Stick out your financial paperwork and say, “Ahhh!” It’s time for a check-up. Thankfully, this check-up doesn’t require you to face your weight on that maddeningly accurate doctor’s scale, or sit in a cold and drafty little room with an open hospital gown. Actually, it’s a mortgage check-up that’s in order, and making time for a quick review may yield some amazing results.
About 80% of Canadians visit their doctor at least once a year
to help ensure they remain physically fit but far less are checking their
financial fitness annually.
Life changes, families grow, job’s move, retirement objectives
shift. There are any number of reasons why your mortgage and possibly your
entire financial picture should be evaluated from year to year. Maybe there are
no changes needed but if there are it’s better to identify them early.
The mortgage that you signed up for a few years ago may no
longer be the best fit for you. Doing a financial check-up is a very smart
thing to do annually. Many often just wait for the renewal letter before they
look at their mortgage and then go back to their current lender without
considering whether that mortgage meets their current needs.
There are so many things that a mortgage can do for you. It can
help you become more tax efficient, build wealth for retirement, renovate your
home, consolidate high interest credit card debt or perhaps invest in a
business, purchase a vacation or rental property and so much more.
When you
obtain a mortgage it is most likely the largest financial transaction of your
life. Here’s a thought for you – instead of focusing solely on the interest
rate perhaps it might be important to consider various strategies that you can
utilize within your mortgage that will assist you with your goal of ‘mortgage
freedom’ and ‘financial freedom’ when you are ready to retire.
Having
the same mortgage strategy your entire life is not always the best financial
decision. If you are applying different mortgage strategies at different stages
of your life, just like your other investments, it can lead to the financial
wealth and the independence you are hoping for in retirement.
Don’t wait for your mortgage to come up for renewal and don’t
wait until after you have made a major change in your personal situation. By
reviewing annually you will ensure you stay financially fit.
Give me a call today at 1-888-561-2679 or email me at april.dunn@mtgarc.ca so we
can schedule your check-up. I promise it won’t hurt!
Do you have a full understanding of the role of a mortgage
broker? A recent report indicated that three quarters (74%) of the respondents
admitted they had at best only a ‘partial’ understanding of the role of a
mortgage broker.
Here are the top 5 reasons from the survey for potentially not using a mortgage broker and clarification of exactly how a mortgage broker can assist you.
#1 – I don’t want to pay for Mortgage Broker services
This is the primary misconception about using the services of a Mortgage Broker. Mortgage Brokers are independent and work with many banks and direct mortgage lenders. The lender pays mortgage brokers on terms agreed upon between the lender and mortgage broker. You are not charged a ‘direct fee’ for their services. The mortgage broker works with the lender until the closing of your mortgage and then receives their fee from the lender. Occasionally a ‘broker fee’ might be charged in very difficult situations but these fees would always be fully disclosed in advance.
#2 – I would rather deal directly with the lender
There are many direct mortgage lenders in Canada that can only be accessed through a mortgage broker. Your mortgage broker will analyze your financial situation which includes your credit and employment history and provide you with your mortgage options. They will then present your application in the most favourable way to the lenders that the broker has determined will best fit your needs. They will also clearly explain all of the terms and conditions including how pre-payment penalties are calculated so there are no misunderstandings should you need to exit your mortgage early.
#3 – The thought of using a mortgage broker didn’t cross my mind
That is totally understandable. Your first thought is to
walk into your local bank to apply for a mortgage because this is your main
financial resource. Mortgage brokers are not transactional like your bank and
will continue to be a source of information for the life of your mortgage.
Your local bank can offer you decent rates and you may be comfortable with them but financing your home is most likely the largest financial transaction you will ever undertake. Getting the best possible mortgage can literally save you thousands of dollars so working with a mortgage broker who will explore ‘all’ of the available options for you is a prudent choice.
#4 – I don’t want to deal with a lender that I’m not familiar with
The monoline lenders (non-deposit taking lenders) that are
only accessible through mortgage brokers are a very important part of the
mortgage industry in Canada. Their mortgage products and low pricing improve
consumer choice and force our dominant banks to be more competitive.
Monoline lenders do not have store front
locations so these costs are not passed along to the consumer and as a result
they generally offer better interest rates and lower penalties should you
decide to pay off your mortgage.
They source their business through mortgage brokers and can have more flexible lending programs than the major financial institutions.
#5 – I don’t understand what services mortgage brokers provide
Mortgage brokers provide you with more choice as they have
access to a network of many lenders that offer different products and services
providing you with objective recommendations for your financing options.
Mortgage brokers have access to the best rates and negotiate
on your behalf to ensure you receive the best terms on your mortgage for now
and into the future.
Mortgage brokers are professionals that have on-going
educational requirements to ensure you are always receiving the best
independent advice.
If you would like to learn more about how a mortgage broker
can assist you with finding your best mortgage options, please give me a call
at 1-888-561-2679 or email april@reddoormortgage.com
We have worked hard together to get your mortgage approved and have been successful in securing great rates and terms for your mortgage financing.
There is going to be a period of time between receiving the final approval for your mortgage and the date that it will actually fund with the lender.
Things can go wrong within this time frame, so here is a brief list of things to never do between the approval and the final closing of your mortgage as most lenders are going to re-verify information before they fund your mortgage.
If anything has changed, it could kill your mortgage approval.
Change your job; quit your job; become self-employed
Do not change your employment status even if you are moving to a job that pays you more than you are currently making. Most employers have a probationary period that you must complete and the lender may no longer feel comfortable with granting you a mortgage because you are making a change in your employment status.
Quitting your job might seem like an obvious thing not to do, but losing the income might also disqualify you for the financing even if you are not the primary borrower.
Make a change to self-employment – wait until after your mortgage closes. The mortgage rules for the self-employed are different than if you are an employee.
Buy a new car or truck or van or motor home or new furniture
Most lenders are going to pull a new credit report right before they fund your mortgage. If they discover credit inquiries from car dealerships or a new car loan or any new debt now reporting on your credit report, the new payment could put your qualifying budget ratios out of line making it so you no longer qualify for the mortgage.
It might also be tempting to go shopping for furniture and dishes for your new home but you should wait until after you move into your new home. By increasing the amount that you owe to your creditors you are jeopardizing your mortgage approval because you didn’t owe those funds when your mortgage request was reviewed by the lender.
Another side effect of applying for new credit – it could pull down your credit score to a lower number that means you no longer qualify for your mortgage as there are minimum credit score requirements.
Don’t use those credit cards or close any accounts
As above, lenders are going to update your credit report before they fund your mortgage. Significantly increasing the balances outstanding on your credit cards could disqualify you for your mortgage financing.
The lender has also approved your mortgage based on your current financial situation. There are minimum requirements for open accounts by both lenders and mortgage insurers so conversely by closing accounts you may no longer meet those minimum requirements for open credit accounts.
Do not co-sign for someone else’s mortgage or loan
If a family member asks you to assist them by co-signing or being a guarantor on a mortgage or a loan, please don’t. You may have the best intentions to assist a family member but this could also jeopardize your approval.
Adding any extra debt could throw your borrowing ratios out of line as the new payments must be included in your debts even if you aren’t the one who is making the payments.
Don’t stop paying your bills
We may have approved you for a refinance of your mortgage to payout your debts but you need to continue making your payments until the mortgage has funded and the balances owing have been paid off.
Your credit score may be affected by not paying those bills and that could result in you no longer qualifying for the refinance.
The best course of action is to check with whomever approved your mortgage financing before making any changes to your financial situation. Making changes without the proper advice could actually cause your mortgage financing to be declined.
Unfortunately, these examples are from real-life situations. Give me a call at 1-888-561-2679 or email april@reddoormortgage.com and I will be happy to ensure that you don’t do anything to jeopardize your mortgage approval.
3 million Canadians have home equity lines of credit, but half of us don’t know how they work.
A survey suggests 35 per cent of Canadians have a home equity line of credit and 19 per cent said they’d borrowed more than they intended. (Canadian Press)
Over the past 15 years, home equity lines of credit have emerged as the driver of mounting non-mortgage debt in Canada — yet many Canadians don’t understand what they’ve signed up for and are not moving to pay them off, a new survey suggests.
The more than three million Canadians holding a HELOC owed an average amount of $65,000, the study released Tuesday by the Financial Consumer Agency of Canada (FCAC) found. About one quarter of HELOC holders had a balance of more than $150,000.
Yet 25 per cent of respondents said they only made the interest payments month to month.
Ipsos conducted the online survey of 4,800 Canadians, most of them homeowners, from June 5-28, 2018, on behalf FCAC, a federal agency that promotes financial education.
HELOCs are revolving credit products secured against the equity in a home. Banks can lend up to 65 per cent of the value of a home. Such lines of credit have been easy to get and banks offer them as a default credit option to anyone with home equity.
Of the homeowners surveyed, 54 per cent had a mortgage and 35 per cent had a HELOC.
Cheap source of credit
“You can’t deny the fact that for the consumer it is a cheap source of credit. However, you have to use it well,” said Michael Toope, communications strategist for FCAC.
The problem is that people borrow more than they intended and end up struggling with the debt, he said.
The survey suggested there is a lack of understanding among consumers of how these lines of credit work.
Only half of respondents knew basic facts about the terms of HELOCs, such as:
Banks can raise the rate of a HELOC at any time.
The bank can demand the balance of a HELOC at any time.
There are fees to transfer a HELOC to another institution.
The bank can raise or lower the credit limit on a HELOC.
Interest rates began climbing in 2017 and 2018 and are likely to rise further this year. That affects the interest cost of these loans and the overall cost of paying them off. Your HELOC is more expensive than a mortgage as the interest rate is higher.
“Each bank sets its own prime rate based on the Bank of Canada rate and HELOCs are usually set at prime plus a premium, but the bank can change that premium at their discretion,” Toope said.
For some, HELOCs are risky
Almost two-thirds of respondents said they used their HELOC only or mostly as intended, as a revolving line of credit.
Yet for some, HELOCs are a risky product that eats away at their ability to build wealth, Toope said.
The equity they build in their home as they pay off a mortgage is a way for Canadians to build wealth over time, but that won’t happen if they have a debt secured by the house.
“In the end, you’re losing the long-term value of the mortgage you have in your home,” Toope said.
In a 2017 report, FCAC found home equity lines of credit may be putting some Canadians at risk of over-borrowing.
That report found most consumers do not repay their HELOC in full until they sell their home.
About 19 per cent of respondents to the new survey said they’d borrowed more than they intended.
How much do I owe?
And 18 per cent said they did not know the full balance on their HELOC.
Among those who paid only the interest on the debt, the majority were young Canadians, aged 25 to 34. That’s not unusual, as people at that stage of life tend to have lower incomes and may be burdened with student debt as well as a mortgage, but it still indicates a lack of understanding, Toope said.
The survey found 62 per cent of those who paid only the interest expected to repay their HELOC in full within five years, a plan Toope called a “mathematical impossibility.”
Half of Canadians borrowed against their HELOCs for renovations, but another 22 per cent dipped into it for debt consolidation, with vehicle purchases and daily expenses also common uses, according to the survey.
“People should know what they are going to use it for and how to pay it down, so it doesn’t become an eternal revolving debt,” Toope said.
Can’t pay your mortgage? Sometimes an unforeseen financial situation can happen and you might not be able to make your regular mortgage payment.
I can’t stress this enough — take immediate action at the first sign of distress and work together with a mortgage broker to find a solution to this difficulty.
The worst thing you can do is ignore it as open and early communication with your lender is the best action to take. Lenders get upset when you ignore them and are less likely to negotiate with you.
This one step will increase the chance of managing this difficult situation and early intervention is very important. We need to fully understand your financial situation in order to assist but there may be a solution.
Most Canadians don’t know what options are available. Did you know that some lenders will allow you to ‘skip-a-payment’ and this option might be available as part of your mortgage features.
If you ignore the situation too long you could find yourself facing foreclosure if you are in one of these situations:
You are about to miss a mortgage payment because you don’t have the funds to pay
You have missed one or two mortgage payments
You have received a notice or demand letter from your mortgage lender
Or you have been serviced a Petition for foreclosure
If any of this applies to you, this is a serious situation and you may be on your way to foreclosure.
The easiest thing to do is ignore any phone calls from your lender or the demand letter that they may have sent to you, but doing so is really the worst thing you can do and here are some of the consequences of ignoring the situation.
You won’t have any say in the court proceedings and they will go on without you
If the home is sold you will get little if any notice that you have to vacate the property
You may have less time to stay in your home than if you had appeared in court
You may have some options to solve this problem but speaking early to a mortgage broker is really your best course of action if you are unable redeem your mortgage by bringing your payments up-to-date along with any legal costs incurred by your lender.
Here are some ways that a mortgage broker can advise you:
Perhaps you can refinance to lower your monthly payments to keep you within your budget.
We can see if we can obtain a new mortgage with another lender and pay off your current lender
We can take a look and see if there is enough equity in your home to make selling it yourself worthwhile
Or if we can’t solve your problem, then going to court may be the best option
If you fall behind on your mortgage the interest and costs can accumulate very quickly and it is critical to seek assistance early before things get out of your control so please give me a call at 1-888-561-2679 for a confidential conversation or email me at april.dunn@mtgarc.ca.
A recent report from Equifax Canada in October 2018 concluded that consumer debt is still on the rise in Canada.
“Consumers will have tighter cash flows as interest rates climb further, which can lead to people not paying off their credit cards in full each month.
After a period of sustained economic growth, we’re moving back to a slow and steady pace. And finally, new mortgage volume has been negative over the last three quarters.
Add these together and we should begin to see upward movement in delinquencies.”
It’s unfortunate that the government has been focusing on controlling mortgage borrowing and home ownership in Canada while neglecting the impact of high interest credit card debt and the affect it is having on the financial health of Canadians.
Statistically, the amount owing is less on credit card debt than mortgage debt but the overall cost of borrowing is so much higher.
Making these large monthly payments restricts your cash flow while reducing opportunities for retirement planning and saving for the future.
Let’s take a quick look. If you aren’t paying off your credit card balance monthly, how much do you think you really paid for the big screen TV that you bought on sale after Christmas?
If you carry on only making the minimum monthly payment on the credit card after purchase, here’s what it could cost you.
If you paid $2,000 for that TV with an interest rate of 19.5 per cent on your credit card and you are just make the minimum monthly payments, it will take you more than 14 years to pay for your TV.
Yes! Fourteen years!
And it will cost you over $4,000!. (It could actually take longer and cost you more depending on the minimum payment requested by your credit card company and the interest rate being charged).
Buying this TV on credit is not a bargain.
There are dangers to borrowing to the max on your credit cards as it can leave you with very little wiggle room.
What happens if interest rates start to rise? All indications are that interest rates are on the rise moving forward into 2019.
The answer is that your minimum payment will just get bigger and bigger. And what happens if you lose your job?
How can you possibly keep making those minimum monthly payments?
If you are a homeowner, there are great possibilities for real savings by using the equity in your home as a debt consolidation tool.
The most attractive reason for consolidating debt into a mortgage is that there will definitely be savings simply by lowering the interest rate you are paying on your debt.
Another reason would be to lower your monthly payments.
This could free up cash flow to start investing and saving for retirement.
There could be some costs involved if you must break your current mortgage and there are many variables at play here:
interest rates
amortization
fees
penalties for your specific situation.
You may find the overall cost of borrowing to be higher or lower than your current situation. Always run through the math with a mortgage broker.
The benefits really depend on how the math works out and whether you are committed to changing your lifestyle to prevent charging up the balances on those credit cards again.
You will need to master a budget.
If you would like a no obligation review of your current situation, please give me a call.
