Falling behind? Call your lender
One of the biggest reasons people get into financial trouble is
by refusing to admit when there's a problem. Even when signs are
readily apparent -- missed credit card payments or difficulty meeting
end-of-month bills -- most Canadians prefer a stoic, "I can
handle it," approach.
But if you're having trouble coming up with the cash
to make your mortgage payments, it's time to get your head out of
"You should call your lender right away,"
says Josée Gosselin, a mortgage expert with Mouvement Desjardins
in Montreal. "It takes a long time to build up a credit history,
but it can vanish in an instant."
Gosselin should know. She has 16 years of experience
in the credit approval business, and during that time she's learned
to spot trouble early. And like most Mouvement Desjardins credit
experts, she's been doing a pretty good job.
Desjardins runs one of the most efficient mortgage
operations in the country. Only 0.25 percent of the company's $41
billion in outstanding mortgage holdings are in arrears compared
to 0.33 percent of the $539.9 billion that were owed to Canadian
financial institutions as a group at the end of 2002.
So if you're looking for advice, you can't do much
better than Gosselin. And her advice is to act fast.
"No financial institution likes to be surprised
by a missed payment or a bounced cheque," she says. "But
if you call your adviser in advance, something can usually be worked
According to Gosselin, the most important distinction is whether your
financial problems are of a temporary nature, such as when a series
of bills have piled up, or are more permanent, stemming from a job
loss by someone who lives in a one-company town.
Like most of the financial services lenders we talked
to, Gosselin is reluctant to give detailed advice. "It's hard
because every case is different," she says. "That's one
of the reasons that good communication [with your lender] is so
According Gosselin, most typical short-term problems
-- such as an accumulation of credit card debt -- can be handled
through a consolidation loan. Debt consolidation usually stretches
out payments over a longer period of time and typically has the
added benefit of being carried at lower interest rates.
Another option available to many borrowers is the
"skip payment" option, which is built into many mortgages,
according to Jim Rawson, sales manager at mortgage broker Invis.
Desjardins does not offer a skip-payment option, but in practice,
they will allow it in special circumstances.
A much more common alternative at Desjardins is to
allow the customer to simply make interest payments on the outstanding
debt, skipping the principal. This small relief can be a big help,
particularly when a mortgage is in its later stages and the principal
comprises a significant portion of the payment.
In any case, if you have to skip a mortgage payment,
you should take it as a signal that all is not well with your financial
planning strategy. One good option, says Jannick Desforges, who
handles legal affairs at Options Consommateurs, a Quebec-based consumer
rights association, is to visit a nonprofit credit counselling
"Most provinces have them, and they will generally
provide budgeting advice free of charge," says Desforges.
If you face longer-term financial imbalance, from unforeseen expenses
or a significant drop in pay, there are number of options available,
Banks will generally show significant flexibility
in increasing your amortization period, especially when a consumer
has a built up a certain amount of equity in his house. An amortization
extension is a fairly routine occurrence, although you will be charged
a nominal fee.
If you are really hard up, you can also opt to refinance
your home. Refinancing enables you to take out new money on your
mortgage by borrowing against increases in your house's value and
your equity in it, which may have built up over the years.
However to get refinanced, you'll have to have your
house re-appraised and revisit the notary, so there will be additional
The bottom line, says Gosselin, is that both consumers and financial
institutions have everything to gain by acting early when financial
difficulties are in the air.
"There is nothing worse than having to foreclose
on a mortgage," says Gosselin. "Very often, there isn't
only one person living in the house, which means a lot of people
Banks also often lose money on a foreclosure because
of high carrying costs, legal fees and the fact that repossessions
are, by definition, sold as quickly as possible, which does not
always coincide with a hot resale market.
"It's much better to plan ahead," says Gosselin.
"That way everybody wins."
Diekmeyer is the Montreal Gazette's management columnist.