Alison in PRINT

Job lost, all alone and mortgage on the ropes...

Toronto Star - August 27, 2009

Q: I lost my job after 35 years with a company. I am divorced and without any support. Now I am behind on my mortgage which is $194,000 with Scotiabank. I am going to put my house up for sale at $289,000 because with what I make now I cannot afford the payments. Will the bank take my house from under my nose or wait until it sells? I have no help and my family is not in Canada. E.E.

A: We all love to hate the banks, but try to think of them an ally because your troubles could become their troubles. Seizing a property can turn into an expensive process of paperwork and lawyers, and there’s no guarantee that the bank will recover all its money.

Understandably, you feel paralyzed but get on the phone ASAP as things get tricky after you have missed three months of payments.

In the interim, I spoke with a Scotiabank representative on your behalf. She offered a number of options, whether you choose to sell or not.

1. Capitalization -- depending on your payment history and the equity in your home the bank may allow you to add the missed amounts to your balance and increase the amortization (the time it takes to pay off the mortgage) making your payments more affordable.
2. If you took out a high ratio mortgage insured through GE Capital or CMHC, the bank may help you work with those institutions to ease your payments in the short term.
3. If you have ever made a lump sum payment the bank may elect to apply that money against any late payments.
4. The bank will definitely ensure you have someone who speaks your native language, should you need it, during any part of the process.
5. Scotiabank has financial planners and will organize a consultation to determine if you can afford to keep your home or help you through the process of selling.

The latter is especially important if you expect to be earning a reduced income for the future. Your number one priority is to make sure you protect any capital from the sale of your home.

You are obviously under tremendous stress but you still need to communicate with the bank immediately because avoidance will only worse.

Q: I got out of the market in November last year and have most of my RRSP, $187,000, in cash. I’ve been kicking myself because I’m afraid I’ve missed the rally. Should I get back in now? Garvia M.

A: Like many nervous investors you don’t know which way to jump or when. So, stop jumping. Pick a conservative asset allocation, something like 15 to 20 per cent cash (GICs), 40 to 50 per cent fixed income (bonds) and invest the rest in the stock market gradually.

Yes, the market is currently going up and may continue to do so but even in bull runs there are plenty of dips and pull backs along the way. Even if do you buy all the way up you will be better off than investing the entire amount allotted to equities (stocks) at once and then watching it go south should we see a repeat of the last year.

Since you are essentially starting over, I’d urge you to consider exchange traded funds for both the fixed income and the equity (stock market) investments. These are not mutual funds, rather they mirror an index and the fees are very low.

The three providers of ETFs in Canada are www.ishares.ca, www.claymore.com and newcomer www.bmoetfs.com. ETFs used to be easy to understand but with the proliferation of new offerings this essentially simple product is more confusing than in the past.

For an overview I recommend visiting www.investored.ca, go to mutual funds and ETFs and read it all thoroughly before you invest a dime.