When the World Health Organization (WHO) officially announced COVID-19 as a global pandemic on March 11, public and private sectors went into disarray. Organizations had to restructure within a matter of days; businesses had to shut down temporarily; and billions of people around the globe were unemployed overnight, causing an economic downturn. The world, as we knew, had changed forever, and everyone had to adapt accordingly to the new reality.

Locally, all industries, including real estate, were affected, and within one month, the entire sector plummeted, citing a 57% decrease in national average sales in May.

The Canadian government took swift action to minimize the repercussions of the shutdown by introducing emergency relief measures to support Canadians and businesses facing hardship due to such a calamity. These included the Canada Emergency Response benefit (CERB), Canada Emergency Student Benefit (CESB) and Canada Emergency Wage Subsidy (CEWS), etc.

Banking and financial institutions and regulators also stepped up by offering businesses and individuals either interest-free loans, mortgage and credit payment deferrals, a 50% cut in interest rates, among others, for a limited time.

As of September 4, 771, 764 borrowers had taken advantage of the mortgage deferrals, representing about 16% of the number of mortgages in bank portfolios, according to the Financial Consumer Agency of Canada (FCAC). The FCAC is responsible for monitoring and tracking the relief measures that banks have provided to consumers who were impacted by the COVID-19 pandemic.

A mortgage deferral allows one to pause their mortgage payments for a defined period of time. Interest will continue to be charged on the amount you owe and will be added to the balance. When the deferral period ends, one has to resume regular payments. 

With the average monthly mortgage payment estimated at $1,326, per month according to the Canada Mortgage and Housing Corporation (CMHC), Canadians were able to free up about $1 million monthly during a period when job layoffs and furloughs were common.

Eight months later, with a second wave expected to strike soon, what happens next, now that the relief measures and the payment ‘vacation’ comes to an end as of September 30. Will homeowners be able to keep up with their bills, or will deferrals be extended?

We take a closer look at several options available for homeowners and how to minimize the impact of mortgage deferrals, according to expert policymakers, investors and economists.

Tens of thousands of homeowners will default on their mortgages—no question about it. The CMHC calls this the looming “deferral cliff” and “as much as one-fifth of all mortgages could be in arrears if our economy has not recovered sufficiently,” warns Evan Siddall, president and CEO of the CMHC, in an interview with Global News.

Lenders have said they will work on a case-by-case basis with borrowers who can’t resume regular payments, but with stricter rules around who qualifies and who doesn’t. The maximum deferral period granted under the official COVID assistance programs during September is three months, but this may vary depending on the lender.

If you’re looking to bridge a three- to six-month gap where you can’t pay, reach out to your lender or mortgage broker, ASAP. Calling up your lender and asking if they might extend the deferral period should be your first order of business as soon as you realize there could be a hiccup and explain your situation, says James Laird, president of the mortgage brokerage CanWise Financial.

“Your existing lender is incented to work something out with you because they need to get their money back somehow, and the easiest way of doing that is getting it from the existing borrower,” he says.

Borrowing from a line of credit, if you have one, to make your mortgage payment “may be totally fine” to paper over something like a one-month gap, Shannon Lee Simmons, a Toronto-based financial planner and best-selling personal finance author, told the Global News in an interview in August.

However, she adds, “if you’re not sure if you’ll be able to pay for your mortgage month after month, that could be a slippery slope.

In that vein, your lender may also be open to stretching out your amortization period, if there is a “reasonable probability” you’ll be able to make smaller payments, Laird says.

Spreading your mortgage over a longer time horizon lowers your monthly payments, although it also increases the interest you’ll pay over the life of the loan.

“If you’re in a situation where cash flow is significantly lower, extending amortization for one term could help make ends meet until you know your income trajectory for the long run again,” added Lee Simmons.

And while paying more interest on your mortgage isn’t ideal, a longer amortization can help you avoid racking up more expensive debt and keep your home, she adds.

Several lenders have said a significant share of mortgage deferral applications has come from people who, while able to pay, wanted to free up cash to build an emergency fund.

Lee Simmons says if you can afford your mortgage payments, you may want to leave that rainy-day money untouched for a bit longer.

Fortunately, as the economy begins to rebound, unemployment is decreasing — down to 10.2 percent in August from a high of 13.7 percent in May, according to Statistics Canada — and many Canadians are beginning to regain their financial footing.

“This situation still has so many unknowns. If you’re worried about job security, hang onto the emergency account for now,” she says.

Ultimately, no matter what your status - plan, plan, plan. You’ve probably heard finance professionals tout the importance of having three to six months of living expenses saved, and they’ve never been more vindicated than during this pandemic.

“If you’re in an industry that could be problematic [like service or hospitality], you need to be ready for a possible second wave,” says Wes Pauls, co-owner and lead mortgage agent with Mortgage Teacher in Hamilton, in an interview with moneysense.ca.

He suggests that banks might not offer so much leniency the second time around.

It’s imperative to talk to a mortgage broker about the overall financial picture, not just the mortgages, so they help you to get back on track.