We’ve all heard the expression ‘rainy day’ to describe a period of unexpected adversity, and the truth is that most people see the value in having some finances on tap in case that rainy day does come around. However, we’ve also heard how over the years that many Canadians are ‘mortgaged to the hilt’ when it comes to how precarious of an arrangement their ability to own a home and pay the bills really is. It’s something economists have been warning against for the average consumer
And truth be told a lot of realtors are very proactive with advising their clients on what they should afford as compared to what they can afford in as far as for what they’ve been approved for with a mortgage. Well, turns out the economic fallout of COVID-19 is a ‘rainy day’ in a big way, but recent stats coming from the 6 big banks in Canada suggest that a LOT of Canadians are putting themselves in precarious situations by taking them up on mortgage deferrals.
Now, to be sure, it’s good that the major lenders along with the Federal Government were sympathetic to the plights of those who couldn’t afford to pay, but this needs to be a big time wake up call to homeowners. Part of being a qualified buyer is knowing what you’re really suited to be spending on a home, and that’s part of what realtors can help their clients with. Clients that are, however, not as easily found these days as they were before.
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But back to topic, let’s have a look at just how many household deferred mortgage payments recently, and why that’s not necessarily a good thing.
510K + To Be Exact
At the Big 6 banks alone, Canadians have put somewhere in the vicinity of 510,530 mortgages on payment deferral as of the quarter ending July 31, and that’s down by a considerable 17.53% from the previous quarter. Now of course we know why this has happened, but the principle of the wise nature of being prepared to handle these unexpected bumps in the road remains.
Part of being a homebuyer is being able to afford to be a homeowner, and most people understand that there is a time and place in your life when that should happen. And no earlier.
Royal Bank of Canada had the most of them, with 138,830 payment deferrals (down 30.18% quarterly). Next up was TD Bank at 107,000 deferrals (down 15.08%), followed by Scotiabank at 99,000 deferrals (up 5.32%).
The value of all of these deferrals totalling up some nearly $136.27 billion, to the tune of a 15.38% quarterly decline. RBC’s total stood at $41.27 billion (down 23.66% per 1/4), while the second largest volume of mortgage deferrals was at the Canadian Imperial Bank of Commerce, which had $33.3 billion (a 6.2% drop).
The question then becomes how did the banks handle missing out on some 136 billion? Well, the answer to that is because they were able to set aside approximately half of their provisions for bad loans and, without going into unnecessary detail, they had the funds to buffer themselves that way.
But that money WILL be paid, and that leads us to what’s the danger in deferring mortgage payments in Canada during COVID. It’s a real risk and it’s something we’ll touch on in another blog post shortly.
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