According to Dalia Barsoum, many investors in 2020 rushed into mortgage deferrals unnecessarily out of fear. She explains that deferrals were intended for those with no alternatives, and investors later discovered that active deferrals could block new financing approvals and result in higher monthly payments once the deferral period ended.
Barsoum highlights that investors who locked into fixed or fully closed mortgages faced hefty penalties or could not access equity at all when lending rules changed overnight. Paying attention to prepayment privileges, exit options, and penalty calculations provides critical maneuverability during turbulent times.
Barsoum recommends incorporating variable-rate mortgages into portfolios because the Bank of Canada planned to maintain its overnight lending rate until economic slack from the pandemic was absorbed, expected at least through 2023, making variable rates an attractive and flexible option.
Investors should conduct proactive annual or semi-annual portfolio reviews and establish lines of credit and cash reserves. Those who had these cushions in place before 2020 were able to pivot and capitalize on opportunities, while reactive investors faced significant stress.
Some investors learned they were in fully closed mortgages and could not exit or access equity even by paying a penalty. This underscores the importance of understanding prepayment privileges, the ability to exit the loan, and what penalties apply for breaking the mortgage.
