When it was realized that the Covid-19 pandemic was causing an overwhelmingly negative impact on employment and many people’s ability to sustain their financial obligations, the banks and financial institutions along with the Central Bank created a special arrangement to ease the pressure of mortgage payments. By design, offering a mortgage break would help the country endure the financial hardships by providing financial support to the citizens. It would also create future stability for the banking and lending institutions, thus enabling a more smooth transition back to normal life during the recovery phases.
The Covid-19 Mortgage Break allowed consumers to take a three-month break from mortgage payments with various generous options including deferring payments to the end of the term or interest-only payments. The central bank agreed that the consumer could apply for the mortgage break by simply calling their financial institution and the mortgage break would be recorded differently (as if it never happened) and not negatively impact the consumer’s credit report. So at the onset of the Covid-19 Mortgage Break, many consumers took advantage of the generous opportunity and were very pleased by the positive and speedy experience after struggling for months to meet their financial obligations.
Those who devised the Covid-19 Mortgage Break had pure intentions however, the deal was not well communicated within the financial institutions so it quickly began to break down and problems arose. Unlike the original agreement, the financial institutions continued to charge interest during the break, and they held consumers accountable for the mortgage break when being considered for additional credit in the future. This meant that consumers incurred additional loan costs during the break period. In addition, even though it didn’t go directly on credit reports, it was taken into consideration when financial institutions were deciding whether to approve future loans and often were punishable by requiring a waiting period after the mortgage break before they were eligible for additional loans.
In conclusion, we cannot know what the future holds or how long the pandemic will stunt our financial progress. But knowing the pros and cons of the Covid-19 Mortgage Break can empower consumers to make a much better-informed decision that is right for their circumstances and reassess their finances to prepare for the future.
Written by Kourtney Manley, Business Analyst for OnlineApplication