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How Your Credit Score Affects Your Mortgage Rate in 2019: Mortgage Basics

7/29/2019

One of the main aspects lenders consider when offering mortgage financing is your credit score. Your credit score displays your total financial fitness, and what type of risk you carry with respect to paying a mortgage loan and making your monthly payment.

In Canada, credit scores range between 300 and 900. I have very rarely found a credit score to be as low as 300 or as high as 900, however, if you are somewhere in the middle and can demonstrate that you pay your loans responsibly, you will be eligible for the best credit products with the best mortgage lenders.

If your score is lower than 600, for example, you may be deemed to have bad credit and may have to apply with an alternative or private lender. Your credit score is actually based on algorithms and the information provided to the two main credit reporting agencies in Canada: Equifax and Transunion.

All of your loans whether they are with financial institutions, mortgage lenders, student loans, credit card companies, etc. are reported each month to these agencies.

You may request a free copy of your credit report and credit history from Equifax or Transunion, who has also recently launched a free app called Credit Karma (www.creditkarma.ca)

When you apply for a mortgage, the rate you are offered will depend on your credit score. Here’s an example of the lenders you may qualify with gauged by your score:

Major banks and financial institutions will require a credit score of between 600 and 900. An interest rate of 2.79%
Trust Companies and Alternative lenders will require a credit of between 500-750. An interest rate of 4.25%
Private Lenders may be open to lending to people based on equity or down payment available with a credit score less than 600. An interest rate of over 7.99%. Interest-only.

What affects your score?

To keep excellent credit or improve your credit score dramatically which will help you accomplish your goals in real estate, be sure to maintain the following:

Payment History: Ensure there are no late or missed payments, accounts which are seriously past due or that have gone into collections. Any debts that show they were written off by creditors may damage your score for up to seven years.
Don’t Max Out: Credit utilization is a very important factor when it comes to any mortgage application. Do not go over your credit limits or keep your percentage of credit used very high (You should attempt to keep your credit balances 20-40% below the credit limit).
Credit History – How long you’ve had accounts open (the longer, the better) New Credit Requests: How often your credit is checked also affects your score. Be sure to only have people pull your credit occasionally and make sure people ask for permission to do so.
Types of Credit: Mixing up credit is the best course of action. Diversifying your credit portfolio helps lenders see that you have the capability to responsibly pay many different credit products such as a car loan, student loan, line of credit, mortgage, etc.

As a mortgage broker, we can help guide you through the process and offer suggestions on how to improve your score.

We can help you successfully buy a house, and get your mortgage payments where you need them to be financially. We specialize in home loans so we can be your trusted confidant when buying a home.

If your credit is not deemed satisfactory, we can help mitigate your case to prime lenders which can help you avoid paying higher interest rates.

Call today. 647-773-4849 or email me in confidence at sarah.colucci@coluccimortgage.com

Sarah Colucci, Mortgage Agent Lic. M14000929
Mortgage Edge, Broker 10680

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Bank of canada benchmark rate drops to 5.19% July, 2019

7/19/2019

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There is some good news that I would like to share. The Bank of Canada has decided to decrease its 5 year benchmark rate to 5.19% from 5.34%. What this means is that the Qualifying Interest Rate for mortgage payments just got easier.

When the mortgage stress test originally came to be the mortgage rules stated that any federally regulated financial institution has to qualify home buyers and owners by using 2% more than the contract rate or the Bank of Canada’s 5 year benchmark rate, whichever is greater. Yesterday, the Bank of Canada decided to decrease this rate to 5.19% since many financial institutions have been dropping their five-year posted mortgage rates.

This is good news since it means interest rates are decreasing which helps affordability in the housing market.

As an independent mortgage professional, it’s important to note that mortgage brokers still work with lenders such as select credit unions who do not have to stress test borrowers. They are not federally regulated so therefore, they can simply use their contract rate to qualify a purchaser or existing homeowner for mortgage financing.

For all of your real estate needs, please do not hesitate to contact me.

Sarah A. Colucci
(647) 773-4849

Need to consolidate credit cards? Need a low-interest line of credit? Contact us today to complete a complimentary debt consolidation analysis where we show you how much money you can save.

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STATED INCOME PROGRAM FOR SELF-EMPLOYED BORROWERS

7/18/2019

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Many self employed people wonder how much income is required to qualify for a mortgage.

Whether you are a new business owner or have been a self-employed borrower for many years, I would like to introduce the stated income program which you can now access to obtain mortgage financing.

Here’s what you need to know…

Usually, if a borrower with good credit approaches a big bank, the bank representative will ask for their T1 Generals and Notice of Assessments for the last two years and proceed to use a two-year average of their claimed income (the income they paid taxes on) to calculate income required to qualify. Unfortunately, because many borrowers write off expenses involved in running their business, their claimed income is usually not enough to qualify for the real estate of their dreams.

Thankfully, if self-employed borrowers choose to work with a very reputable mortgage broker, they can apply under both the stated income program and the “Expanded BFS (Business For Self Program)” also insured by Genworth and Canada Mortgage and Housing Corporation (mortgage default insurers). They will have to pay a type of default insurance but will still be offered extremely competitive interest rates.

For proof of income, borrowers will have to provide their reasonable income amount on an income declaration which would be based on their professional designation and skillset. They will also have to demonstrate credit worthiness by having a solid credit history and credit score.

What you will need for this program:

Your recent tax return to show Gross Income only.
Most-likely 12 months of bank statement to show your income being deposited into your account.
Business License, HST # or some other form of proof of self-employment.

Please note this program is only eligible on owner-occupied homes meaning this must be your principal place of residence.

For all of your mortgage questions, please email me sarah.colucci@mortgageedge.ca or call 647-773-4849.

www.coluccimortgages.com

Sarah A. Colucci
Senior Mortgage Agent
Mortgage Edge, Broker 10680

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Debt Consolidation Options

7/6/2019

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Debt relief can be overwhelmingly confusing for borrowers in all financial situations.

Many borrowers have lingering debt problems… in fact, if you have a standard 25-year bank mortgage loan this can be considered, in many respects, a debt problem especially if you end up paying substantially more interest than you have to.

With the right advice from experts, borrowers can definitely choose one of many well proven and effective solutions to help them finally resolve their ongoing debt problems.

Finally, they can have more deserved reign over their hard earned money instead of designating it all to pesky compounding interest.

One particular debt problem that comes up over and over again for many borrowers is credit card debt. Canadians tend to have a lot of credit card debt and they often struggle to get out of it once the balances reach the maximum credit limit.

Here are three common debt solutions borrowers pursue:
a) refinance the first mortgage to consolidate debt.
b) get a second mortgage loan like a line of credit or private mortgage loan or c) apply for a debt consolidation loan such as arranging a plan with the assistance of a third-party debt consolidation company.

To get out of credit card debt the quickest and cheapest way possible, borrowers have to follow some sort of plan that will allow them to pay their loan down much faster, with the least amount of interest involved and most importantly, in less time.

Let's look at the three most popular debt consolidation options borrowers can pursue:

Debt Consolidation Through Finance Companies

Consolidation companies will lend money to consolidate loans. The loans are usually unsecured meaning they are not registered against a property.

Their rates can be higher than secured mortgages and the terms can be very short (i.e 4 years only). As a result, scheduled monthly payments can be higher. Borrowers usually don't choose this option first since the payments can be higher on a monthly basis and therefore, not sustainable even over a shorter term.

A Second Mortgage or Line of Credit

A second mortgage can be a good option, but it depends on the interest rate a borrower receives, any additional fees involved and of course, whether or not they can manage the monthly payment.

Second mortgage loans tend to be offered at higher mortgage rates because they are considered riskier than a first mortgage.

A second mortgage loan can be offered by a financial institution, an alternative lender and a private lender.

A second mortgage offered by financial institutions, like first mortgage loans, usually has privileges built in that allows you to pay more principal faster. If the loan is a line of credit, then it is totally “open” which means it can be paid off at any time without a penalty.

Borrowers tend to fall into the "pay interest-only" trap when they take out a line of credit since, like a credit card, all that is required is a monthly minimum payment. If you don't pay more than just the lower interest payment, you may have a difficult time paying off the original balance.

It is often said that a secured line of credit can become the "credit card of the secured mortgage world."

Private loans: Expect interest rates to be much higher than banks or alternative lenders and to pay lender and broker fees which brings total cost of borrowing much higher.

Sometimes, however, borrowers choose a private mortgage as their best option because :
They can’t refinance their first mortgage because the penalty is too high or they don't qualify for whatever reason.

Pitfalls of Private Mortgages:

Borrowers pay interest-only, which is counterproductive.
Fees involved in a private loan can be very expensive.

UNDER NO CIRCUMSTANCES should a private mortgage be considered a long term debt solution.
Lastly... option three.

Mortgage Refinancing

Mortgage refinancing will involve breaking the existing first mortgage in order to consolidate all debts. Borrowers will have one monthly payment owed to one lender.

Borrowers may or may not have to pay a penalty. If they are able to stay with the existing lender, they may be able to simply increase the mortgage balance without a penalty.
In the event they cannot stay with the same lender for whatever reason, they will be subjected to a penalty.

Refinancing is often a popular choice mainly because the interest rates are the most favourable of all the debt consolidation options.

Additionally, most lenders allow a prepayment privilege each year of up to 25 percent of the original mortgage balance which can be used either by increasing the regular payments by a certain percentage or making one lump sum payment each year.

This can be advantageous especially when paying debts down. Instead of making that monthly, interest only mortgage payment, make the prepayment to your mortgage at a lower interest rate and your money goes towards reducing principal immediately.

There are other options one can pursue to help with debt consolidation such as transferring balances to promotional offers on credits cards but chances are, if one can’t get out of the current credit card debt they are in, they will have issues with other credit cards once the promotions are over and the rates go back up.

Looking to find the best mortgage rates? "Best" can be very misleading because rates offered to borrowers depend on many factors such as loan to value, employment situation and credit scoring. Contact me today if you have questions about your mortgage or debt consolidation matters!

Have a great weekend!

Sarah A. Colucci
Sr. Mortgage Agent Lic. M14000929
Mortgage Edge, Broker 10680

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Canada Mortgage and Housing Corporation’s Shared Equity Program. What is it, and who qualifies?

7/3/2019

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The Shared Equity Mortgage Provider (SEMP) Fund program helps eligible Canadians such as first-time homebuyers achieve homeownership.

This $100-million lending fund given by the Government of Canada helps “shared equity mortgage providers” (a list of lenders will be released at a later time) offer an alternative homeownership model. The Fund will help attract new lenders to take part in shared equity mortgages and encourage additional housing supply and home sales. The Shared Equity Mortgage Provider Fund will be offered as insured mortgages only and is a 5-year program to be launched on July 31, 2019.

The program will offer eligible home buyer loans from two possible funding flows:

1. Pre-Construction:

Preconstruction costs to commence new housing projects that provide shared equity mortgages to home purchasers.

2. Shared Equity Mortgages (SEM)

Funding of shared equity mortgages provided by the proponent directly to home purchasers.
How does this program act as a first time home buyer’s incentive?

The minimum down payment that is required is still 5% and borrowers will still need to pass the stress test, however, the Government will loan an additional 5-10% of the purchase price. In turn, the Government will obtain an equity stake in the subject property.

For new builds or new construction, the Government will lend up to 10% of the purchase price. For resale properties, the loan amount will be no more than 5%.

The loan (not grant) will have to be repaid within 25 years although it can be repaid prior to this loan without interest or penalty.

If the property is sold or the mortgage is paid off through refinancing for example, prior to the 25-year mark, the total loan must be repaid in addition to any sale/refinance proceeds that may be owing to the Government. Since they are obtaining a share in ownership, they will be entitled to a share of the property.

For example, if you purchase a property for 360,000, and the Government loans you 5% of the purchase price or $18,000, they will obtain a 5% ownership in your property. If you sell your property down the road for $500,000 for example, you will owe the Government $25,000 which includes the original $18,000.

If you sell at a loss, the Government may have to swallow the costs (this part still to be ironed out).

As more information emerges, we will get a better picture of this plan to help home buyers buy a home and help with housing affordability.

For more information, call (647) 773-4849 or visit www.coluccimortgages.com

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Sarah Colucci's Mortgage Blog

How Your Credit Score Affects Your Mortgage Rate in 2019: Mortgage Basics

Bank of canada benchmark rate drops to 5.19% July, 2019

STATED INCOME PROGRAM FOR SELF-EMPLOYED BORROWERS

Debt Consolidation Options

Canada Mortgage and Housing Corporation’s Shared Equity Program. What is it, and who qualifies?

By: Sarah Colucci

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