Home Buyer’s Plan – RRSP’s

DID YOU KNOW…

The Home Buyers’ Plan (HBP) is a program for first-time homebuyers that allows you to withdraw funds from your RRSPs to buy or build a home. You can withdraw up to $25,000 tax-free ($50,000 for a couple). Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP. Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You’ll have to repay an amount to your RRSPs each year until your HBP balance is zero. If you don’t repay the amount due for a year, it will have to be included in your income for that year. Click here for more information from Canada Revenue Agency.

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Choosing your Amortization

Choosing your Amortization

 

Choosing  your mortgage amortization period – the number of years it will take you to become mortgage free – is a decision that will affect how much interest you pay throughout the life of your mortgage.

While the lending industry’s benchmark amortization period is 25 years,  shorter or longer time frames are available – to a maximum of 30 years for Insured High Ratio mortgages and some Lenders will even do up to 35 years for Conventional mortgages.

The main reason to opt for a shorter amortization period is that you will become mortgage-free sooner. The interest you pay over the life of the mortgage is, therefore, greatly reduced.

A shorter amortization also affords you the luxury of building up equity in your home sooner. Equity is the difference between any outstanding mortgage on your home and its market value.

Because you’re reducing the actual number of mortgage payments you make to pay off your mortgage, your regular payments will be higher. So if your income is irregular because you’re paid commission or if you’re buying a home for the first time and will be carrying a large mortgage, a shorter amortization period that increases your regular payment amount and ties up your cash flow may not be the best option for you.

The key is to select the amortization that best suits you  and ensures you have adequate cash flow. If you can comfortably afford the higher payments, are looking to save money on your mortgage or maybe you just don’t like the idea of carrying debt over a long period of time, opting for a shorter amortization period may be ideal for you.

Advantages of longer amortization
Choosing a longer amortization period also has its advantages. For instance, it can get you into your dream home sooner than if you choose a shorter period. When you apply for a mortgage, lenders calculate the maximum regular payment you can afford. They then use this figure to determine the maximum mortgage amount they are willing to lend to you.

While a shorter amortization period results in higher regular payments, a longer amortization period reduces the amount of your regular principal and interest payment by spreading your payments out over a longer time frame. As a result, you could qualify for a higher mortgage amount than you originally anticipated. Or you could qualify for your mortgage sooner than you had planned. Either way, you end up in your dream home sooner than you thought possible.

Again, this option is not for everyone. While a longer amortization period will appeal to many people because the regular mortgage payments can be comparable or even lower than paying rent, it does mean that you will pay more interest over the life of your mortgage.

Still, regardless of which amortization period you select when you originally apply for your mortgage, you do not have to stick with that period throughout the life of your mortgage. You can always choose to shorten your amortization and save on interest costs by making extra payments when you can or an annual lump-sum principal pre-payment. If making pre-payments (in the form of extra, larger or lump-sum payments) is an option you’d like to have, you should ensure the mortgage you end up with will not penalize you for making these types of payments.  Each Lender has different pre-payment privledges, so let a Mortgage Broker help you to find the best option for you.

It also makes good financial sense for you to re-evaluate your amortization strategy every time your mortgage comes up for renewal (at the end of each term of your mortgage, whether this is three, five, 10 years, etcetera). That way, as you advance in your career and earn a larger salary and/or commission or bonus, you can choose an accelerated payment option (making larger or more frequent payments) or simply increase the frequency of your regular payments (ie, paying your mortgage every week or two weeks as opposed to once per month). Both of these features will take years off your amortization period and save you a considerable amount of money on interest throughout the life of your mortgage.

Please feel free to contact myself if you have any questions or concerns, at 905-906-5191!

Kathy Erickson

Mortgage Agent

Morbridge Financial Corp Lic#11939

 

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Items that affect a Credit Score – Part Three

Here are the remaining items that will affect your credit score:

 

Types of Credit

The best mix of credit is a combination of a store credit card and a major credit card such as a Visa or MasterCard.  It is important not to have too many, however, as the number of trades on a file can negatively impact a credit score.

 

Number of Trades on File

Too many credit cards and loans may also lower an individual’s credit score.  By having only a few trade lines, an individual’s credit score may be improved.

 

Credit Inactivity

Using credit responsibly iso ne of the fastest ways to increase a credit score.  Unfortunately those who only use cash to make purchases can have a lower credit score than those who regularly use credit.

 

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Items that affect a Credit Score – part two

Another question that everyone wants to know is how often our credit scores get updated.  The general consensus is that it get’s updated monthly.   So I’m here to tell you what other items affect a credit score, here is part two:

Payment History

Missing or late payments will have a negative effect on a credit score.  It is important to ensure that all payments are made on or before their due date, and in the correct amount.  Any judgments, bankruptcies, collections and other public records are considered quite serious and have a significant detrimental impact on a credit score.

 

Amounts Owed

A good rule of thumb is to keep balances below thirty-percent of the available credit limit.  Balances over this amount may lower a credit score.  Having several accounts with high balances in relation to the available credit may indicate that the individual is relying heavily on credit to meet his or her daily living needs.

Length of Credit History

The longer a trade line has been established, the higher the credit score.  Therefore if an individual is considering closing an account he or she should consider closing the most recently opened account.

 

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Items that affect a Credit Score

Items that affect a Credit Score

Good evening, over the next week or so, I will be posting items that affect a credit score.  First off I will start with New Credit and Inquiries, especially when client’s are applying for a Mortgage.   I often have client’s concerned that it will affect their credit rating should their bureau be pulled multiple times within a short time period.  I hope the following information will provide comfort in knowing how it works when you apply for a mortgage or auto financing:

New Credit and Inquiries

multiple inquiries can lower a credit score.  The program can determine that an individual is a credit seeker.  However, if an individual is seeking mortgage or auto financing, the program allows for a thirty-day buffer.  For example, if an individual applies for a mortgage on November 30th, and the credit report shows three previous inquiries in November, the program will ignore those three inquiries since they took place within the thirty-day buffer zone.

In addition, if the individual has mortgage or auto inquiries on his or her credit report outside of that thirty-day period, the program will only count them as one inquiry provided that they were made within a fourteen-day period.

However, multiple applications for other types of credit such as personal loans and credit cards will lower an individual’s credit score.  The program also takes into account the length of time since the last new account was opened.

 

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Basic Mortgage Underwriting Guidelines/Process – Part Five

Basic Mortgage Underwriting Guidelines/Process – Part Five

 

Final Stage of Process:

Once all documentation is received and satisfied by the Lender, the borrowers Solicitor will be instructed.  The solicitor will contact the borrowers to set up an appointment in order to sign mortgage documents and once again verify identification with ID.  Day of funding the clients will obtain keys to the property and security codes, garage door opener etc and documents and closing funds will be transferred to vendor’s lawyer. 

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Basic Mortgage Underwriting Guidelines & Process – Part Four

Basic Mortgage Underwriting Guidelines & Process – Part Four

If the application is approved, a commitment is issued to the client and most times ID verification is also required at time the Commitment is signed and dated.  The Commitment will provide details of conditions set out by the Underwriter and they will request documentation in order to verify same.  Examples of some standard conditions are as follows (keep in mind conditions are based on different scenarios and products:

• Income & Employment verification
• Down payment verification
• Appraisal of property
• Solicitor Information
• Void cheque
• MLS
• Purchase & Sale agreement
• Signed Commitment
• Insurance request or waiver
• Disclosure Statement

 

Mortgage Pre-approval Explained

When you get pre-approved for a mortgage loan, you are essentially finding out how much money a particular lender is willing to lend you. The word “particular” is a key part of that last sentence, because Lender ‘A’ might be willing to give you more or less money than Lender ‘B.’ they all have slightly different underwriting and approval guidelines.

Pre-approval goes a step further than pre-qualification, which is just a basic review of your finances. Through this process, a lender will review your finances in greater detail and will pre-approve you for a certain amount. let’s define each of these similar-sounding terms:

• Pre-qualification — The process of determining how much a borrower (home buyer) can afford to borrow, based on a basic review of their finances. Gives you a general idea of what you can borrow. Generally does not require a formal mortgage application. Pre-qualification is non-binding, which means there is no guarantee you’ll actually get approved for this amount.
• Pre-approval — Similar to the pre-qualification process described above, but based on a more in-depth review of the borrower’s financial history. Gives you a more accurate idea of how much you can borrow. Generally requires a mortgage application. This process takes place before you have selected a home, which distinguishes it from the final approval described below. Pre-qualification is non-binding.  No documentation is requested at this time of the process, but your credit bureau will be reviewed and conditions will be provided in a pre-approval certificate.
• Approval — This is the final approval by the mortgage lender. It takes place after you have chosen a home and made an offer. It usually requires a home appraisal as well. The commitment will have outlined a set of conditions and documentation to be provided to the Lender in order for the borrower to obtain funds to proceed.

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Basic Mortgage Underwriting Guidelines & Process – Part Three

Basic Mortgage Underwriting Guidelines & Process – Part Three

In most instances the file must be manually reviewed by an Underwriter, unless all the following criteria meets the lenders guidelines for their products and for their automated approvals on their system:

• Minimum beacon scores
• Maximum GDS/TDS ratios
• Maximum Loan to Value ratio
• Type of Property
• Employment type, example business for self needs to be reviewed
• Net Worth
• Down payment source
• Maximum Loan amount

 

In most cases an underwriter will also review the above criteria along with a detailed analysis of the credit bureau report and the property.   The Underwriter will adjust the mortgage request details sometimes in order to be able to provide a mortgage to a customer should they not be able to fit in the box.  Examples of some details to help would be the following:

• Adjust the amortization (increasing it will lower payments, which will lower GDS & TDS)
• Change to Monthly payment frequency (will lower GDS & TDS)
• Reduce the amount of the Mortgage amount requested to lower not only GDS & TDS, but it will lower the LTV which will reduce the Risk to the Lender.
• In some instances the product may be changed, example a HELOC is higher risk product, than a regular Conventional term mortgage.  High Ratio mortgages are less risky for the Lender, but there is a premium cost to the borrower and the Insurer must also adjudicate the application and approve it.  The rate may be lower for another type of product which will help with GDS/TDS. 

 

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Basic Mortgage Underwriting Guidelines/Process – Part Two

Part Two:

Credit bureau is pulled and the following list can be identified in a bureau along with the applicants credit beacon Score.  Each Lender will have criteria around the minimum beacon score required for specific products.

• Consumer file alert:  Information on inquiry does not match file or is invalid.
• Safescan warning:  Fraud alert message warns you of potential application fraud.
• Identification Section:  Subject and co-subject/spouse.  Date file was established.  Date of last activity on file.  Current address, origin and date added to file.  Former address.  AKA or name subject is also known as.  Date of birth.  SIN will only display if provided on application/input and matches with information on file.
• Inquiries Section:  INQS alert appears if three or more inquiries within past 90 days.  Date and member name for inquiries in the past 36 months.  Member phone number for inquiries in past 12 months.
• Employment Section:  Employer may show along with position.
• Public records or other information:  Bankruptcies, third party collections, secured loans, and judgements.
• Trades:  Date item last reported to bureau.  Date account was opened with credit grantor.  High credit on the account; the highest amount owed or credit limit.  Monthly repayment amount.  Balance owing as of date reported.  Past due amount as of date reported.  Types of accounts or manner of repayment.

Depending on the lender the user may be systematically auto-rejected based on the above information. Conversely the user may be auto-approved.  This is true for pre-approvals, purchases and refinances. 

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Basic Mortgage Underwriting Guidelines & Process – Part 1

Over the next few days I am going to post some basic mortgage underwriting guidelines and process of what you can expect from the time of application to the time of the advance of funds.

Part One:

Mortgage application:   Each applicant provides the following information:

1. Name, current residing address, date of birth & contact phone number.  Employer, income amounts,  address & phone number of Employer.  Previous address & previous employers and income to be included if residing at current address and at current employer less than 3 years.
2. Purpose of mortgage, (ex. purchase, refinance or pre-approval).  Amortization, rate (if known), rank, term, amount, closing date & Payment frequency.
3. Property details (not necessary for a pre-approval).  Civic address, Lot#, Plan#, Municipality, Occupancy, Rental income if applicable, Lot size, garage attached or not, heat, property taxes.  Present value, closing date.  Is it detached, duplex, triplex, semi detached, townhouse, condo and if Condo include condo fees.  Age, Storeys, # of units, zoning. 
4. Details of existing mortgage if purpose is a refinance:  Rank, Current balance, Rate, Payment, Lender, Maturity date.
5. Any other income (ex. Rental income, pension income, part time job)
6. Assets (ex. Other properties, cars (but not leased), checking and savings account balances, investments, RSP’s,  GIC’S) 
7. Liabilities (ex. Loans,  credit cards, line of credit, mortgage’s, leases, rent.  If client owns another property then taxes and heat of other property must be included along with value, payments and balance outstanding)
8. Down payment:  Amount & source of down payment
9. Applicant(s) consent to a bureau search

 

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