For the past few weeks, Canadian banks have been allowing individuals to defer payments on their mortgages, personal loans, etc. Although these support measures do not have a direct impact on your credit rating, they are nevertheless not without consequences. Before taking advantage of this opportunity to defer your payments, please read the following.
Tougher terms for insured loans and deferral of loan payments: the consequences
Recently, CMHC has tightened the conditions for access to insured mortgages (click on the link to read the new rules). For their part, the banks have taken steps to ease the financial pressure on Canadian households. These include the possibility of postponing monthly payments on mortgages, personal loans, etc. by a few months.
While the initiative is commendable, it is not without consequences for borrowers who decide to use it. Of course, your credit score will only be marginally impacted by such a deferral. That is, the increase in your mortgage balance due to these deferrals. However, there are effects that go far beyond the credit score. For example, the notation ” affected by a natural or declared disaster ” will be added to your file. And that will weigh on your future credit applications.
Deferral of maturity = more difficult access to credit
Even if your credit rating is intact, it will be a stain on your file. Banks will take it into account if :
- Mortgage refinancing application
- New mortgage
- Mortgage renewal
This means that the lending institution will be stricter with you. This delay can block a refinancing application. Some banks even require a return to normal for at least 2 months before offering their customers the opportunity to refinance. In other words, you must prove that your financial situation is stable again before you can do anything.
This is especially true if your profession is part of the employment sectors considered risky. For example, a well-known banking institution in Quebec has already announced that it has begun to restrict access to credit in employment sectors deemed to be at risk.
In short, it states that some economic sectors are more vulnerable than others to the pandemic. This vulnerability leads to the need to assess the economic prospects of these people in the medium term. Indeed, given the exceptional situation in which we find ourselves, the income of the previous two years cannot be used as a reference for their future income.
Occupations exposed to this tightening of lending conditions:
This bank provides a non-exhaustive list of these at-risk sectors. Not surprisingly, there are service-oriented occupations such as transportation, entertainment, tourism, food service and hospitality.
From now on, banks will conduct a more detailed analysis of the income and cash flow of these prospective borrowers. While continuing to take into account the credit behavior of consumers prior to the current crisis.
