Low Interest Rates Good Reason to Lower Debt

Low Interest Rates Good Reason to Lower Debt

Low Interest Rates Good Reason to Lower Debt

In a press release on February 6, 2015 Lucie Tedesco Commissioner Financial Consumer Agency of Canada stated that just because interest rates have gone down, referring to the recent Bank of Canada decision to lower the overnight rate, does not mean that Canadians “should take on more debt.” In fact the low interest rates good reason to lower debt.

 

Low Interest Rates Good Reason to Lower Debt
picture courtesy of the Financial Post

To many mortgagers (owing money borrowed on real estate) or those with loans whose payments are calculated based on the Prime rate, which in turn is calculated on the Bank of Canada’s overnight rate, low interest rates can be a double edged sword. Especially if you can’t control your spending; however if you are able to curve your appetite for borrowing, then for you low interest rates good reason to lower debt as you can pay more towards your principal and less towards interest payments.

Commissioner Tedesco went on to say that “Canadians should look at this low interest-rate environment as an opportunity to pay debt down, rather than to accumulate more, even for a larger house, a newer car or a winter vacation.” We should be realistic and be ready for when interest rates will increase.

For its part the Financial Consumer Agency of Canada has developed tools and resources to assist the consumer with managing their debt obligations and can be found at “How to Beat that Debt.”

To read the full press release from Lucie Tedesco Commissioner Financial Consumer Agency of Canada click here.

Trusterra Mortgage is here to help. If you currently have a mortgage and are considering to consolidate your debt, or want to get the lower interest rates that are available currently, contact us to see what options are available for you and we’ll assess your current financial situation to see whether it is worth it for you to break your mortgage to refinance it or not.

Beginners Guide to Getting a Mortgage

Beginners Guide to Getting a Mortgage

A beginner’s guide to getting a mortgage

In this beginner’s guide to getting a mortgage we will take you through the main steps of applying for a mortgage application. This beginners guide to getting a mortgage will cover the main points that will help you better understand what is involved when getting a mortgage in Canada.

Beginners Guide to Getting a Mortgage

A beginner’s guide to getting a mortgage STEP 1 – find a mortgage professional

We strongly recommend you working with a Mortgage Broker or Agent. They are licensed with their respective Provincial Governments and have met all the required educational standards to become a licensed mortgage broker or agent.

There are many advantages to acquiring the services of a mortgage broker or agent. To name a few;

  1. They work for their client’s best interest,
  2. Mortgages are what they do day-in, day-out,
  3. Because a mortgage broker or agent is not working for any of the lenders there is no conflict of interest for them towards pushing you to one lender or the other,
  4. They constantly stay up to date with the real estate financing world by participating in continuing educational courses and workshops.

A beginner’s guide to getting a mortgage STEP 2 – ‘checks and balances’

Buying real estate is, for most people, the largest single investment they will ever make, and because of this, getting a mortgage should not be taken lightly. Every person thinking about buying their own home whether now or in the future should start planning for the inevitable. What is the inevitable you ask? It is being able to show the lender that you are able to pay them back on a timely manner as agreed upon based on your credit strength and income. And how do you show this in practicality? Lenders such as Chartered Banks, Trust Companies, and Credit Unions follow Government underwriting guidelines, and as well their own internal policy’s, all designed to test how strong or week someone’s personal financial strength is in comparison to their debt level’s to be able to pay back the mortgage loan. To do this the lenders have certain requirements and they ask for information from the borrower when considering whether to approve them for a mortgage loan or not. They want to make sure at minimum the borrower has:

  • Enough income to pay back the monthly principle and interest of the loan
  • At least 5% down payment or more; you can even use gifted money from immediate family
  • A satisfactory credit history and a healthy credit score
  • We also recommend checking your credit report and score regularly, perhaps every year or two at Equifax and Transunion. This is great preparation for when you are ready to apply for a mortgage by making sure there are no discrepancies or fraud activity in your accounts.

Beginners Guide to Getting a Mortgage

That means from now you can start putting aside money each month in your bank account for your down payment and making sure that you have a steady job or income coming in to show the lender that you can afford to pay back the loan. As well, you want to make sure that you are paying back your debt on time, and on a monthly basis, and not be late making those payments.

A beginner’s guide to getting a mortgage STEP 3 – Consult with your Mortgage Broker or Mortgage Agent

Beginners Guide to Getting a Mortgage

Now that you have done your checks and balances, you can contact your Mortgage Broker or Mortgage Agent and consult with her or him about your current financial strength and debt obligations. They will ask you to fill out their mortgage application so that they can better assess your financial health and credit worthiness/readiness to apply for a mortgage. Your mortgage professional will, after reviewing your financial and debt history, ask further questions and give you advice on what steps to take next; whether to continue with your mortgage application or to wait until other matters are taken care of to strengthen and improve your chances of getting approved for a mortgage.

 

This post and its content, we hope, has provided you with the basic information you need when considering applying for a mortgage. Don’t hesitate to Contact Us with your questions, and if you would like to start the mortgage application process. As well, we invite you to share any thoughts you may have about the mortgage application and approval process below in the comments section.

how many credit cards

How Many Credit Cards

How Many Credit Cards is too many credit cards?

How many credit cards do you have? Are you the type of person who is good in controlling him or herself when it comes to spending with credit cards, or do you fill out every credit card application at every retailer for the sake of getting the gift that comes with it?

There is such a thing as having too many credit cards. Everyone should ask themselves how many credit cards they really need. In reality, you really need one or two credit cards; perhaps one Visa card and one MasterCard or American Express card. Most retailers, online shops, and other merchants accept Visa and MasterCard, so if you have one of each card you’re pretty well covered everywhere you go to buy things.

How many credit cards you need? We suggest no more than two. Here are some disadvantages of having too many credit cards:

  • The likelihood of losing a card can increase by having too many credit cards.
  • If you are not good with controlling your spending, you can easily max out on your credit cards.
  • Maxing out on credit cards is not healthy for your credit rating as your credit score will start to drop.
  • When time comes to apply for a loan, having too many credit cards can raise a red flag for the person or institution who is considering lending you money.
  • Having too many credit cards can create challenges in managing them and paying their balances on time each month, which in turn will negatively affect your credit rating.
  • Every time you apply for a credit card your credit report will take a hit; meaning, the credit card company has to check your credit report to make sure everything is good before they accept your credit card application. That hit to your credit report can affect your rating.

how many credit cards

 

Some people in their efforts of trying to help you out will consider how many credit cards you need based on whether you are newly starting to establish credit or not. That’s fine, but we still think having just two credit cards is enough to help with establishing credit history. Down the road you may, if your income can support it and your track record of paying back loans on time, consider getting a third credit card.

how many credit cards

 

In the context of building and strengthening your credit report and history with the credit bureaus, here is a ‘link‘ to Industry Canada talking about improving your credit score.

Why Your Credit Score is Important

Why Your Credit Score is Important

Why Your Credit Score is Important why your credit score is important

As part of our coverage of November Financial Literacy Month #FLM2014, in this blog we will share with you information about the importance of why your credit score is important.

In Canada, and the United States having a strong credit score or what we call in the industry a beacon score, with a rich history of on time debt repayment is very important and goes a long way when it comes to applying for a mortgage or any other type of a loan.

We will focus our discussion in this blog on the Canadian mortgage market and why your credit score is important.

If you have good credit it will be that much easier to get approved for a mortgage. Throughout your lifetime of spending and purchasing items using your credit card or a line of credit or both, and as well other credit items such as car loans, these transactions are all recorded by the two credit bureaus here in Canada, namely Equifax and Transunion. These credit bureaus use mathematical algorithms to create your credit score based on your spending, credit limits, credit balances, and whether you pay back on time every month your debt obligations or not. They even take to account how many days or months you are late with making your payments and use this information when building and updating your beacon score.

Equifax_Transunion

The reason why your credit score is important for getting approved for a loan, such as a mortgage, is because the creditor or the mortgagee relies on the credit report to decide your credit worthiness and repayment ability if they were to give you a loan or a mortgage respectively.

The starting point for your beacon score, once your name and first credit activity is recorded in the bureau’s database normally is 650. From this point onwards, it is hoped that the borrower pays back their loan or debt on a monthly basis, and as they do, their beacon score begins to climb; eventually rising above 700.

The opposite is true if the borrower cannot or does not make payments on time and is late, their credit score will start to drop below 650 making it difficult for them to get approved for a loan or a mortgage from traditional creditors / lenders. Many times borrowers with poor credit scores have no choice but to wait on their plans to buy a home and get a mortgage until their repayment history improves and their beacon score begins to rise again. Or they have to apply for a mortgage on unfavorable terms from a secondary or private lender who will charge a premium to approve the loan, but will overlook and be forgiving for the poor credit history and beacon score. The premium includes a much higher interest rate, lender fee, and shorter mortgage terms, normally one or two years. This is another reason why your credit score is important.

We always recommend that you pull your own credit reports from Equifax and Transunion every year or two to see what information about you is stored in their records. There are several advantages to doing this. Firstly by doing your own credit check to your name, there is no negative ‘hit’ to your beacon score unlike when you apply for a loan or a mortgage and the lender does a credit check on you. Secondly, you can see if your personal information is correct and up to date. Thirdly, you will get a detailed historical overview of your credit spending, which will show, for example, the payment you made on time to the particular credit card company or your car lease or whatever else, was actually reported by them and recorded in the credit report. An example of a potential issue is with old student loans or credit card accounts that you had asked to be closed. The student loan that you paid back in full is not shown to be paid off and still active in your credit report, and the credit card that you paid back and thought was closed is still showing as open with a balance in the credit report. These errors need to be corrected right away because they will have a negative impact on your beacon score. By doing a credit check you can find out about these abnormalities and rectify the matter.

This is why your credit score is important, because in Canada, for that matter in North America, much of the lending is based on the borrower’s credit strength and healthy history of making payments on time and being able to manage your debts responsibly.

If you are in a position right now with a low beacon score and bad credit history, and no major bank or lender will give you a credit card, we can help. Contact us and we will help you get a credit card so that you can start to rebuild your credit history and beacon score.

Another group of borrowers are those who are new to Canada and don’t have any credit history here and want to buy real estate right away. If you fall under this category, we can also help you get a mortgage without having a credit history or beacon score. Review our information about the New to Canada mortgage product and contact us for further details and to get your mortgage application process started.

why your credit score is important

Financial Literacy

Financial Literacy

November is Financial Literacy month (FLM) in Canada, but why not make part of every month for financial literacy in your family?  As Canadians get married and start their building their family unit they should start to think about their financial future.

We need to heighten the importance of financial literacy awareness and education in our school systems at an early age. It is never too young for children to learn about mathematics and focus on basic financial literacy principals and theory’s.

Parents can start teaching their children by example as well in their day to day interactions.  The Financial Consumer Agency of Canada defines financial literacy as “having the knowledge, skills and confidence to make responsible financial decisions.” financial literacy interracial family

Learning to manage your personal finances more efficiently and effectively will help you in the long run when it comes time to buy your first home. A consumer’s financial savviness will reflect in their high credit rating and strength and as well in how much savings and investments they have built up throughout the years up to the point that they are ready to provide down payment for their mortgage, and still have extra savings left over to cover other expenses in life.

To start your educational process in financial literacy we recommend you visit the web site for the Financial Consumer Agency of Canada http://www.fcac-acfc.gc.ca where you will find a tremendous amount of resources regarding the subject of financial literacy.

Pay Down Your Debts

Pay Down Your Debts

The New Year has started and what better way than to set practical and achievable goals to pay down your debts for this year. Many people build up a lot of debt throughout the year, and to top it all up, by the end of the year during the last month of it, more debt is accumulated due to holiday spending.

It is very important pay down your debts as the more personal debt you accumulate it will put a great amount of stress on your credit score. Your credit score will start to come down through time if you don’t pay down your debts on a regular basis, making timely monthly payments each month without being late. Pay down your debts

It can be a daunting task, especially if your debts are high, but there is light at the end of the tunnel. The first step is to make a personal commitment to yourself that no matter what, you will stick with your plans to pay down your debts.

Next, seek professional help and do lots of research about what resources are available for the consumer on this subject matter. One place that you can start with is the Financial Consumer Agency of Canada.  This Government agency has lots of helpful and useful information and tools about personal finances.

Sit down and evaluate all your debts. Break them down one by one so that you know exactly how much money you owe, and to whom or what financial institutions you have to pay them back to. If you’re running tight with money and don’t have too much to spare, at the least try to set a monthly budget aside to pay down your debts  with the minimal payments that each creditor allows you to make. Ideally you would want to pay back the entire debt; however, sometimes this is not possible to do at the start.

Some consumers might also own their home and have some amount of equity built up on it. Another option for your plans to pay down your debts could be to refinance your home, or use an existing Home Equity Line of Credit HELOC to pay back your high interest loans and then on a monthly basis pay down your HELOC or refinanced mortgage.  Most personal loans have a lot higher interest rate than the average residential mortgage interest rate. Using the equity built up of your home in the form of a HELOC or a new mortgage can save you  from high interest payments.

You can also Contact Us if you have any questions or need assistance with paying down your debts. We will do our best to help or at least to point you to the right direction.

How to Get Approved for a Mortgage

How to Get Approved for a Mortgage

Knowing how to get approved for a mortgage is very helpful when planning to buy your first home, or investment property or even your second home. Do not even think that real estate financing can be approved without knowing that there are certain prerequisites on how to get approved for a mortgage.

people that are mortgage happy, how to get approved for a mortgage

When it comes to getting a mortgage approval you should be ready to provide proof of employment / income, down payment, strong credit history and willingness to work with your mortgage broker or agent.  There will be occasions when it’s just not time yet to buy your own place and that’s alright. This wake-up call allows you to prepare yourself for the near future. Things that you can do on how to get approved for a mortgage are:

1) Make sure you have a steady income stream; full time employment or self-employment

2) Start putting aside money for your down payment. You will need at least 5% of the purchase price. The higher your down payment amount the higher could be your chances to getting a mortgage approval.

Equifax_Transunion, How to get Approved for a Mortgage

3) Do a credit check on yourself with both Transunion, and Equifax Canada

to make sure your credit is in order. If you find any problems with it, such as fraud, outdated payment / debt balance information, incorrect personal information, or anything else; immediately rectify the issues. The stronger and cleaner your credit bureau history the better it will look when the lender reviews it at the time of mortgage application.

4) Even the property you are interested to buy can make a difference in your mortgage approval rating. There are times that for different reasons the lender will not approve the mortgage application, even though everything else is good, because the property is not marketable, or too small, or was previously used for illegal purposes. This is where it pays off to work with an experienced and trustable Realtor who can find you the right properties.

5) Lastly,and equally important, consult in advance with a mortgage professional about your future plans of home ownership. A mortgage professional is trained and educated on the subject of mortgage lending and underwriting. They will be able to provide you with valuable and timely advice.

Are you wondering if you could be approved for a mortgage and how much? Contact us. We are here to help, and work with you in reaching your home ownership goals.

Private Mortgage

Private Mortgage

private mortgageWhat is a private mortgage you ask? A private mortgage is a loan provided by individuals who wish to gain a higher return on their investment focused funds in comparison to depositing their money into a regular savings bank account, or an investment type of an account with low yields. A private mortgage is secured against the property that the borrower has requested the private mortgage for.

Private mortgages can be an accumulation of a large number of investors who have pooled their personal or business / investment related funds into a trust account, or single individuals with enough of their own money. These funds are managed by a mortgage brokerage company or a company solely created for the reason of lending out private funds for the purpose of real estate financing.

To get approved for a private mortgage is not as difficult as to get approved for a mortgage from a lender such as the chartered banks; there are less restrictions in comparison to the other extreme, which are the chartered banks that require detailed information from the borrower, such as employment / source of income, proof of down payment, and a healthy and strong credit score with no recent credit issues. In comparison, the most important item that a private lender looks at is the property that is being purchased; where is it located, what is its condition, and can it be sold if the borrower defaults on their mortgage payments and the private lender has to foreclose and sell the property.

A private mortgage comes with a much higher interest rate and there is a onetime lender fee that must be paid by the borrower of the private mortgage. Normally what happens is that the borrower cannot be approved for a regular mortgage from a bank or the other specialty mortgage lenders, and what is left is a private mortgage. These types of mortgages are contracted to be paid in full in a short period of time, such as one year or less, and they are used many times as a second mortgage to cover up the difference of the down payment that the borrower does not have.

For example, the borrower does not get approved by one of the big banks in Canada, and his or her mortgage broker or agent will take their client to the next available option, which are what we call the ‘B’ lenders who deal with special case scenarios, such as those who have had previous bankruptcy’s, self-employed individuals who can’t prove their income, those with bad credit, …etc. You get the picture. The ‘B’ lenders will potentially give the client a mortgage loan no more than 80 – 85% of the real estate value; otherwise known as LTV Loan To Value. That means if the borrower does not have enough of the remainder of the funds in the form of a down payment, then they are left with trying to get a private lender to give them a private 2nd mortgage which would cover part of the down payment and the borrower would provide the rest of it. No lender would ever go up to 100% financing on these special case scenario types of deals. Therefore, the 1st mortgage lender will go up to a maximum of 80 – 85%, then they will stipulate in their contract that the borrower can get a 2nd mortgage up to an additional 5 – 10% and the rest the borrower will have to provide from his or her own resources.

Pros

– Quick money

– Straight forward approval process

– Look at the property more than the applicant

Cons

– High interest rates

– Lender fees

– Short term borrowing solution; paid back usually by one year or less

– Because it’s short term, at the end you have to refinance mortgage to pay back the 2nd mortgage and costs occur again in a short period of time

Debt Consolidation

Debt Consolidation

Debt Consolidation

The holiday season is over and now is the time to start thinking about all that spending you made during the last month or two. Well, if you own real estate, then there is a better option of doing a debt consolidation. debt consolidation

Many people will be stacking up high interest rate credit cards or using their personal line of credit’s to pay off their high interest rate credit cards, but even the unsecured personal line of credits that the banks offer have high interest rates.

If you own your own home and have been paying down the mortgage there is a good chance that you have built up value or equity in your property.

Equity is the amount of money worth on your home, when you take the appraised market value and subtract it from your current outstanding mortgage balance. Financial institutions in Canada, such as chartered banks and trust companies offer secured lines of credit or otherwise known as Home Equity Line of Credit HELOC up to 80 percent of the appraised value. In the financial services industry it is called Loan to Value LTV.

With today’s current Canadian prime lending rate of 3% HELOC’s are rated at Prime plus a percentage point. On average the Home Equity Line of Credit interest rates as of the date of this blog post are Prime + .50%. Is not this interest rate better than the 18 and above percent that you would pay with your credit cards?

A Mortgage Brokerage company such as Trusterra Mortgage would be in the best position to offer you professional and unbiased advise in the context of real estate and mortgages on how to manage your holiday debts and to help you start saving money and interest.

What are you waiting for? Contact us and let us help you to consolidate your accumulated debt and save on high interest rates.

Secured Credit Card

Why a Secured Credit Card

Living in Canada means that you now have to start building your credit score and credit strength. In some cases a secured credit card can help you do this. What does this mean? When ever you go to purchase something that requires you to get a loan, such as a car, or house, the lending institution that is considering your loan application will check to see how strong of a credit score you have. There are two credit reporting agencies in Canada; Equifax and Transunion.

For people who have just arrived to Canada, or for students who have finished college or university and are getting out into the working field, they will need to get their first credit card or line of credit. This is important in two ways. The first is that they will now have a source of credit to purchase what they like, and second, as soon as they start buying items and putting charging it to their credit card, those transactions will be reported to Transunion and Equifax. These credit agencies use specially designed algorithmic formulas to determine your credit score and credit strength (worthiness).

The lending agencies such as chartered banks count on these credit scores to make their final decision as to whether approve your loan or not due to how reliable you are with paying back your debts. The higher your credit score, the better it is.

A secondary service that we have at Trusterra Mortgage is to help individuals to build or rebuild their credits by providing them with a secured credit card.

Before we go further in this post and explain to you about what a secured credit card is, we should point out that there are individuals who have been living in Canada for many years and did in fact have credit cards, but for some reason or another, they ran into financial difficulties and throughout time were not able to pay back their loans, or paid them back very late. Because of these discrepancies their credit scores have been reduced greatly and now the major credit card company’s / banks will not approve them for any credit cards until they can show to the bank again that they have a strong an clean track record of being able to pay back their loans on time.

Now, back to what a secured credit card is. Basically it means that you will have to provide a security deposit to the credit card issuer in order for them to approved you on that security deposits amount to be your credit or spending limit. Therefore, if you provide $500.00 as a security deposit onto the credit card, then your credit limit on the card will be $500.00. You can spend up to this amount but you can never go beyond it. Also, if for some unfortunate reason you can not pay back what is outstanding on the card, the credit card issuer already has your security deposit and they have nothing to lose.

The main purpose of getting a secured credit card is so that you can start building credit activity to your name. As you use the credit card in your day to day purchase transactions, your credit score can start to move up and eventually you will be able to go to a major bank and apply for a unsecured credit card. After which point, you can cancel your secured credit card, get your security deposit back and be on your marry way.

Generally speaking, pretty well everyone who applies for a secured credit card get’s approved.