How beneficial is Home Equity Line of Credit

General Krishna Menon 18 Mar

A home equity line of credit (frequently called HELOC) is a loan in which the bank consents to loan the greatest sum inside a concurred period (called a term), where the security is the borrower’s equity in his/her home (similar to a second mortgage). Since a home regularly is a shopper’s most important resource, numerous homeowners utilize home equity credit lines just for real things, for example, instruction, home upgrades, or doctor’s visit expenses, and pick not to utilize them for everyday costs.

A home equity line of credit varies from a regular home equity loan in that the borrower isn’t propelled the whole total in advance, however, utilizes a credit extension to obtain aggregates that aggregate close to as far as possible, like a credit card. HELOC assets can be acquired amid the “draw period” (normally 5 to 25 years). Reimbursement is of the sum drawn in addition to intrigue. A HELOC may have a base regularly scheduled installment prerequisite (frequently “intrigue just”); in any case, the indebted person may make a reimbursement of any sum insofar as it is more noteworthy than the base installment (yet not as much as the aggregate remarkable). The full central sum is expected toward the finish of the draw time frame, either as a single amount expand installment or as per a loan amortization schedule.

Another vital distinction from a customary home equity loan is that the financing cost on a home equity line of credit is variable. The loan cost is by and large in view of a list, for example, the prime rate. This implies the financing cost can change after some time. Homeowners looking for a HELOC must know that not all banks ascertain the edge a similar way. The edge is the distinction between the prime rate and the loan fee the borrower will really pay.

the home equity line of credit loans turned out to be exceptionally prominent, to some extent since intrigue paid is commonly deductible under government and numerous state salary impose laws.[citation needed] This adequately lessened the cost of getting stores and offered an appealing expense impetus over conventional strategies for acquiring, for example, credit cards. Another explanation behind the prominence of HELOCs is their adaptability, both as far as acquiring and reimbursing on a calendar controlled by the borrower. Moreover, HELOC loans’ ubiquity may likewise originate from their having a superior picture than a “second mortgage,” a term which would more be able to straightforwardly infer a bothersome level of debt. However, inside the loaning business itself, a HELOC is sorted as a second mortgage.

Since the fundamental insurance of a home equity credit extension is the home, inability to reimburse the loan or meet loan prerequisites may bring about abandonment. Therefore, loan specialists, for the most part, require that the borrower keep up a specific level of equity in the home as a state of giving a home equity line.

Mortgages in Canada are for the most part response loans. Nonrecourse obligation or a nonrecourse loan is a secured loan (obligation) that is secured by a vow of guarantee, regularly genuine property, however for which the borrower isn’t by and by at risk. A home equity line of credit might be a plan of action loan for which the borrower is actually at risk. This refinement ends up essential in dispossession since the borrower may remain by and by at risk for a plan of action obligation on an abandoned property.

Home Buying in Canada

General Krishna Menon 9 Feb

Before you begin your search for a new home, you need to plan ahead. There are lots of costs associated with homeownership, including:

  • Household repairs
  • Land or property taxes
  • Household utility bills

Make use of online calculators and other worksheets to help you figure out how these costs add up and what you can and should expect.

Looking for a home in never easy, check out online realtor website, drive around to look for new housing developments or speak to a mortgage broker. All of these real estate professionals are experienced to answer your questions and provide you with the guidance you need and deserve.

How Can a Mortgage Agent Help?

A mortgage agent can be quite helpful during the buying process. They’ll:

  • Assess your needs
  • Make arrangements for your home viewing visits
  • Setup a home inspection
  • Take care of your negotiations
  • Assist with your mortgage application

Word-of-mouth goes a long way, ask your banker, family, friends, or relative, they may be able to provide you with a referral. When all else fails to make use of the very accessible world-wide-web

Your “Offer to Purchase”

Once you find the home you’d like to buy and live in, it will now be time to draft your “Offer to Purchase.” If you have a Realtor, then they can help you with it. When your offer is accepted, you’ll then need to seek out a real estate lawyer to help you in transferring the property title. Your mortgage broker can probably refer you to some of their connections if you don’t already have one lined up.

Home Financing

Since you’re buying a home, you probably need a mortgage too. With banks becoming stricter due to changes in mortgage rules, you may have better luck going with a mortgage brokerage firm. They have access to a pool of lenders and mortgage products that can be customized to suit your needs.

Your Down Payment & Mortgage Loan Insurance

When you pay down on a home, this amount is subtracted from the amount of your mortgage. However, if your down payment isn’t at least 20 percent, then you’ll have to get mortgage loan insurance on your new home. This will protect your lender if you cannot afford to pay back your mortgage loan. Mortgage loan insurance makes it possible for you to secure a mortgage with a smaller down payment at a lower interest rate. If you want to learn more about insurance for your mortgage loan, speak with a licensed mortgage broker today.

Credit History & Score

As a Canadian newcomer, you won’t have any credit history. This can prevent you from qualifying for a mortgage. You first need to start building your credit, create some history for lenders to look at, preferably positive. Your broker can advise you on how to get started.

The Home Inspection

Never make an offer with a home inspection or at least a condition within the offer for the home to have a home inspection done by a qualified inspector. It’s not uncommon for inspectors to uncover serious problems with a home, so this will allow you to change your offer or cancel it altogether. If it needs repairs you can consider how much these repairs will cost and reduce your offering price. The seller can accept or decline.

The 8-Step Mortgage Process

General Krishna Menon 18 Jan

Step #1: Start the Mortgage Process

First, you’ll want to determine your new mortgage budget, before you purchase your new home. Are you able to meet your repayment requirements? How much can you afford to pay each month? These are crucial questions to ask before you start, as they’ll be the determining factors of whether or not your lender says yes or no.

 

Step #2: Start Your Mortgage Application

To get your mortgage application started, it’s highly advisable that you hire an experienced, licensed mortgage professional to help you throughout the entire process. Only they know the ins and outs of the entire process. There are options to begin your application online, and after you submit your application, it’s reviewed and verified by a mortgage agent, who will quickly help you to get your approval. But it’s also highly advisable that you start with a pre-approval first. This will give you a good idea of what you can afford.

 

Step #3: Choose the Right Mortgage Product

Since there are so many mortgage products out there, it’s extremely important to pick the right one that matches up with your specific needs. Here are a few of the options that are available:

 

  • Fixed-rate mortgage. Choose an amortization period between 5 and 25 years, with the same fixed-rate mortgage interest rate and monthly payment amounts for the entire selected term.
  • Variable-rate mortgage. Get an amortization period between 3 and 5 years, but keep in mind that there is a chance your monthly payment amounts will likely increase, depending on the Bank of Canada and their lending rate.
  • Combination-rate mortgage. A combination of both fixed-rates and variable-rates. This will enable you manage the risk of your interest rate, taking advantage of long-term and short-term interest rates. It’s also provides you with the stability you might be looking for in regards to having a fixed principal amount, interest rate, and monthly payment amount.
  • HELOC (Home Equity Line of Credit). Get a HELOC up to 80 percent LTV Canada-wide, grant you more flexibility and convenience, with access to extra cash for whatever you need, when you need it. It’s a great way to finance the purchase of a new home, and you can repay it without any penalties.

 

Step # 4: Gather your Documents

The type of documentation you may need to gather will all depend on your mortgage product of choice, and whether or not you are self-employed and/or incorporated. Less will be required if you are an employee of another business.

 

Step # 5: Submit Your Mortgage Application

Once you’ve completed your mortgage application, and gathered the necessary documentation your mortgage broker can go over the mortgage solutions available for your circumstances. Once the product is selected, then can submit your mortgage pre-approval or approval application. Your mortgage broker could receive an update on your application status within the same business day, and then they will notify you.

 

Step # 6: Mortgage Commitment Review

Once you’ve been notified of your approval, your broker will ask you to come in to discuss your lender’s response and mortgage commitment with you, address your concerns and answers your questions.

 

Step # 7: Additional Mortgage Documentation

If your lender has requested additional documentation, you must ensure that you send the requested documents within 10 days of your mortgage approval.

 

Step # 8: Final Loan Documents

Your lender will forward your final loan documents to your lawyer. Your lawyer will help you in reviewing and understand all documents before you sign on the dotted line to ensure all information is accurate and acceptable to you. You need to sign your final loan documents in the presence of a lawyer or notary public. Also, this is the time when you pay your closing costs, so be prepared with a bank draft, as your closing will happen shortly thereafter all documents have been signed.

 

How New Strict Mortgage Rules Will Affect Uninsured Home Buyers in 2018

General Krishna Menon 15 Dec

A few months ago, the OSFI (Office of the Superintendent of Financial Institutions) introduced some new strict mortgage rules. In less than a month, they’ll be coming into effect. So, if you are a home buyer applying for a new mortgage, with a down payment of 20 percent or more, than it’s not mandatory for you to insure your mortgage. However, what will be mandatory is the requirement to undergo and pass the same stress test that insured mortgage holders must also complete.

 

To put it simply, what this means, is that even though you may be in a better financial position that insured borrowers, you still have to still have to get qualified for a mortgage loan at the BoC (Bank of Canada) current 4.89% higher rate, or 2 percent points higher than what your mortgage lender is offering you. Are you prepared?

 

The Canadian Real Estate Market & Other New Rule Changes

 

Here are a few of the other changes that have already happened in the last year:

 

  • The stress test for insured borrowers with a down payment of less than 20 percent
  • Mortgage insurance restrictions for dwellings that are owner-occupied, mortgages with shorter terms, mortgages under 1 million dollars and individuals with a credit score minimum of 600
  • Gross Debt Service ratio maximum of 39 percent, and a Total Debt Service ratio maximum of 44%
  • Increase mortgage default insurance premiums for insured mortgage (up to 4 percent and control measures)
  • Stress tests for mortgage refinancing and those switching lenders
  • For BC residents, they must now also disclose their Canadian residency status to ensure they pay taxes on any capital gains, as a result of property sales for a principal residence

 

All of these changes were brought on because of the growing amount of Canadian household debt, raising in housing sale prices, and the level of risk all of these issues pose to the economy in general.

 

With the stress test, this will ensure that all borrowers, insured and uninsured would still be able to afford their mortgages, even if rates rise. This has already happened twice this year, and is bound to happen again with economy improvements.

 

Possible Impacts

In the short term, these new rules will yield a predictable outcome, resulting in:

  • Increased demand and more home sales in December, as those with pre-approved uninsured mortgages will be hoping to close before the new rules come into effect
  • More home buyers looking to buy cheaper homes as opposed to pricier ones, since there will be less first-time buyers qualifying for higher mortgage loans when these changes take effect
  • House price growth rates will slow down in Toronto, and the surrounding area
  • Increased support of non-regulated lenders (i.e. credit unions)

 

If you are a home buyer, a seller or a realtor, then it’s likely you won’t be a big fan of these soon-to-come changes. Although it will create a healthier, more stable economy, first-time buyers and new immigrants will face an increased challenge when buying their first home. However, as the housing market and growth rates slow down, new buyers and immigrants that do qualify will definitely benefit.

 

2018 Forecast: New Mortgage Rules Beginning January 1st

General Krishna Menon 17 Nov

According to the Royal Bank of Canada, new mortgage rules expected next year with lead borrowers into the arms of unregulated federal lenders. Beginning on January 1, 2018, Canadian homebuyers will be required to meet stricter guidelines if they hope to qualify for a mortgage with an Canadian mortgage lender.

 

The Office of the Superintendent of Financial Institutions Canada (OSFI) has now confirmed that as of January 1st, all borrower will have to qualify for a mortgage with interest rates 2 percent higher than the rates they are applying for. This applies to “all” borrowers, even if you have a 20 percent down payment.

 

This new rule will be enforced in hope of decreasing household risks as interest rates continue to rise, especially for households with a high level of debt. In the long-term, risks will be reduces as a result. However, in the short-term, these rules will definitely rock the market, because most people don’t have insured mortgages, including nearly half of bank mortgages.

 

It’s hard at this point to predict the impact on the housing marketing, as the impact is really dependant on how many borrowers switch to unregulated federal lenders, that are exempt from this new rule. This include lenders such as credit unions and Caisses Populaires.

 

Until the end of 2017, RBC does expect there to be a rush of homebuyer activity, as homebuyers attempt to qualify for mortgages before these new rules take effect. After, it takes effect, RBC also anticipates that the rush in traffic will die down with minimal impact on the Canadian housing market.

 

According to a study released by the Fraser Institute, loan prices will increase and less people will be eligible to qualify for mortgages, resulting in doing more harm than good.

 

With this rule, also comes a requirement for a “stress test” which all borrowers must complete to ensure they could remain undamaged or unaffected by the higher interest rates. Only insured buyers with less than 20 percent down were tested previously, however now all borrowers will be tested. The stress test is meant to ensure that borrowers would be able to pay their loans if interest rates become higher.

 

Basically the test will simulate the financial situation of a borrower, assuming they’d pay back their loan at the posted average, instead of the negotiated. Borrowers will be tested at 2 percent higher than their actual mortgage rates or at the 5-year average posted mortgage rate. It all depends on whichever is higher.

 

If your mortgage is up for renewal in 2018, stick with your existing lender. Then there is no need to worry as you will not have to undergo stress testing, as these new rules would not apply to you.

 

The new rules will now also require that lenders be more critical in observing and examining loan-to-value (LTV) ratios of the loans they approve. This requirement will be in place to ensure that mortgage loans aren’t higher than LTV of the home itself.

 

The Most Important Questions to Ask When Looking for The Best Mortgage Rate

General Krishna Menon 16 Oct

You’re probably asking yourself what is the best mortgage rate, right? Although it may seem like a pretty straightforward question, it’s quite complex. It can open the door to a number of other questions, making it almost impossible to respond to due to recent federal rule changes early this year.

 

Due to these changes, lenders’ costs have increased, along with the lowest mortgage rates. This specifically applies to refinancing amortizations:

 

  • Over 25 years
  • Million-dollar real estate properties
  • Single-unit rental properties
  • Mortgages (loan-to-value/LTV between 65.1 and 80 percent)

 

As a result of these changes, you need to prepare yourself with a list of questions to ask in order to secure the “best” rate in today’s mortgage market. Here are the questions that you need to ask:

 

  1. What is a mortgage term?
    1. Your mortgage term (or contract length) and your fixed or variable rate are the two factors that have the biggest impact on your mortgage rate. An example of this would be a five-year fixed rate, which costs 50 bps (basis points) – more than the cheapest five-year variable rate.

 

  1. What type of property do I want to buy?
    1. You may be looking to purchase a primary residence, a second home or a rental property. If you buy a property that you’re going to be renting out instead of residing in, than you’ll pay up to 25 bps more. The best and cheapest rates are usually found for second homes.

 

  1. Do I have adequate proof of my income to meet the requirements for a mortgage loan?
    1. If you can’t provide enough proof of your income, it’s unlikely that you’ll secure the lowest rate and more likely that you’ll pay at least 150 bps more.

 

  1. Which province and city is the property located in?
    1. No matter what anyone tells you, the province where the property is located matters. For instance, In provinces such as PEI, New Brunswick and Newfoundland the bps is nearly 30 more when compared to Ontario. City of the property also plays a role. If it’s located in a rural area then you could be looking at a minimum of 10 bps over the lowest rate due to the fact that if you don’t pay, it can be harder for your lender to sell if they have to foreclose.

 

  1. When is the closing date for my home purchase?
    1. For a typical 90 – 120 day rate hold you’d be looking at approximately 10 bps more, as opposed to a 30-day hold. So, the longer you want, the more you’ll have to pay.

 

  1. Do you need prepayment options or can you live without them?
    1. If you want to prepay on your mortgage by an additional 5 to 10 percent, lenders will charge 10 bps above the lowest rate. Currently, one of the lowest rates doesn’t allow prepayments.

 

  1. Can you accept refinancing restrictions?
    1. There is always the option to refinance early but your lender may charge to 10 bps more. You could be looking at 15 bps more if you’re cashing out more than $200,000 in equity.

 

  1. Can you pay a large penalty?
    1. Penalty stipulations for more than ¾ of fixed mortgage are far from fair. You’ll incur these if you break your mortgage before the term is up. Find out if your lender offers high or low penalty options. For lower penalty options you’ll be looking at around 10 bps more. This is much less than breaking it a high-penalty lender (i.e. a major financial institution).

 

This is not an exhaustive question list by any means, but it’s a great place for you to start. Of course they’re always exceptions such as asking for a renewal rate from your current lender. Just speak to your mortgage broker and ask them to send along your competitor rates. Then you won’t have to dive into all of these questions to secure the best mortgage rate.

 

For more information on mortgages, industry and other trending topics. Send us your feedback. We’d love to hear from you.

3 Ways to Save a Down Payment for a Home or Any Other Big Purchase

General Krishna Menon 3 Oct

What are the best ways to save a down payment for a home? Well, we’ve concocted this list just for you! Not only can you apply them to your new home down payment saving plan, but you can also apply them to any other big money purpose in the foreseeable future. This could include:

 

  • A vehicle/RV
  • A vacation
  • Extra money to pay off your debts
  • Retirement savings

 

This is the starting step to achieving all of your financial goals. Here are ways that you can save, save, save.

Prioritize

If you often eat out, like to travel, keep up with modern technology and expensive brands, saving may not be so easy. You have to set your priorities and decide on what’s most important to you. If you really want to buy a home, then you may have to limit your spending.

 

Once you putting your home purchase on the top of your priority list, think of other ways you can cut back on spending. This will enable you to keep adding the buck to your savings account. To determine where cutbacks can be made, create a budget or seek financial expertise, maybe from a mortgage broker.

Decrease Your Debt and Interest Payments

It can be quite difficult to save if you’re paying many debts or a lot of interest on your debt. You’ll want to pay off all debts, starting with the smallest high-interest first. With the money you’ll save from your minimum monthly payment on the paid off debt, put this toward the next small, high-interest debt until it’s paid off. Then you’ll have two minimum payment amounts you can use to payoff the third, and so on.

 

You will not qualify for a mortgage if you have too much consumer debt, so this is an essential step in the process that shouldn’t be overlooked.

 

Find Cheaper Ways to Do Things

You can still have fun, just find a cheaper way to do it. For example:

 

  • Borrow books from the library instead of buying new ones all the time
  • Rent movies and watch them at home instead of going out to a movie theatre
  • Stop spending money dining at expensive restaurants, and either find cheaper restaurants, deals or simply dine more at home.
  • Adopt cheaper hobbies
  • Cut back on your clothes shopping habits. Look for sales and clearance items or find happiness in your current wardrobe.
  • Limit your expensive travels and think or travel ideas that an less expensive and closer to home
  • If you’re out with the family buy less drinks and snacks on the road. Eat at home before you go and when you return. Find fun, family community activities that are inexpensive or free.

 

With even adopting one or maybe two of these lifestyle changes, you can begin to save for your purchase in no time. The key is to resist the temptation to spend, and consider alternatives that may be cheaper.

 

At the end of the day, if a home is really want you want you need to be willing to make some sacrifices in order to put your achievement plan into action. Need help getting started? Speak to My Milton Mortgage today.

Buying a Home: The Hidden Costs

General Krishna Menon 15 Aug

As a first-time buyer you need to gain knowledge before you can be ready to buy a home if you don’t want to miss out on the critical saving costs associated with your purchase. Just because you have the down payment minimum requirement and you’ve pre-approved doesn’t mean you’re ready to jump in with both feet just yet.

 

New homeowners can save on:

 

  • Appraisal costs
  • HST, on the purchase price
  • HST, CMHC premiums
  • Land transfer tax and rebates
  • Legal Fees

 

When purchasing a home in Ontario, you’ll be required to pay provincial tax to transfer the land of the new property you’ve bought. You may also need to pay land transfer tax to your municipality (the city you live in). Depending on the purchase price of the property, these amounts can vary.

 

All land transfer taxes are due upon the closing of your new home, but they are initially included in your down payment requirement. Your real estate lawyer will pay these amounts for you during the closing, so you don’t need to worry about them. What you do need to consider is the actual cost of these taxes. For instance, if you’re buying a home for $400,000 in the GTA, you could be looking at about $10,000 to cover these costs. We don’t want you to be caught off guard, so plan ahead.

 

Although $10,000 is a lot of money, what you might not know is that as a first-time homebuyer you may be able to recover up to half of this money back. You’re eligible for a land transfer tax rebate of up to $2,000 from the province of Ontario, as well as a land transfer tax rebate from the city or municipality of up to $3,725.

 

Setting Up Basic Accounts

For first-time buyers who are moving from a rental unit into a new home you’ll have to set up all of your new utility accounts at your new address before the move. With any new account comes account setup fees, and in some cases deposits. Some of the account you’ll need to set up are:

 

  • Homeowners’ insurance
  • Gas
  • Hydro
  • Oil
  • Water

 

New hydro accounts come with a mandatory set-up fee. Other companies such as gas companies charge deposits, however you may have the option to waive the deposit fee if you sign up for pre-authorized payments.

 

For all account set-up fees and deposits combined you could be looking at approximately $1,000 in additional costs within the first 30 days after the sale closes. To get an accurate estimate, we’d strongly encourage you to contact your service providers in advance. Also, don’t forget to inquire about alternative options for waiving deposit amounts.

 

Are you interested in learning more about your expected costs of your potential purchase, or seeking professional financial assistance? Our mortgage experts are available when you need someone you can trust. Save from day one and consult with us today.

US EMPLOYMENT STRONG IN JANUARY, BUT WAGES LAG

General Krishna Menon 15 Jun

US Employment Strong In January, But Wages Lag

ob growth in the US in January was better than expected, rising 227,000–up from 157,000 in December–according to the Labor Department report on Friday in Washington. While payrolls have been strong, however, wage increases remain disappointingly muted. The unemployment rate rose a tick to 4.8 percent, and average hourly earnings grew 2.5 percent year-over-year, the weakest since August following a 2.8 percent gain the prior month.

At this stage in the US economic cycle, we would normally expected that wage pressures would be mounting and employment growth would slow. Federal Reserve policy makers, who left interest rates unchanged on Wednesday, suggested that there was still room for improvement in the jobs market, as they expect to gradually tighten monetary policy this year.

President Trump has pledged to bring people back into the labor force. The participation rate, which shows the share of working-age people in the labor force, increased to a four-month high of 62.9 percent in January. However, it is still low by historical standards as there were 5.84 million Americans in January who were working part-time though they would have preferred a full-time job. The President has promised to boost wages further through tax cuts, infrastructure spending and deregulation. As well, he plans to boost employment by “bringing jobs back” from lower-cost countries through import tariffs and pressure on American companies that produce outside the U.S.

During the election campaign, President Trump called the unemployment rate “phony” and argued that it overstated the strength in the US labor market. A broader measure of unemployment–which includes those people who are involuntarily working less than full-time as well as discouraged workers who have given up looking for a job–rose to 9.4 percent in January from 9.2 percent the prior month. Clearly, there are many people who had formerly been working in manufacturing jobs that have since moved to low-wage countries. Hence, Mr. Trump’s war on Mexico and China.

However, one crucial missing point here is that many of these (and other jobs) have been rendered obsolete by technological advances. Robots are doing the jobs of thousands of people and advances in artificial intelligence will only accelerate this process, which is impervious to trade restrictions.

Potential Trade War

President Trump has vowed to rip-up NAFTA, but his focus is really on Mexico. Nevertheless, Canada remains vulnerable to potential plans to introduce a 20 percent US border tax. Such a measure would be a radical shift away from free trade and could well trigger retaliatory tariffs, reducing trade and economic activity worldwide. The magnitude of the damage would be enormous and counter-productive, as it would push the US dollar up significantly.

Peter Navarro, the head of Trump’s National Trade Council, has recently suggested that Germany’s “excessive” trade surplus is evidence of a “grossly undervalued” euro. He  has now indicted Germany for alleged theft of American jobs. Chancellor Angela Merkel rejected this charge, telling reporters Tuesday that the euro’s exchange rate was the province of the European Central Bank and the German Government had long upheld the ECB’s independence. On the same day, President Trump accused Japan  and re-accused China of currency manipulation saying they “play the money market, they play the devaluation market and we sit there like a bunch of dummies.”

This protectionist sentiment in the new administration is extremely dangerous, not only to the global economy, but to geopolitical stability and Canada could well get caught in the cross fire. The fact is that no country has the power to sustain a unilateral devaluation of its currency. Even when central banks have acted in concert to drive a currency’s movement, it has been unsuccessful for more than a short period of time as market forces overwhelm central bank activity. All of this kind of rhetoric merely drives the US dollar upward, further devaluing the currencies of the US’s trading partners. In other words, it is self defeating. Nonetheless, tariffs and other protectionist measure run the risk of disrupting global trade flows and hence economic activity.

The Smoot-Hawley Tariff of 1930 helped to drive the US and the global economy into the Great Depression. It has long been held up as a cautionary tale about how a protectionist measure by the US can bring the global economy to its knees and intensify nationalism all over the world. The Republican Congress must prevent the Trump administration from getting the import tariff it is currently proposing.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

Has Your Credit Rating Been Tarnished? How-to Buy a House In Today’s Mortgage Market

General Krishna Menon 11 May

If you are one of the thousands of Canadians who has had to declare bankruptcy or enter into negotiations with creditors to settle your debt with a consumer proposal, it’s likely that your credit rating has gone through the dirt.

In the future, getting a mortgage can be challenging since your tarnished credit has the ability to limit your options. If you’re a credit-challenged buyer you need to research and plan carefully. In this case, there are a few things you need to know.

Wait It Out
If your bankruptcy or consumer proposal is underway when you decide to purchase a new home, know that mainstream lenders will not approve or even consider you until two years after you’ve been discharged. Even after the two-year mark you’ll need to be able to prove that your job is stable and that you have income.

We know that two years might seem like a long time, but waiting it out could be the best option and in your best interest. If you simply cannot wait for two years to pass, it doesn’t mean that you can’t get a mortgage, but there will be less even options for you including up to a 25 percent down payment.

Mortgage Rates
Getting a mortgage following a bankruptcy or consumer proposal will require you to pay a sub-prime rate premium, on top of your broker fees. The reason being it that all mortgages are priced by lenders depending on the level of risk a home buyer presents.

However, non-prime rates can be 4 or 5 percent, but this really depends on your employment and income stability and the reason why your credit was trashed in the first place. If your explanation for bad credit is considered reasonable then you could potential get a better rate. Let’s say your reason is due to medical illness, lenders may have more sympathy for you.

To increase your chances of getting an even lower rate, be ready to prove six to twelve months of on-time repayment for your utility or home-related bills.

Re-Establish Your Credit
Although your past may show signs of your inability or avoidance to pay your debts and bills on time, you can make this right through the bankruptcy or consumer proposal processes by re-establishing your credit. This is what will help you to earn back trust with lenders. For lenders to take you seriously, you should have:

● A minimum of two credit accounts (credit card, instalment loan, car loan, etc)
● At least two years of payment history on the two credit accounts
● A minimum credit limit of $1,000

Take Your Time
With a new mortgage and homeownership, comes more responsibilities and expenses. Buying a home isn’t an urgent thing when your credit is not in the greatest shape, but once your credit is repaired (at least between 650 to 680) and you have savings for your down payment this is the perfect time to jump right into it.

At this time, your mortgage payments will be more affordable and save you thousands of dollars in interest.

If you’re ready to get started or want to learn more before taking the next step contact us.

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