Will a Temporary Loss of Income Impact Your Mortgage Post-COVID-19?
Diane Buchanan • November 4, 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!
How to Use Your Mortgage to Finance Home Renovations Home renovations can be exciting—but they can also be expensive. Whether you're upgrading your kitchen, finishing the basement, or tackling a much-needed repair, the cost of materials and labour adds up quickly. If you don’t have all the cash on hand, don’t worry. There are smart ways to use mortgage financing to fund your renovation plans without derailing your financial stability. Here are three mortgage-related strategies that can help: 1. Refinancing Your Mortgage If you're already a homeowner, one of the most straightforward ways to access funds for renovations is through a mortgage refinance. This involves breaking your current mortgage and replacing it with a new one that includes the amount you need for your renovations. Key benefits: You can access up to 80% of your home’s appraised value , assuming you qualify. It may be possible to lower your interest rate or reduce your monthly payments. Timing tip: If your mortgage is up for renewal soon, refinancing at that time can help you avoid prepayment penalties. Even mid-term refinancing could make financial sense, depending on your existing rate and your renovation goals. 2. Home Equity Line of Credit (HELOC) If you have significant equity in your home, a Home Equity Line of Credit (HELOC) can offer flexible funding for renovations. A HELOC is a revolving credit line secured against your home, typically at a lower interest rate than unsecured borrowing. Why consider a HELOC? You only pay interest on the amount you use. You can access funds as needed, which is ideal for staged or ongoing renovations. You maintain the terms of your existing mortgage if you don’t want to refinance. Unlike a traditional loan, a HELOC allows you to borrow, repay, and borrow again—similar to how a credit card works, but with much lower rates. 3. Purchase Plus Improvements Mortgage If you're in the market for a new home and find a property that needs some work, a "Purchase Plus Improvements" mortgage could be a great option. This allows you to include renovation costs in your initial mortgage. How it works: The renovation funds are advanced based on a quote and are held in trust until the work is complete. The renovations must add value to the property and meet lender requirements. This type of mortgage lets you start with a home that might be more affordable upfront and customize it to your taste—all while building equity from day one. Final Thoughts Your home is likely your biggest investment, and upgrading it wisely can enhance both your comfort and its value. Mortgage financing can be a powerful tool to fund renovations without tapping into high-interest debt. The right solution depends on your unique financial situation, goals, and timing. Let’s chat about your options, run the numbers, and create a plan that works for you. 📞 Ready to renovate? Connect anytime to get started!
Owning a vacation home or an investment rental property is a dream for many Canadians. Whether it’s a cottage on the lake for family getaways or a rental unit to generate extra income, real estate can be both a lifestyle choice and a smart financial move. But before you dive in, it’s important to know what lenders look for when financing these types of properties. 1. Down Payment Requirements The biggest difference between buying a primary residence and a vacation or rental property is the down payment. Vacation property (owner-occupied, seasonal, or secondary home): Typically requires at least 5–10% down, depending on the lender and whether the property is winterized and accessible year-round. Rental property: Usually requires a minimum of 20% down. This is because rental income can fluctuate, and lenders want extra security before approving financing. 2. Property Type & Location Not all properties qualify for traditional mortgage financing. Lenders consider: Accessibility : Is the property accessible year-round (roads maintained, utilities available)? Condition : Seasonal or non-winterized cottages may not meet standard lending criteria. Zoning & Use : If it’s a rental, lenders want to ensure it complies with municipal bylaws and zoning regulations. Properties that fall outside these norms may require financing through alternative lenders, often with higher rates but more flexibility. 3. Rental Income Considerations If you’re buying a property with the intent to rent it out, lenders may factor the rental income into your mortgage application. Long-term rentals : Lenders typically accept 50–80% of the expected rental income when calculating your debt-service ratios. Short-term rentals (Airbnb, VRBO, etc.) : Many traditional lenders are cautious about using projected income from short-term rentals. Alternative lenders may be more flexible, depending on the property’s location and your financial profile. 4. Debt-Service Ratios Lenders use your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios to determine if you can handle the mortgage payments alongside your other obligations. With investment or vacation properties, lenders may apply stricter guidelines, especially if your primary residence already carries a large mortgage. 5. Credit & Financial Stability Your credit score, employment history, and overall financial health still matter. Since vacation and rental properties are considered higher risk, lenders want reassurance that you can handle the additional debt—even if rental income fluctuates or the property sits vacant. 6. Insurance Requirements Rental properties often require specialized landlord insurance, and vacation homes may need coverage tailored to seasonal or secondary use. Lenders will want proof of adequate insurance before releasing mortgage funds. The Bottom Line Buying a vacation property or rental can be exciting, but financing these purchases comes with extra rules and considerations. From higher down payments to stricter property requirements, lenders want to be confident that you can handle the responsibility. If you’re considering a second property, the best step is to work with a mortgage professional who can compare lender requirements, outline your options, and find the financing that works best for you. Thinking about making your dream of a vacation or rental property a reality? Connect with us today.
