Jodi & Bruno Caldarelli THE KEY TO MOVING YOU IN THE RIGHT DIRECTION

ABOUT YOUR CREDIT SCORE




This Page Learn About: 

Your Beacon Score,
How to Repair Your Credit,
Different Types of Mortgages,
Learn about Mortgage Insurance vs Life Insurance

Ottawa eliminates 0 down mortgage and 40 year amortizations
New mortgage rules announced in 2010 Federal Budget
Understanding what is happening with USA banks and the sub-prime issue

and Link to Our Mortgage Calculator.

What is a BEACON SCORE?

A Beacon Score rates you from 300 (Poorest) to 850 (Best). The average person falls in the 600 to 700 range. Lenders use this information to determine your credit worthiness, how well you pay your bills, and what interest rate you will be able to negotiate.

Credit payment history, amount owing vs credit limit, types of credit, new credit, and length of time that credit has been active all effects your beacon score.

Your Beacon Score also tracks your name (and alias), current, previous addresses, your Social Insurance Number (SIN), birth date, current and previous employers.

Your BEACON SCORE will also show:

  • Any inquiries that were made recently and by whom, judgments, collections or bankruptcies for the past seven (7) years,
  • If your accounts are revolving credit (Like a credit card or line of credit) or Installments (Loans or Mortgages)
  • It will show if you pay on time, or are late, or if the lender has written off the account.

35% Your payment history Pay your bills on time. Automating payments online can help.

30% How much you owe Keep balances on credit cards and other revolving accounts below 50% of your credit limit (lower is better).

15% Length of your credit history Rather than let old cards go dormant, charge a latte a month (then pay it off). No activity lowers your score.

10% Your new credit. Don't open unnecessary new accounts; if you're rate shopping for a mortgage or an auto loan, do it within two weeks; multiple requests will affect your score.
10% Your mix of loans – have a healthy mix of credit cards and loans- You can't do much to change this (except get a credit card if you don't have one or apply for an RRSP loan).

To Link to Our Buyer's Page to Receive Information on Buying a Home, Learn About Rent Control, Review the 2010 Tax Rates for the GTA    

MORTGAGE INSURANCE vs LIFE INSURANCE-When you arrange a mortgage with a financial institution, they must ask you if you want to insure your mortgage through them. However, mortgage insurance from your bank or mortgage lender may not be your best alternative.

Mortgage Insurance With Banks or Mortgage Lenders-Typically, your insurance covers only your mortgage balance. Even if your mortgage debt reduces over time, your premiums remain the same.

In the event of a death, only the outstanding balance on your mortgage is paid off and the mortgage lender is automatically the beneficiary.

If you were to move your mortgage to another company, you may lose your existing mortgage insurance and may be required to re-qualify for new mortgage insurance.

You actually lose all your coverage when your mortgage is repaid, assumed, or is in default. You have no flexibility to change your coverage as your needs change.

Life insurance You can choose from different types of insurance (i.e. term or permanent) with a death benefit to cover more than just your mortgage.

Your coverage amount does not decrease over time unless you choose to change it.

In the event of a death, the death benefit is paid to your beneficiary. You name the beneficiary.

If you were to move your mortgage to another institution, you keep your existing insurance coverage, even if your mortgage is repaid, assumed or in default. You don't have to re-qualify.

If you feel that you need coverage only until your mortgage is repaid; and later realize you require coverage for other needs, you can convert your insurance to a permanent plan.

Ottawa tightens mortgage rules to avoid 'bubble'
From Thursday's Globe and Mail, July 9, 2008 at 8:16 PM EDT

OTTAWA— The federal government is cracking down on the mortgage industry in a move that could help protect against a U.S.-style housing bubble, but will also make it tougher to borrow money to buy a home.

The Finance Department said Wednesday it will stop backing mortgages with amortization periods longer than 35 years as of Oct. 15.

It will also start demanding a down payment equal to at least 5 per cent of the home's value, rather than guaranteeing mortgages where they buyer has borrowed the total amount.

“Today's announcement marks a responsible and measured approach by the government to ensure Canada's housing market remains strong, and to reduce the risk of a U.S.-style housing bubble developing in Canada,” the Finance Department said in a statement.

Existing 40-year mortgages will be grandfathered, a Finance Department spokesman said. In 2006, the maximum amortization period was extended to 40 years from 25, and longer-term mortgage products have become increasingly popular with buyers looking for lower monthly payments as the price of Canadian homes soared.

Last year, 37 per cent of new mortgages were for terms of longer than 25 years, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP).

But while longer amortizations stretch out monthly payments, they also greatly increase the cost of a mortgage over its lifetime. For example, the total interest on a $300,000 mortgage can soar from $286,161 over the life of a 25-year mortgage to $498,416 over a 40-year amortization period – adding more than $200,000 to the cost of the home.

This, combined with the fact that these mortgages are often combined with little or no equity, raised alarm bells with policy makers looking at the turmoil that took place in the U.S. when house prices started to fall.

“We've seen an inclination now, a trend, toward longer-term amortizations and smaller down payments, and that is a matter of some concern,” Finance Minister Jim Flaherty said in a speech in May. Mr. Flaherty was not available for comment Wednesday.

Jim Murphy, president and chief executive of CAAMP, said in talks with him the government expressed concern about the risky lending products that collapsed the U.S. housing market.

The Finance Department was also worried about the future impact of competition between mortgage insurers, which led to the introduction of 40-year mortgage in 2006, Mr. Murphy said.

“I think you have a clear case of the government sitting down and looking at its risk exposure and wanting to review that. They have financial guarantees in place for the CMHC and private insurers, and they were saying, ‘What is our risk, and what is the risk to the Canadian taxpayer?' ” he said.

Reaction from the industry was mixed. “CMHC supports the new parameters … . We also support their efforts to maintain the strong Canadian housing market,” said spokesperson Stephanie Rubec, adding CMHC will stop insuring 40-year and zero down payment mortgages in October.

“It's the right move,” said Nick Kyprianou, president of Home Capital Group Inc., whose principal subsidiary, Home Trust Co., provides alternative mortgages. “Why get people overextended? Nobody wins by getting people right to the end of the cliff.”

Others, however, say home buyers and banks have been prudent with their finances, and are being punished for the more lax approach south of the border.

“Things here are not like they are in the U.S. where they had those NINJA loans, no income, no job, no assets. … It's only going to hurt the consumer,” said John Panagakos, owner of Toronto brokerage Mortgage Centre.

The move actually comes at a time when the housing market has moved on to other concerns, the most pressing of which is chilling consumer sentiment due to high fuel prices, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc. “It's a bit like closing the barn door after the horse has already run down the road.”

Summary of Recently Announced Changes to Mortgage Rules:  All borrowers must meet the qualification standards for a five year fixed rate mortgage, even if they choose a variable mortgage with a lower rate or a shorter term.

The maximum homeowners can withdraw when refinancing their mortgages has been lowered to 90% of the value of their home, from 95% 
 
A minimum 20% down payment to qualify for CMHC insurance for non-owner occupied properties purchased as an investment.
Changes become effective April 19th, 2010 for any new written applications.

40 year mortgage is still availableThe 40 year amortization is still being offered by some financial institutions at very competitive rates.  This mortgage is designed for  home buyers looking to lower their monthly payments.

 

The minimum down payment required for this mortgage is 20%.  It is ideal for those who would like to avoid paying the costly CMCH fees, and  would like to have to lowest monthly payment possible. 

The 40 year mortgage is designed for first time home buyers who have saved up 20% for a down payment to avoid CMCH fees. 

 

The 40 year amortization makes the mortgage payments more manageable with their current incomes.

 

If they plan on taking advantage of prepayment privileges, this will lower their amortization back down to a more reasonable level. 

In some cases, the 40 year amortization option offers you the opportunity to purchase a home that might not have otherwise been attainable. 
 

Raising your credit score-To get the best mortgage rates on the market it is important to have a great credit score. The better the score the better your chances of obtaining the best rate on the market  The basic credit score formula (beacon score) takes into account several factors from your credit profile. The impact of each element fluctuates based on your own credit pattern.  Here is the formula on how your score is affected:  

Repairing or Keeping your CREDIT in Good Standing Ensure that you keep your balances under 80% of your limit, make all your payments on time. Never default on any payments. Consolidate credit card debt into one loan. Reduce the number of credit cards that you have. Check your own credit regularly by going to:

www.equifax.ca or www.transunion.ca or give Jodi and Bruno a call and we can offer you a confidential credit report, COMPLIMENTARY and review it with you.

About MORTGAGES

When purchasing a home, there are many kinds of mortgages to choose from. The FIXED-RATE MORTGAGE offers an interest rate that does not change during the term of the mortgage. With fixed rate mortgages, the rates and payments remain constant, giving you security and piece of mind knowing exactly how much your payments will be for the entire term. There is typically a penalty for refinancing or paying off your mortgage early. The VARIABLE-RATE MORTGAGE has the rate set at the beginning of each month according to the prime-lending rate of major banks. Historically, variable rates are much lower than fixed rates. Your payments will usually stay the same. However, when interest rates drop, a larger portion of your payment will go towards the principal so your mortgage gets paid off sooner. However, if rates go up, more of the payment will go towards interest and less towards principal. When deciding on a mortgage, you need to consider pre-payment options. With an OPEN MORTGAGE you are able to repay any amount outstanding on your mortgage without a penalty. Typically, this type of mortgage comes with a higher interest rate. With a CLOSED MORTGAGE you are able to pay off your balance before the maturity date, but with a penalty. Usually lenders will allow you to make prepayment once a year. Each lending institution has there own policies. Typically this type of mortgage tends to have a lower interest. For more information on mortgages e-mail JODI or BRUNO.

Should you go with a short or long-term mortgage?A long term mortgage is worth considering if you have a busy life and don't have time to watch mortgage rates.  4, 5 and 7-year mortgages let you take advantage of today's rates, while enjoying long-term security knowing the rate you sign up for is a sure thing.

If you want to keep your mortgage flexible right now, you can explore a shorter-term mortgage that usually allows you to take advantage of lower rates and save.

To Link to Our Mortgage Calculator         

 


CMHC Housing Market Outlook (Ontario Region) - released Q3, 2008

Housing Starts
• Ontario home starts rise to 76,000 units this year before dropping to 65,000 units in 2009.
• Strong apartment demand drives Ontario home starts higher this year before moderating in 2009.
• Single-detached home starts to continue trending lower.


Resales
• Ontario existing home sales moderate reaching 189,150 units this year and 178,000 units in 2009.
• A slowing Ontario job market, rising mortgage carrying costs, slower growth in home listings and declining pent-up demand will weigh on sales.


Resale Prices
• Ontario home prices will grow closer to inflation; 2.8 per cent and 2.3 per cent this year and next respectively.
• Growth in condominium apartment prices will exceed the Ontario average.

Economic Forecasts
• Ontario economic growth will remain the lowest in Canada, moderating to 0.3 per cent this year before a gradual recovery of 1.9 per cent growth in 2009.
• High energy prices, a high Canadian dollar and weaker US consumer spending on durable goods will weigh on province's export sectors.


Housing Forecasts
• Hamilton, Kitchener, Ottawa, Greater Sudbury represent the tightest resale housing markets across Ontario – prices to exceed Ontario average growth.
• Demand shift to more modestly priced housing will drive apartment sales and high density construction activity in Toronto, Ottawa and Barrie.

Mortgage Rates Forecast
Canadian mortgage rates are expected to remain within 25-75 basis points of their current level this year and next. 

Undestanding why US banks are struggling and what is really happening in the USA

This arcticle has been taken from the Houston Cronicle.

The credit crunch is not going to settle out until after the Credit Default Swap payoff auctions on Oct 23. Only then will everyone know just how exposed everyone else is. Many banks will fail no matter what the government does. But many will also survive and once shown to be sound their business will resume. 

What is scary this is the way governments are taking over ownership of private sector financial institutions and private industry. Just think of the banks being run like the IRS or the Post Office - and by the very same people with political mandates. While it would hurt, it would be better to just let many of these banks fail and be replaced with new ones. All this life support is going to do is lead to perpetually sick banks run by politicians for political purposes.
 

The $45.6 trillion Credit Default Swap Crash vs. the $700 bil Sub Prime Crash

All of this because 5% of  U.S. mortgages are defaulting? This 5% isn’t that big a number compared to the world financial markets. After all, the other 95% are still paying and yielding a cash flow. So if sub primes didn’t cause this what is going on?
 

What is going on is a Credit Default Swap caused crash. A CDS is a form of insurance on loans that pays off if the loan defaults. CDS are totally unregulated and un-monitored by any government agency. CDS are not called insurance because insurance is regulated. If it was called insurance, and regulated, the issuers of the policies would be required to have assets enough to cover any claims. But it isn’t insurance. And it turns out the issuers of CDS never had the assets to cover any claims – even a small claim like the sub prime mortgage defaults. If they had paid off the sub prime defaults everyone would have their money and there would be no bailout.

The banks and financial institutions that issued unregulated CDS made billions collecting the premiums (but they are not called premiums because it isn’t insurance). But when the sub prime backed instruments started to default they couldn’t pay off because they had no assets to pay off with. AIG is one example. And everyone noticed and started to worry.
 

The real problem is that CDS were not sold to cover just mortgages loans. They were sold to cover almost every kind of lending instrument. Obviously, a bond that is insured against defaulting is more valuable and higher rated than one that is not insured. So once the CDS began defaulting on the subprime market it became obvious they were worthless insurance on everything else they insured, which is just about everything else out there. So the value of every bond, hedge fund and other investment instrument dropped on the books of every institution holding them. And they dropped fairly sharply.
 

And then there are the CDS themselves. They were on the books as an income producing investment instrument just like a bond from a legitimate insurance company. Now they are virtually worthless. How much were they worth before the truth about them was revealed? $42.6 TRILLION. For perspective, this is equal to the entire household wealth of the  U.S. ; the  U.S. stock market is capitalized at $18.5 trillion. So what really has happened is that the global financial markets have just taken a $42.6 trillion dollar loss of assets.
 

Our recent bailout is only $700 billion, a tiny fraction of the outstanding CDS and not enough to make a tiny tiny dent in the debt the financial institutions are now holding. So what did our elected officials just do? They bailed out their campaign donors and gave them a chance to cash in their chips and leave the game with some cash in their pockets.
 

The sub prime defaults are just a minor diversion that takes your eyes off what has really happened. Huge companies, here and abroad, (CDS started in  Europe ) committed a fancy complicated form of fraud. They sold insurance that wasn’t really insurance, collected billions in “premiums” that pumped up their books and made billions for their executives and brokers. They often issued a CDS to a buyer to pump up the price of a bond or financial instrument they were selling and thus increased their profits two ways.
 

If a real regulated insurance company had done this the executives would all be indicted, prosecuted and put in jail for a long time. It was fraud and I hope our government will go after these weasels and put them in jail. But I doubt that will happen.
 

The problem right now is that no one knows who is holding what or even how to begin to value holdings. The value of holdings of all kinds have clearly dropped. But by how much? In the sub prime mortgage market, for example, the houses are still out there and clearly they have some considerable value. But how much? The same holds across all the markets. The tangible assets securing most of the loans are still out there. But what are they worth now? We are about to see a huge 100 year shake out on the value of everything and everyone is going to take a hit. The more leveraged any business or individual is the more they are going to devalue. And that is another new aspect of this crash.
 

Super low interest rates made borrowing possible – smart – at rates that would have been unthinkable 20 years ago. 20 years ago being leveraged at a 5 to 1 rate was the normal limit. Today 30 to 1 is normal. 4% interest rates simply could not be ignored and go unused. Hedge funds with 4% interest rates made extreme leveraging even more extreme for large investors and funds. It turns out some hedge funds had 100 to 1 leveraging. (Hedge funds are another unregulated market) So our entire economy, the businesses, the banks, individuals are credit extended like never before in history. So they are all going to be devalued like never before. This is going to be the perfect financial storm. And it isn’t going to end anytime soon.
 

A lot of companies are going to fail – unavoidably. There is going to be a lot of unemployment. A lot of retirement funds are going to fail – including government backed retirement funds like state funds. And the  U.S. government cannot bail them all out. But it will try at first. And the government will have unemployment claims and welfare claims like never before. And all this will cause another problem that will cause more pain. Inflation.

Inflation like we haven’t seen in decades. Because the only way the government will have to pay off its debts – and they are going to be huge, even compared to our present huge debt – is to print money. Lots of money.
 

We are going to see something unthinkable in the past. High unemployment, bankruptcies, banks closing and a very slow economy, BUT with high inflation because every government in the world is going to print money to try and bail things out.
 

What to do? Getting out of debt would be a good idea. Cash is good – but vulnerable to inflation. Gold is better. Start minimizing your expenses in every way possible. If you are about to retire don’t. Keep the job if the job is still there. If your retirement fund doesn’t go bust, inflation will devalue the retirement payments. Things will settle out. The economy will restart. New companies will be started to replace the ones who go under. The sun will come out again. But not for a long time.


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