Managing Credit for Better Outcomes

Canadians have been faced with job and income insecurity as the pandemic has pummelled the economy. Mortgage deferrals have helped homeowners stay afloat in recent months, but many deferral programs are quickly coming to an end. Amid these circumstances, lenders and mortgage brokers have roles to help borrowers manage credit more effectively to achieve better outcomes.

A wave of refinancing

According to the Canadian Bankers Association, borrowers representing approximately 1 in 6 mortgages held by Canadian banks have deferred or skipped a payment since the start of the pandemic.

The big question now: what will happen going forward with many deferral programs ending?

Even with mortgage deferrals, borrowers have been leaning more on credit cards and lines of credit to help get by. Facing the prospect of resuming mortgage payments with debt piling up, continued economic uncertainty and Christmas just around the corner, a lot of borrowers are grappling with rising financial stress.

Given these conditions, we expect to see a significant uptick in mortgage refinancing across the industry.

How brokers can help

Debt consolidation through mortgage refinancing can help borrowers get their credit situation under control. As a mortgage broker, you can help them navigate this process and find workable solutions. Here are some steps you can take:

• Conduct a debt review. Gaining a detailed understanding of a borrower’s financial situation is necessary for determining the best course of action. This may include reviewing their payment history and assessing the loan-to-value ratio based on their current property value.
• Reach out to the lender. If a borrower’s struggling, an important first step is to let the lender know. While some lenders are willing to offer flexible solutions that may prevent refinancing needs, they won’t take action if they don’t know there’s a problem.
• Educate the borrower. Borrowers may be uncertain about refinancing if they don’t understand the process. For example, they may not realize that while mortgage refinancing with a private lender may involve a higher interest rate, it can make sense financially as a short-term solution if high-interest credit card debt and other loans are included.

With any mortgage refinancing situation, it’s crucial for both brokers and lenders to ask: are we going to put the borrower in a better position?

Flexible mortgage solutions

At Pillar, we take a solution-based approach to lending. This means keeping all options on the table and looking at every client on a case-by-case basis.

As a result of this, and our thorough underwriting processes, we have seen few deferrals during the pandemic. However, we know the months ahead will present new challenges for borrowers, and our team stands ready to work with mortgage brokers to provide solutions.

• If you have struggling clients with an existing Pillar mortgage, the best thing to do is reach out to us before they start missing payments. We have clients’ best interests in mind, and we’re always happy to discuss potential solutions.
• If you have clients who are looking to refinance a non-Pillar mortgage, we are here to help. To discuss a prospective deal, please contact our business development team.

The end of mortgage deferral programs will put a financial strain on many borrowers going forward, but by proactively helping them manage their credit, we can help them achieve better outcomes.