21 Oct

HOW TO QUALIFY FOR A MORTGAGE POST CONSUMER PROPOSAL

General

Posted by: Brad Lockey

Congratulations you have made it through one of the toughest financial times in your life. It feels good to have this under control and know there is a light at the end of the tunnel. I too have been down this road in 1998 and now I educate the RIGHT way to have a plan.

There is no shame in going through either a consumer proposal or bankruptcy. Life throws wrenches into our well laid out plans. This is why we have these financial resources to get us back on our feet.  What is most important is that we don’t make the same mistakes again, really get to know how the mortgage and credit world works and use a mortgage planner along with your trustee or debt counsellor to have a plan of action!

There are no quick fixes or programs to get you back on track! Don’t get sold on some “swindler” taking advantage of your situation. There is a company out there that will loan you $2,500 that you pay back over 2 years and they report it to bureau for you. The cost is $900! That’s crazy and completely unnecessary.

Here are the Coles notes on what you need to know for those in consumer proposal. Remember, every situation is unique, so always have an experienced broker work with you:

– You can refinance your home when in a consumer proposal and pay it out. You need more than 20% equity to do this. The sooner you pay it off, the faster it comes off your credit bureau.

– If you are going with an INSURED mortgage (ie. 5-20% down) then you must be discharged from consumer proposal for two years and your credit has to be re-established.

– Most lenders want the consumer proposal paid in full prior to mortgage approval. Very few will look your deal while in proposal.

– Area dependent – Fort Mac or small rural communities are harder to get approvals.

– We can use a bundled product strategy with a 1st mortgage to 80% LTV and 2nd mortgage to 90% to get your approval. Expensive, but works for many clients.

– You want to plan to have some savings that are more than just your down payment if you are buying. Don’t be house rich and cash poor.

– Sometimes we can use secondary credit like your car insurance, cell phone, or your rental payments to a landlord. If we can prove good repayment for the last couple years, we should be able to take it to a bank.

– Also, you really need to ensure that, at the three year mark after you are done, that your consumer proposal is removed from credit bureau. I have seen someone refinance 2 years into their 5 year proposal and pay it out and forget to remove it from the bureau a  year later, so it keeps hurting your score and years of damage for no reason.

How long does a consumer proposal stay on a credit report?

Once you enter into a consumer proposal, it will start reporting on both Equifax and TransUnion credit reports within 30 days. Depending on your consumer proposal agreement with creditors, you will be making payments in a consumer proposal generally between three to five years.

Consumer Proposal will stay on your credit report for 3 years from the date you are discharged (made your last payment) regardless if you are looking at your Equifax or TransUnion report.

Where do I start in building my credit again?

You can start rebuilding your credit as soon as you file your proposal. Bankruptcy is a bit different. You need to aim for TWO credit cards, open for TWO years, with an eventual available credit of $2500 each.  Just get TWO that start reporting.

Apply for a secured credit card with HomeTrust Visa. You give them $500, they give you a credit card.

Affirm Financial will approve $1000 credit card UNSECURED to those that are in consumer proposal.

Scotia No Fee Credit Card

TD Secured Credit Card

Capital One Secured Credit Card

Peoples Trust Secured Credit Card

Your credit and what have you can do to make it better:

They are lending YOU money, so a good broker will need to explain your situation, who you are, why you had issues and what you have done to improve your situation. This is called the 5 C’s of credit. This is a method used by lenders to determine the credit worthiness of potential borrowers. The system weighs five characteristics of the borrower, attempting to gauge the chance of default or you being a chronic mismanager of debts.

Character – When lenders evaluate character, they look at stability — for example, how long you’ve lived at your current address, how long you’ve been in your current job, and whether you have a good record of paying your bills on time and in full. If you want a loan for your business, the lender may consider your experience and track record in your business and industry to evaluate how trustworthy you are to repay.

Capacity – refers to considering your other debts and expenses when determining your ability to repay the loan. Creditors evaluate your debt-to-income ratio, that is, how much you owe compared to how much you earn. The lower your ratio, the more confident creditors will be in your capacity to repay the money you borrow.

Capital – refers to your net worth — the value of your assets minus your liabilities. In simple terms, how much you own (for example, car, real estate, cash, and investments) minus how much you owe.

Collateral – refers to any asset of a borrower (for example, a home) that a lender has a right to take ownership of and use to pay the debt if the borrower is unable to make the loan payments as agreed. Some lenders may require a guarantee in addition to collateral. A guarantee means that another person signs a document promising to repay the loan if you can’t.

Conditions – Lenders consider a number of outside circumstances that may affect the borrower’s financial situation and ability to repay, for example what’s happening in the local economy. If the borrower is a business, the lender may evaluate the financial health of the borrower’s industry, their local market, and competition.

It all starts with the planning the day you decide to file for a consumer proposal. If you are finding you are starting to fall behind in payments or considering a consumer proposal call us at Dominion Lending Centres – we may be able to help.

13 Oct

IS A CHIP MORTGAGE RIGHT FOR YOU?

General

Posted by: Brad Lockey

Are you or someone you know above the age of 55 and having trouble making ends meet? Are funds needed to cover the costs associated with an illness, disability or life event? Perhaps it’s time for a home repair or renovation, such as a kitchen or bathroom. Pay for the kids education? Do you have a mortgage and can’t afford the payments anymore?

Perhaps the funds are just not available and you don’t have enough income to qualify for a mortgage but you have lots of equity in your home, or it might even be paid off.

Here’s where the CHIP program, also known as a “Reverse Mortgage”, becomes the solution. Yes, I’ve seen the commercials on TV and have heard the myths and negative “energy” around it. However, let’s first discuss what this mortgage can do.

– Borrow up to 50% of the value of the home and make NO PAYMENTS as long as you live in the home. The interest payments are added to the mortgage loan amount and are only due when you vacate.
– The amount that you are eligible to borrow is determined by your age and the location of your home, therefore, the younger you are the less you can borrow, eliminating the risk of eroding all your equity over time.
– You maintain full ownership of the home.
– Your only obligation is to keep the home in good condition, keep the property taxes and home insurance up to date.
– You will never owe more than the value of the home.
– You do not need to qualify for the loan.
– 99% of the time, equity is realized upon sale.

There are many myths out there about reverse mortgages, here are some –

1. The most common myth is that you will lose all your equity in your home. Untrue! You will be provided with a schedule showing you how the equity in your home is expected to grow over time using 3 possible growth scenarios. Figures that are used are conservative, therefore, you could realize even more equity when the home is sold by yourself or your estate.

The amount of remaining equity depends on how old you were when you obtained the mortgage and how long you’ve had the loan when you leave the home. Plus, the value of the home at the end of the loan.

2. If I die, my spouse will be left with a big mortgage to pay off. This is not true as the loan is not due until you or your spouse leave the home.

3. It is costly to set up this mortgage. Set up fees include a property appraisal, legal and admin fees; usually a few thousand dollars or less. The mortgage can be used to pay the fees. This is not much different than a high risk mortgage. Remember NO payments!

It’s important to understand that there is a growing senior population and people are living longer. Employment pensions are disappearing, government pension payments are small. CHIP offers an affordable solution for seniors who want to spend their retirement in a comfortable, stress-free way.

For more info, contact your Dominion Lending Centres mortgage specialist, we have the details and will only consider this option for you when it is in your best interest.

9 Oct

The Ideal Mortgage Qualifying Client

General

Posted by: Brad Lockey

There are a million variables that determine how one can qualify for a mortgage. The banks, mortgage lenders and credit unions all have different guidelines to be able to qualify under their programs, and then we have the mortgage insurers and multiple other regulatory bodies that affect decisions as well. Variables such as: income type (Employee, Self Employed, pension, etc.), affordability ratios, down payment/gift/equity, credit quality, property type and the list goes on.

The rules for each one of these criteria can differ from one credit score, income type, etc. to the next and unraveling them all is like peeling an onion – there are a lot of layers.

Income – From the lenders’ perspective, the most stable income type for a consumer (based on historical data) is the ‘Employee’. The ‘Employer’ essentially holds the risk of their employees’ personal income taxes, so the employee is the favoured choice. Ideally, they prefer to see the client with the same employer for 2 years, changing positions isn’t usually a bad thing within that employer, depending on how that new income is generated. For example, salaried positions are least risky as they are the most stable. Getting into salaried plus over time (OT)/bonus/commissions is an entirely new set of criteria. IF we need to use either of those ‘bonus’ types of income, the rules now state that you have to qualify on your most recent two years of income and preferably at the same employer. In either case, the banks are looking for the least amount of risk when providing any sort of loan. So, it’s easy to presume longevity and consistency rule. Remember, that’s the perfect scenario, there are always exceptions based on the quality of the other variables.

Down Payment – The strongest types of down payment/equity are those where they are earned yourself-it shows character. To prove the ‘earned’ down payment/equity, we need to show them verification of the funds over a 90 day period whether it’s coming from your saved up bank accounts, RRSP’s, GIC’s or investment statements. They are looking for the anomalies in the deposit amounts and any large irregular looking deposits need to be accounted for and usually explained. Equity is confirmed via mortgage statements and the sale contract or appraised value. There are other types of down payment as well, for example, gifts from immediate family members, sale of existing assets or borrowed from your existing home or line of credit(unsecured borrowings have tighter qualifying guidelines).

Credit – Credit scores range between 300-900, the higher the better. In Canada, to qualify for the best products and rates that the banks and lenders offer, they want to see your credit score above 680, and preferably over 720 plus. The score isn’t the end all be all either these days, they want to see longevity and differing types of credit. The rule of thumb is two years of credit, over two thousand dollars on two different loans and both loans open today (whether it be two credit cards at $2000 with zero to low balances or car loan and a credit card or other variations as well)-again longevity and consistency here rules.

Affordability Ratios – In the mortgage world this is called your Debt Service Ratios. Total Debt Service Ratio (TDSR) and Gross Debt Service (GDSR) are the ones used on the residential side of mortgage applications. The lenders are using your qualifying income vs all of your monthly obligations to come up with the ratios. Just like your golf score, the lower the ratios, the better your chances of qualifying for a mortgage. The better credit quality clients can have TDSR ratios as high as 44% and 39% for GDSR, but usually 40% is used as a historical rule of thumb.

Property Type – We all know there are a lot of variables here, especially in Alberta. Anything outside of a regular home zoned as a ‘single family residence’, will likely be scrutinized further and may come with additional qualifying factors.

These are just some of the basics that the lenders look at to aid in qualifying you for a mortgage. To put it simply, the least risky client is a two year tenured salaried employee, has saved up their own down payment or has equity in their own home, has low TDS/GDS ratios, is buying a single family ‘re-marketable’ home in a densely populated area, their credit score is over 750 and has well over two years of credit on more than two loans. In a perfect world, the banks want everyone to look like this, but we all know that isn’t so.

9 Oct

WHAT IS A MORTGAGE BROKER?

General

Posted by: Brad Lockey

 

One thing Canadians have in common is that most of us are paying off a mortgage.

The mortgage market can sometimes be confusing. There are a vast array of choices – open, closed flex down, equity take-out, cash back, and of course the rates themselves. While we would not attempt to try to muddle through the intricacies of insurance or investments without expert help, we will often go it alone when it’s time to get a mortgage.

We will call a variety of banks and other lenders in an attempt to get the best rate. After numerous phone calls you get back to your original lender, and they agree to meet your best rate. Why should you have to spend so much of your time finding the best rate? If you are not quick enough the rate may change before you lock it in.

There is a solution to this problem – use the services of a mortgage broker. 85% of Americans use mortgage brokers today but only 33% of Canadians do; mainly because they do not know what a mortgage broker is and what they do.

What is a mortgage broker? A mortgage broker is an individual who represents a mortgage brokerage firm. The brokerage has access to over two dozen banks, trust companies, insurance companies and other lenders at their fingertips. By dealing with these lenders on a day-to-day basis, we have access to wholesale lending rates which can save you thousands of dollars. It should also be noted that the majority of mortgage brokerages are not owned by the lenders they represent. Brokers work for the borrower, not the lenders. Mortgage software allows us to scan all the lenders for the best rate for the term you are looking for in seconds. In addition we will advise you on the best options for your own personal situation. Newlyweds with no cash can purchase a house with 0% down under certain conditions. Some lenders will even give you 1-5% cash back. Wouldn’t that come in handy for buying curtains and furniture for your new home?

Now this sounds great! Everyone could use an expert to save them money, but how much does it cost? The majority of mortgages are arranged at no cost to the consumer. The lenders pay a finders fee to the brokerage firm for finding and arranging the mortgage. If you have an unusual credit history which involves more work, a set fee would be agreed upon before we start on the application.

Why would you choose to use a mortgage broker instead of your bank?

Lower Interest Rates

Wholesale mortgage rates are discounted an average of 1.20% over what the bank will offer you. A 1% interest discount on a $150,000 mortgage can save you more than $7900 in interest costs over a 5 year term.

Best Mortgage Options

By shopping the lenders’ market we can find you the best options for your particular situation. Banks are limited to the products carried by their institution.

Bank Loan Officers are employees of the bank

Mortgage agents work for you, the borrower.

Fast Service

A mortgage broker can often get your mortgage approved in a day. In addition we can meet you at your home, office, or wherever it is convenient for you.

As you can see, mortgage brokers offer convenience, service and great rates. It’s no wonder more and more Canadians are choosing to call a mortgage broker when it is time to renew their mortgages. As the #1 mortgage brokerage company in Canada, we here at Dominion Lending Centres are ready to help you!

6 Oct

THE DIFFERENCE BETWEEN A RATE-HOLD AND A PRE-APPROVED MORTGAGE CERTIFICATE

General

Posted by: Brad Lockey

First, let’s start with a definition of each.

Mortgage Terminology

Rate-Hold: a rate-hold is simply that. The financial institution holds a rate for a specific term and for a certain number of days. In Canada we typically hold rates for 120 days. You must close your mortgage on or before that date to secure the held rate. In addition, in the event that rates go up over that period of time you don’t have to worry, you have your rate guaranteed. If rates lower, then your rate lowers as well.

Pre-Approval: if you are house shopping then a pre-approval can help you shop with confidence. A pre-approved mortgage certificate outlines how much you qualify for and will also hold a rate for you. Unlike just the rate hold, a pre-approval is looked over by an underwriter working for the particular financial institution. The underwriter will look at all the data provided in the application, along with a credit history report, to determine credit worthiness. If the underwriter has not been given upfront documentation, for example employment and down payment information, then the pre-approval will come back with “conditions”. Essentially saying, yes, based on the info you provided we are ready to extend credit to you once you satisfy the following conditions. This can also be called pre-qualification.

Should you wish with absolute surety that you will not be denied credit, then it is best to submit your paperwork upfront.

In our fast paced society clients receive rate-holds, not pre-approvals. So please make sure you know what you are getting based on what you need.

Almost done.
If you are putting less than 20% down on your home you will have to obtain mortgage insurance from CMHC or Genworth. Both of these institutions will not look at your file unless it is a “real deal”, and they can sometimes over-rule an approval from the financial institution. I’ve completed many mortgage transactions and while I have not seen this many times, it has happened if you are in the higher risk category, for example, your employment is just less than one year or credit history is not very long. If you are not in the higher risk category, then a pre-approval should give you the confidence to look for a house without worry.

Remember to always place a financial clause in your agreement of purchase and sale. Give yourself the time and the peace-of-mind.

6 Oct

IT’S NOT ALL ABOUT THE RATE

General

Posted by: Brad Lockey

ob-sess(ed): the act of being preoccupied or fill the mind continually, intrusively and to a troubling extend.

As mortgage consumers, we get obsessed with obtaining the best rate – we are caught in the cross-hairs of lender marketing. Lenders spend millions of dollars annually to pitch their message; some listen and some don’t. As consumers, we all want make sure we are getting the best value for our money. When entering into the world of purchase and owning real estate, there should be a detailed plan laid out for one to follow. We should make sure all our plans fit the mortgage products we inherently rely on. Would you put a square peg in a round hole?

Along with making sure the mortgage product is suitable, there is also an element of competition between friends, family members and even colleagues at work. Consumers thought process goes something like this (…and I was once part of this faculty)…”I need to get the lowest rate so that I supersede the rate that (enter name here) got…” That statement couldn’t be further from the truth – it’s 100% wrong.

We all want to pay as little as possible up front, but never put any thought into life’s uncertainties. What if you need to break the mortgage?, to consolidate some debt, require equity for a renovation, moving to another town/city where your current lender does not lend, leverage equity to take advantage of some financial planning strategies…the list goes on.

60% or 6 out of every 10 mortgages that originally opt for a 5 year fixed term are changed/broken/altered 38 months into the contract. The act of breaking one’s mortgage will yield a penalty on the outstanding balance for 22 months. The penalty will be either an Interest Rate Differential calculation or 3 month interest, whatever is greater. There is so much more to choosing a mortgage rate and term than just the 5 bold character’s  x.xx%  being advertised.

BORROWER’S HAVE TO LOOK PAST THE NUMBERS AND EDUCATE THEMSELVES ON THE TERMS OF THAT RATE BEING OFFERED; THE FINE PRINT!

Depending on the RATE and its terms, that penalty can be dramatically different. Lenders all have a suite of various products to fit you, the consumer’s, wants and needs. It’s up to you and your Mortgage Expert to navigate through the gauntlet of rate sheets and product information to find what works for you and your specific scenario. As Mortgage Experts, we here at Dominion Lending Centres have access to a wide range of lenders; major chartered banks, credit unions and investment lenders. At times there could be a difference of 10 to 20 basis points (0.10-0.20%) from lender to lender.

Let’s take for example a rate of 2.44% vs 2.64% for a 5 year fixed term. It’s obvious which one most borrowers would gravitate to, but is it worth it? What are the pitfalls? These two rates have drastically different penalty structures even though they are offered by the same lender. The 2.44% rate holds a 3% penalty on the outstanding mortgage balance (OSB). The 2.64% rate calculates the Interest Rate Differential (IRD) or 3 months interest, whatever is greater to determine the penalty.

Here is an example of what it would cost to exit these mortgage contracts early. We will use the 60% rule along with a starting balance of $330,000, 25 year amortization and $0 prepayments made to the principal for the first 38 months.
* OSB = outstanding mortgage balance

Rate                            2.44%                    2.64%

OSB @ 38 mos      $298,401.05            $299,153.80

Penalty                   $8,952.03                $2,468.02

Penalty Difference = $6,484.01

Monthly payment    $1,468.45                $1,501.39

Payment Difference over 38 mos = $1,251.72

Same term but a different mortgage product yields a difference in penalty of $6,484.01. Over that same 38 month term, the higher interest will have an ‘out-of-pocket’ difference of $1,251.72. Now ask yourself, with all of life’s uncertainties, which would you prefer, the 2.44% or 2.64% rate? I would choose the higher rate and pay $5,232.29 less.

This is where having a knowledgeable Mortgage Expert from Dominion Lending Centres working for you pays off in spades. We will review your plan and recommend the best mortgage product. Make sure you examine all aspects of the mortgage, 60% of 5 year fixed mortgages are altered. Here’s yet another reason to always consider variable rate mortgages, much more flexible and only yield 3 month interest penalty on the OSB no matter where you are in the contract timeline.

If you are looking for personalized mortgage advice, contact me at Dominion Lending Centres anytime!

5 Oct

THREE OUTCOMES YOU SHOULD EXPECT FROM A WELL PREPARED ALTERNATIVE LENDING PLAN

General

Posted by: Brad Lockey

1. Improve personal monthly cash flow – The new mortgage should help you feel more in control of your spending. Consolidate multiple payments into one mortgage payment that is lower than the total of the payments in their current state.

2. Save you interest – Yes an alternative lender comes with a higher rate, but your broker should be able to explain why that is. By consolidating your high interest credit card debt and loans into a new mortgage with an alternative lender, you will still likely save a lot of interest.

3. Develop a recovery plan – You need an exit strategy so your mortgage will be back with an A-Lender as soon as possible. This means discussing credit recovery techniques such as getting secured credit cards and credit management.

We’re here at Dominion Lending Centres to help you put together a strategy!