With the world upside down, many people have been laid off or had their hours greatly reduced. As you can imagine, this has many people worried about how they’re going to pay their monthly bills.
The government of Canada has done a reasonable job by introducing emergency measures that will provide income to some Canadians. Unfortunately, I suspect some people will fall through the cracks.
Regardless if you have income or not, you’ve probably heard about homeowners being able to defer their mortgage payments, the no rent movement and how banks are being encouraged to offer no or low interest lines of credits. These initiatives are meant to help Canadians manage their finances during this difficult time, but are they any good?
It really depends on your situation, but I wanted to give you my perspective on what’s available to you.
First off, if you were laid off before April 6, 2020 and you’re eligible for Employment Insurance (EI), you should apply. EI pays 55% of your average insurable weekly earnings up to $573 per week. There’s also a maximum yearly insurable earnings amount of $54,200.
You get EI from 14 weeks up to a maximum of 45 weeks which will hopefully get you through this crisis. If you earn any income during that period, your EI would be reduced by an equal amount.
If you don’t qualify for EI, then the Canada Emergency Response Benefit (CERB) will provide you with income as long as you meet the following conditions.
- You reside in Canada and are at least 15 years old
- You stopped working because of COVID-19 (you must have not quit)
- You had an income of at least $5,000 in 2019 or in the 12 months prior to the date of your application
- You expect to be without work or income for at least 14 consecutive days in the initial four-week period. For each additional benefit period, you expect to have no employment income
The CERB pays out $2,000 and is paid in blocks of four weeks. This works out to $500 per week with a maximum payout of 16 weeks.
If you qualify for either one of these benefits, you should be applying for them. These benefits are meant to help you get through the Coronavirus crisis.
Should you defer your mortgage?
All of the big banks have already stated that they’ll be working with homeowners on a case-by-case basis when it comes to mortgage deferrals. That means there is no official policy, so if you own your home and have a mortgage, you need to contact your lender to find out what your options are.
Assuming your lender is agreeable to payment deferrals, your payments will be temporarily suspended for a set period of time. Once that deferral period ends, your payments go back to normal.
Before you say yes to your deferral, find out exactly what’s being deferred. For example, is it both your principal and interest? If so, will your interest be capitalized? If your interest is indeed being capitalized, that means it’s going to be added to the outstanding balance of your mortgage which will increase your costs in the long run.
Mortgage deferrals are only available on your primary residence. If you have an income property, you would still be responsible for your monthly payments.
Deferring your mortgage could be useful if you need that cash to pay off some high interest debt. Otherwise, don’t defer your mortgage if you don’t need to.
Should you withhold rent?
April 1st has already passed, so if you rent, I hope you paid on time. The no rent movement was started because landlords were getting financial relief while renters got nothing. Some renters felt they shouldn’t pay any rent to make things fair. This argument is a bit misguided as things aren’t as black and white as they seem.
As mentioned, mortgage deferrals don’t apply to income properties and even if the rental unit is part of their primary residence, there are still costs to consider such as upkeep. It’s not like your landlord is getting your rent for free if they defer their mortgage payment.
For those struggling to meet their rent payments, their first course of action should be to talk to their landlord. Most landlords understand the situation and are willing to work with you to come up with a solution that makes sense for everyone.
Withholding rent is not the solution. Even though some premier’s across the country have said evictions won’t happen, you better believe that you’ll be evicted right after this crisis is over if you haven’t been paying. In addition, your landlord could report your non payments to one of the credit bureaus which could destroy your credit score. Good luck trying to find a new landlord when they find out you have a low credit score and you didn’t pay rent at your last property.
Should you defer credit card payments?
Some banks are giving clients the option to defer their minimum payments for three months. Like mortgages, banks are looking at things on a case-by-case basis. I assume they would only allow people to defer their payments if they’re actually facing financial challenges due to COVID-19.
In addition, many of the banks have already made changes to the interest rates on personal and small business credit cards. CIBC and Scotiabank have reduced their interest rate to 10.99%. Desjardins is slashing their rates to 10.9%. Both RBC and TD are cutting their rates by 50 per cent which would put their credit card interest rates at about 10 per cent. All things considered, these are actually decent options but obviously, if you defer any payments, you’ll still need to pay interest.
An alternative option you might want to consider is signing up for one of the best low interest credit cards in Canada. These credit cards come with a balance transfer option where you’ll pay 0-3.99% interest for six to ten months. A transfer fee may apply, but the lower interest rate will be worth it. You’ll still need to make your monthly minimum payment, but at least now you’ll be paying less interest.
If your options are between paying your bills or surviving, then you need to defer. There’s no shame in it. Just speak to your lender so you know exactly what your options are and how much you’ll owe as a result of any deferrals. If you can afford to continue making your payments, do it, deferrals aren’t free money.