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.
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