September 28, 2004

Blurb: There are lots of reasons that people fall behind on their mortgage payments. But almost all experts agree, if you're having trouble keeping u,p you should call your lender immediately.

Falling behind? Call your lender

By Peter Diekmeyer o

One of the biggest reasons that people get into financial trouble is by refusing to admit it 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 meet your mortgage payments, it's probably time to get your head out of the sand.

"You should call your lender right away," says Josée Gosselin, a mortgage expert with Mouvement Desjardins, "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 people, she's been doing a pretty good job.

Desjardins runs one of the most efficient mortgage operations in the country. Only 0.25% of Desjardins $41 billion in outstanding mortgage holdings are in arrears, compared to 0.33% of the $539.9 billion that were owed to Canadian financial institutions as a group at the end of 2002. So if your 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 check," says Gosselin. "But if you call your advisor in advance, something can usually be worked out. These people are there to help."

Temporary problems

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 when they are more permanent, stemming for example from a job loss by someone who lives in a one company town. Like most of the financial services lenders we talked to, Gosselin shuns giving detailed advice.

"It's hard because every case is different," says Gosselin. "That's one of the reasons that good communications are so important."

According Gosselin, most typical short-term problems such as an accumulation of credit card, finance company, automobile loans and other 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 according to Jim Dawson, sales manager at Invis, a mortgage broker, is built into many mortgages. 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, consumers-rights association is to visit a credit counseling bureau.

"Most provinces have them, and they will generally provide budgeting advice free of charge," says Desforges.

Longer-term challenges

If you are facing a longer-term financial imbalance, say from sudden expenses, or a significant drop in revenues, there are number of more potent options available, says Rawson.

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 re-finance your home, a process that is far more common in the U.S., where mortgage interest is deductible, than it is in Canada.

Re-financing enables you to take out new money on your mortgage by borrowing against increases in your house's value and in your equity that may have built up over the years. However to get re-financed, you'll have to have your house re-appraised and take a trip to the notary, so there will be some additional fees involved.

Act early

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 are affected."

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."





Peter Diekmeyer is the Montreal Gazette's management columnist. He can be reached at:


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