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How Deferrals Work

To better understand how deferrals work, we've created this tool to illustrate the difference between regular mortgage payments vs what happens when you defer payments. See the tables and descriptions below. If you are unable to see the charts or would like to print this information, click the button:

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When regular payments are being made
A part of your regular payment goes toward interest (“interest portion”) and a part of your payment goes toward reducing the principal balance (“principal portion”). The result is that the interest portion of each payment decreases with each payment as the principal balance steadily declines (ex: Table 1). 


When regular payments are deferred 
During the deferral period, the interest due is added to the principal balance. The result is the interest for each payment period progressively increases since the principal balance steadily increases. (ex: Table 2)


An explanation of the increased principal 
The ending balance without the deferral is shown as (B) in Table 1 and with the deferral as (E) in Table 2. The difference in the amounts can be explained by the total amount of the deferred payments and additional interest that resulted of the deferred payments:

The Balance without deferral (B from Table 1) 

 

 $        190,976.27 

Deferred Regular Payments ($1,043.63 x 10)

 

 $          10,436.30 

Additional interest during the deferral period

 + 

 

($2,524.09 {F from Table 2} - $2,456.20 {C from Table 1})

 + 

 $                  67.89 

The balance with the deferral (E from Table 2) 

         = 

 $        201,480.46 


After the Deferral Period 
When payments resume, more interest is due since the principal balance is higher. This is illustrated in the first payment by the difference between (A) in Table 1 and (C) in Table 2. Although the difference can seem small, over the life of the mortgage the difference can be significant.  

You can lessen the long-term impact on the interest cost by making partial prepayment or increasing your regular mortgage payment amounts. At the end of the deferral period, we encourage you to talk to one of our mortgage representatives about money saving payment options available. 


Have Questions? 
If you have questions about deferrals, please see our Frequently Asked Questions by clicking the button below. If you still have further questions you can ask your broker or contact our customer service team. 

 

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