Will A Mortgage Deferral Affect Your Ability To Qualify? - Best Mortgage Broker Rates

Will A Mortgage Deferral Affect Your Ability To Qualify?

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With our unemployment rate on the rise, there are many finding themselves wondering how they’re going to make their next mortgage payment. If your income is severely affected by COVID-19, and you don’t have funds available to make your next mortgage payment, then you may want to speak with your current lender about the possibility of deferring your mortgage payments. That is, delay your mortgage payments for a specific period of time.

While mortgage deferrals are not as widespread as they were at the start of the second quarter in 2020, mortgage lenders would rather work with you, then leave you in a position where you’re unable to make your payment on time. Mortgage deferrals are reviewed on a case by case basis, and are usually only granted to those most in need.

The question is, do you NEED the deferral?

If you are eligible for mortgage deferral and you decide to take advantage of it, then it will immediately report on your credit bureau. This will not have a negative impact on your credit score, however there is a lot more to a credit bureau than your score. While the score is the first thing a lender looks at, they’re also going to review the full report in detail. There is a lot more to your credit bureau than just score. If you defer your mortgage payments, then your bureau will show that your mortgage is in deferral, either currently or in the past.

A mortgage deferral is an indication of financial difficulty, and informs the lender that you were unable to make your mortgage payments in the past. A previous payment deferral does not mean that a new mortgage application will be declined. However, lenders will want a detailed explanation as to why the mortgage was in deferral in the first place. Mortgage lenders understand that many people are experiencing financial hardship from the pandemic. As long as there is a good explanation for the deferral, and that your primary income stream is expected to continue without disruption, then most lenders will approve your mortgage. A previous deferral does however weaken your overall profile. For solid borrowers that easily qualify, this shouldn’t be an issue. However, if you’re in a situation where an exception is required to approve your application, then the weakened profile may reduce the chances of the exception being granted, which would then result in a declined application with that lender.

Current Mortgage Deferral

If your mortgage is currently in deferral, then approval becomes all that much harder. The lender can see that the financial difficulty is current. This doesn’t mean you’ll be declined instantly, but the mortgage would need to be brought out of deferral immediately. We’ll then need to convince the lender that the financial difficulty is behind you and no further disruptions to your income are expected.

The Cost Of A Mortgage Deferral

Mortgage deferrals cost you money. While your payments are being deferred, your interest is will continue to accrue and will be tacked on to your current mortgage balance when the payments resume. You’ll now be paying interest on interest. For this reason, a mortgage deferral is pricey, and should only be considered by those who are unable to make their next mortgage payment and have no other alternatives.

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Paul Meredith is the author of the Amazon #1 best selling book, Beat the Bank – How to Win The Mortgage Game in Canada, and has ranked as one of the top 75 mortgage brokers in Canada since 2016. He was a finalist for Mortgage Broker of the Year in 2018 - 2021, 2023, and can be seen as the exclusive mortgage broker on season 2, 5-7 of TV’s Top Million Dollar Agent.(Global, Slice TV and Rogers)