Mortgage deferral — is this the right option for you? It’s a big decision to make, however, in times of crisis, economic downturn, loss of income, and many other factors, it just might be worth looking into.
We recently spoke with one of our clients who had just deferred his mortgage, this is his story:
I just deferred my mortgage for six months. This felt a bit weird, like a failure, psychologically. It seemed 'bad', akin to bankruptcy or paying one's taxes late. In my mind, it just had that financial 'loser' stigma. However, when thinking more practically, it's actually a huge win, for me.
With the travel restrictions lasting continuing through the summer, I had just lost an overseas contract that paid me $22,500 per year. I realized that living without this income would be very challenging, I had depended on this income and now it was gone. I also realized that skipping thirteen massive bi-weekly mortgage payments comes to within $400 of replacing this figure, phew, good save!
I later realized these figures aren't actually equal, not even close. Of course $22,100 is very similar to $22,500. I'm not quibbling over $400. What dawned on me is that the $22,100 is savings, and is therefore untaxed.
However, I shouldn't be comparing the topline revenue I lost, but the bottom line. Net revenue from the lost self-employed income would have been about $10,000, max, after taxes. Keeping things in that ratio I can see that in order to net $22,100 cash I would actually have to earn approximately $45,000-50,000.
Then the guilt kicks in again. Am I stealing from someone? Am I taking advantage of millions in government benefits that could otherwise go to support small businesses? No, I'm making my own mortgage more expensive, in fact. The bank still makes all their money and the online deferral application explains this all very clearly. Personally, I am going to be paying $33,000 more over the next 28 years. On the one hand, you might try to hold $22,000 (benefit) up against $33,000 (cost), and decide just to get back to hustling, to work harder, or try to find more work. That could very well be the right answer for so many people, but it wasn’t for me.
Life happens, family members get sick, people need our help, our time, and often access to our finances. At this time, it doesn't matter to me if I am mortgage-free in March of 2048 or 6 months after that. Maybe I'll feel differently at that time, but right now the benefit outweighs the cost. Retirement planning is a much bigger picture than calculating 6 months of mortgage payments. It is also very likely that I will downsize as an empty nester in the next five or ten years, reducing my mortgage obligation correspondingly.
Whether you look at it like trading $22,000 for $33,000 in over 10,000 days from now, or whether it seems more like hitting pause on your financial life, it helps me get through 2020 with a peace of mind that I otherwise wouldn’t have. If at some point later in the year I find myself with an adequate emergency buffer in my chequing account, I plan to reinvest this into my house. I'll insulate my basement and my attic, and be more ready to weather the storms that might come after this one finally passes while increasing the value of my home.
While we can’t advise you what the right decision is for you and your family, but we are happy to provide you the information and guide you along the way. Maybe deferring your mortgage isn’t the best option for you right now, however, maybe it is and maybe it’s something you need to look into. Either way, we are happy to discuss this with you and provide some insight into this topic.
As always, we at JP Real Estate would like to remind you that we are more than a real estate company, we are a community and we are in this together. We look forward to speaking with you and connecting greatness!
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