay rational and keep the “human emotion element” out of your financial decisions.

If you feel like you need to do something, I’ll suggest these things to you:

  • Try to remain calm. Seeing that this is an Exogenous Event, the underlying financial fundamentals will prevail. Hopefully you already have a globally diversified portfolio that’s in line with your risk tolerance, which means you don’t need to adjust a thing.
  • Stop to evaluate your own situation. Unless you’ve recently lost your job, developed a sudden life-threatening illness or have otherwise materially changed your situation, your financial plan shouldn’t need to be changed.
  • Stick to fundamentals. The old saying of “buy low sell high” needs to be remembered. If you have some un-invested money sitting on the sidelines, this might be a good time to buy.

While this is a time of uncertainty, we do know that equity markets have a history of volatility, but that stock markets go up over time. In fact, markets are up over 70 per cent of the time and many of the strongest growth periods immediately follow market drops.  

We also know that trying to time the market is difficult and that, at times like these, it’s those who continue to stay invested who are best positioned for long-term success.

*Please note that this article is not intended to be personalized investment advice as that is impossible to provide without knowing your entire financial situation and current portfolio holdings. I would be happy to refer you to a licensed investment adviser that I trust if you’d like to receive customized recommendations.

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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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