Will a Temporary Loss of Income Impact Your Mortgage Post-COVID-19?
Carola Singer • October 14, 2020
While unemployment peaked over 13% at the onset, it's hard to quantify just how many Canadians had some form of a reduction in their income over the last year. Especially if you're self-employed or your income varies year to year because you receive a bonus, pick up shifts, freelance, or you earn income that isn't guaranteed.
If you earn variable income, and you've seen a reduction in income because of the pandemic, this has the potential to impact how much mortgage you qualify for up to the next three years.
Here's why. For income that isn't guaranteed, when assessing your mortgage application, most of the time, lenders will look at a 2-year average. So let's say you're looking to secure a mortgage now in 2020, the lender will want to see documentation proving what you earned in 2018 and 2019, and they will take a 2-year average.
If your income is lower in 2020 because of the pandemic, once we come to tax time in 2021, your 2-year average will now include that reduction in revenue for the next couple of years, even if you are back to making what you did pre-pandemic. It will be the same case in 2022 (and into 2023), as any lender will want to see your 2-year average between 2020 and 2021. Less income in 2020 could mean qualifying for a lower mortgage amount over the next few years.
The advantage of working with an independent mortgage professional is the ability we have to represent you to several lenders who all offer different products and have different guidelines. So while one lender might be hard and fast on the 2-year average, depending on your industry, another lender might make an exception.
Additionally, depending on where the housing market is at and how much the economy has rebounded in 2021, lenders might consider COVID-19 and be flexible or implement amended guidelines. However, we will have to wait and see on that. But for the most part, if your income is lower because of COVID, it will impact you going forward, feel free to get in touch if you have any questions or hear anything in the news that you'd like clarified.
So what can you do about this today? Well, if you're currently looking to purchase a property or you have a mortgage that's almost up for renewal, or if you'd like to refinance before 2021, it's definitely in your best interest to talk with an independent mortgage professional about all your options as soon as possible.
Alternatively, if you're not looking to secure a mortgage right now, it's always a good idea to have a plan in place for when you do. It never hurts to plan ahead, especially when you have time and can make up some of the lost income with additional income in the future.
If you'd like to discuss your financial situation and see exactly how your income impacts your mortgage qualification, please don't hesitate to contact me anytime, I would love to work through everything with you!
RECENT POSTS
What Is a Second Mortgage, Really? (It’s Not What Most People Think) If you’ve heard the term “second mortgage” and assumed it refers to the next mortgage you take out after your first one ends, you’re not alone. It’s a common misconception—but the reality is a bit different. A second mortgage isn’t about the order of mortgages over time. It’s actually about the number of loans secured against a single property —at the same time. So, What Exactly Is a Second Mortgage? When you first buy a home, your mortgage is registered on the property in first position . This simply means your lender has the primary legal claim to your property if you ever sell it or default. A second mortgage is another loan that’s added on top of your existing mortgage. It’s registered in second position , meaning the lender only gets paid out after the first mortgage is settled. If you sell your home, any proceeds go toward paying off the first mortgage first, then the second one, and any remaining equity is yours. It’s important to note: You still keep your original mortgage and keep making payments on it —the second mortgage is an entirely separate agreement layered on top. Why Would Anyone Take Out a Second Mortgage? There are a few good reasons homeowners choose this route: You want to tap into your home equity without refinancing your existing mortgage. Your current mortgage has great terms (like a low interest rate), and breaking it would trigger hefty penalties. You need access to funds quickly , and a second mortgage is faster and more flexible than refinancing. One common use? Debt consolidation . If you’re juggling high-interest credit card or personal loan debt, a second mortgage can help reduce your overall interest costs and improve monthly cash flow. Is a Second Mortgage Right for You? A second mortgage can be a smart solution in the right situation—but it’s not always the best move. It depends on your current mortgage terms, your equity, and your financial goals. If you’re curious about how a second mortgage could work for your situation—or if you’re considering your options to improve cash flow or access equity—let’s talk. I’d be happy to walk you through it and help you explore the right path forward. Reach out anytime—we’ll figure it out together.
Why the Cheapest Mortgage Isn’t Always the Smartest Move Some things are fine to buy on the cheap. Generic cereal? Sure. Basic airline seat? No problem. A car with roll-down windows? If it gets you where you're going, great. But when it comes to choosing a mortgage? That’s not the time to cut corners. A “no-frills” mortgage might sound appealing with its rock-bottom interest rate, but what’s stripped away to get you that rate can end up costing you far more in the long run. These mortgages often come with severe limitations—restrictions that could hit your wallet hard if life throws you a curveball. Let’s break it down. A typical no-frills mortgage might offer a slightly lower interest rate—maybe 0.10% to 0.20% less. That could save you a few hundred dollars over a few years. But that small upfront saving comes at the cost of flexibility: Breaking your mortgage early? Expect a massive penalty. Want to make extra payments? Often not allowed—or severely restricted. Need to move and take your mortgage with you? Not likely. Thinking about refinancing? Good luck doing that without a financial hit. Most people don’t plan on breaking their mortgage early—but roughly two-thirds of Canadians do, often due to job changes, separations, relocations, or expanding families. That’s why flexibility matters. So why do lenders even offer no-frills mortgages? Because they know the stats. And they know many borrowers chase the lowest rate without asking what’s behind it. Some banks count on that. Their job is to maximize profits. Ours? To help you make an informed, strategic choice. As independent mortgage professionals, we work for you—not a single lender. That means we can compare multiple products from various financial institutions to find the one that actually suits your goals and protects your long-term financial health. Bottom line: Don’t let a shiny low rate distract you from what really matters. A mortgage should fit your life—not the other way around. Have questions? Want to look at your options? I’d be happy to help. Let’s chat.
