Mortgage and loan relief could end up costing you thousands more as the big banks continue to charge interest
When Anthony Grande’s banker at RBC called him last week to discuss his business loan relief, something was wrong.
The banker said Grande could skip the principal part of her loan repayments for up to six months, but interest would still be due.
A quick calculation confirmed that if he accepted the bank’s help, Grande would pay less right now, but over the course of his loan, he would owe thousands of dollars more.
In other words, by offering customers “relief”, banks can increase their profits.
“It’s not really a deal. They make more money with me if I say yes,” said Grande, who runs several physical therapy clinics in the GTA.
With the economy in free fall, business cash has become scarce. Reducing or deferring payments now could keep many businesses afloat that might otherwise go bankrupt.
But Grande thinks it’s misleading to take advantage of a program that’s marketed as providing relief.
“It seemed particularly egregious and underhanded,” he said. “It’s the vulture bank.”
RBC spokesman AJ Goodman did not confirm whether the bank continues to charge interest during relief periods for all customers. He referred the Star to the Canadian Bankers Association, “because that program is not unique to RBC.”
When contacted by the Star, ABC spokesman Mathieu Labrèche initially said each bank’s aid package was different, but the organization later released a statement that s applies to “Canada’s Largest Banks”.
“Customers should understand that this is not mortgage forgiveness. Mortgage deferral means that payments are skipped for a set period of time, during which interest that would otherwise be part of deferred payments are added to the outstanding mortgage balance.
“Additional interest is rolled into the monthly payment, either when payments resume at the end of the deferral period or upon renewal at the end of the mortgage term,” reads the statement from the mortgage. ABC.
The so-called big six banks – BMO, CIBC, National Bank, RBC, Scotiabank and TD – reported more than $46.5 billion in profits last year.
It is unclear whether all banks continue to charge interest on other financial products, such as business loans and credit cards.
After being approached by the federal government, the big six banks issued a joint statement last week indicating that they would provide financial assistance to Canadians affected by the economic consequences of COVID-19.
The statement said the relief would include “up to six months of payment deferral for mortgages” and “a commitment to work with personal and small business banking customers on a case-by-case basis to provide flexible solutions.” “.
Anyone considering taking out a relief package from their bank for their mortgage or loan should be aware that lower payments today could mean they will end up paying more interest.
It’s short-term gain for long-term pain.
Here’s how it works: If you skip your mortgage payments for the next six months, interest will continue to accrue, so you’ll actually owe more when you restart your payments. This will translate in two ways: higher payments immediately or a larger balance on your mortgage. Either way, this will result in thousands of dollars in additional interest payments to the bank over the life of your mortgage.
For business loan customers like Grande, relief from just the principal portion of his payments would mean he still has to pay interest, which can be more than half of the total payment, especially at the start of the loan. And because the principal is not reduced, the interest payments remain the same. Six months from now, he will have exactly the same amount of principal and interest owed as he does today, except he’s paid thousands of dollars in the meantime.
“Six months extra interest on a five-year loan is 10% more,” Grande said. “It’s the equivalent of an extra (percentage) point,” on your interest rate, he said.
The Star contacted all six banks and was able to confirm that BMO, National Bank, RBC and Scotiabank will continue to charge interest on loans or mortgages if customers accept its offer to skip payments for up to six months.
On its website, BMO states: “We offer up to six months of payment deferral on mortgages, loans, credit cards and lines of credit at no cost (your payment will be deferred but interest will continue to accrue). ‘accumulate).”
BMO spokesman James DeCosimo had no comment before publication.
Confirmed National Bank business customers will have to pay interest and will only be able to defer the principal part of their payments for up to six months. Mortgage holders will not have to pay anything during the six-month deferral period and their payments will not increase thereafter.
Instead, “customers will have a higher outstanding balance at the end of their term,” National Bank spokesman Jean-Francois Cadieux said.
RBC says on its website that mortgage holders can skip principal and interest payments for one month and can apply to extend that time for up to six months.
“Your payment amount will not change for the life of your mortgage,” the website says.
At RBC, personal loan payments can also be skipped for a month. “Keep in mind that skipping can affect your amortization and payment schedule,” the website says.
For credit cards, RBC will continue to charge interest during the deferral period, but “accrued interest is not added to the interest-bearing balance, so no interest is charged on interest,” the spokesperson said. Goodman.
Scotiabank will charge interest on mortgages, but wouldn’t say if it does on other products.
“During the period you defer your mortgage payments, interest will continue to accrue – so your payments will be slightly higher after the deferral period ends. You’ll pay more interest over the life of your mortgage, but a deferral will also help with your short-term cash flow,” Scotiabank’s website says.
Asked for more details, Scotiabank spokeswoman Daniela Da Silva sent the Star a generic statement.
“Scotiabank is reviewing all requests on a case-by-case basis and is committed to working directly with our customers to ease financial stress due to COVID-19,” it read.
CIBC and TD declined to say whether or not its payment deferrals included interest.
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