Tips on cleaning up your debt, using a mortgage broker and understanding your credit score!

Clean up your debt before you leave on summer holidays!

Yes we're in the busy season! Lots of preparation for your summer vacation!  For many though, pesky debt responsibilities can dampen their planning and holiday enjoyment. Others may not worry about their debts, thinking they can always get their financial house in order after the holiday.

But if you’re concerned about your debt obligations, consider adding one more task to your pre-holiday to-do list! See if you can use your home equity to consolidate your high-interest debt into a new or existing mortgage. You’ll lower your payments, save on interest and can power down your debt faster. In almost every case, you’re better off holding your debt in a mortgage than in any other lending vehicle. Why? Because Canadian homeowners are benefiting from mortgage rates that are still among the lowest in decades.  Most debt obligations compound monthly where as a mortgage compounds semi-annually and at a lower interest rate in most cases!

Worried about penalties to break your current mortgage? Have your situation assessed; there’s a good chance that the savings each month will far outweigh any penalties.

What is a Mortgage Broker?

Many Canadians still figure that – if you need a mortgage – you stop by your banker’s office and take the best deal they say they can give you. But there are many other options for getting a mortgage in Canada. Your bank represents only one lender, and the person on the other side of the desk from you is working for that bank – not for you.  In today’s economy – and with so much of your financial life tied up in your mortgage – it doesn’t always make sense to restrict yourself to a single lender.

That’s where a mortgage broker comes in.  They don’t work for any particular lender. They work for the homebuyer.

What many Canadians don’t realize is that there are about 50 different lenders out there – including the major banks, of course – with a huge range of different mortgage products and rates.  Mortgage Brokers can shop around and compare rates and features to get you the best mortgage deal: whether you’re buying your first home or your tenth, whether you’re thinking about an investment property, a cottage, a home reno, or a debt-reduction plan. 

Maybe a lender has just announced a special deal on a mortgage that’s perfectly suited to your needs. Your bank doesn’t carry it, and the only way you would learn about it is through a broker. The difference could be worth thousands of dollars to you.

What are ‘Closing Costs’?

You found your house, you were approved for your mortgage, and you’re flushed with success. But before you pop the cork on that champagne, you may want to get an accurate read on the closing costs for your house.  Remember… you don’t have the mortgage funding until the day you close. Canadian homebuyers are often shocked in the last few days – when they realize just how much money they need before they can walk through their new front door.

In short, “closing costs” are all of those extra costs that come with buying a home. They’re not typically built into the mortgage, so you’ll be expected to have some extra funds set aside to cover these costs. How much are you looking at? Generally, you can expect to fork out between 1.5% and 4% of the home’s selling price in total closing costs.

For a transaction of this size and the lender documentation required, you’ll need to use a lawyer. You’re responsible for the legal fees and any disbursements – and these fees can vary. Your lawyer or lender may also recommend or even require title insurance, which can save the trouble and expense of surveys or unexpected issues with the property title in the future, and protect you from title fraud.  You will be required to obtain fire insurance on your home. 

Other “money up front” costs can include utility hookups, and reimbursement of any bills pre-paid by the previous owner: property tax or utility bills for example. Similarly, there may be an interest adjustment, depending what day of the month you close. Finally, make a realistic assessment of your moving costs and what you’ll need in the way of furnishings or appliances. 

If you’re working with an experienced mortgage broker, you’re probably ahead of the game as these types of costs will have already been discussed.

How are mortgage rates set?

The chartered banks set the prime lending rate (the rate they offer their best customers). They base their decisions on the Bank of Canada’s overnight rate because that’s the rate that influences their own borrowing. There are approxi mately eight times a year the Bank of Canada makes rate announcements. Variable mortgage rates and lines of credit move in conjunction with the prime lending rate.

Fixed-rate mortgages are a little different. Banks use Government of Canada bonds to raise money

for fixed-rate mortgages. In the bond market, interest rates can fluctuate more often, since they’re

subject to the changing moods of traders and bond investors, which try to figure out how fast the

economy will grow and where inflation is headed. As a result, watch the bond market for clues on

where fixed mortgage rates will go next.

What is a credit score?

As mortgage planners, it’s our business to help you get you the best possible rate for your situation. Unfortunately, a less-than-stellar credit rating can affect your ability to get the best mortgage rates. You may not realize how much money your credit situation is costing you. If you have large credit card balances, too many credit accounts and have missed making some of your payments, you’ll probably have some strikes against your credit score.

Known as a FICO score – with a range from 300 to 900 – your credit score tells lenders what kind of a risk you are likely to be as a borrower. Your score is based on the following five attributes, with some attributes weighted more heavily than others.

·         Previous payment history (approx. 35% of score)

·         Current level of indebtedness (approx. 30% of score)

·         Length of credit history (approx. 15% of score)

·         Pursuit of new credit (approx 10% of score)

·         Types of credit accounts you hold (approx. 10% of score)

At high credit scores (750 and up), lenders offer a quick approval at the best possible rates. This score says the person is reliable and responsible with debt. At lower scores (below 620), you could pay a premium on your borrowing rate and possibly even find it difficult to qualify.

Your credit score captures your perceived lending risk at a moment in time: your score can change from month to month. The companies that hold your credit accounts and loans report transactions to credit bureaus regularly. That’s a great opportunity for you, because it means you can improve your score with the right credit “behaviors”.

Are you finding it difficult to get the financing you need because of your credit record? An experienced  mortgage planner can often help you get out of a not-so-perfect credit situation. With access to more than 50 different lenders, including most of the major banks, they have become specialists in helping  Canadians restructure debt and improve their credit. It’s a great way to get started on the pathway to credit repair.

Get Started on Your Home Buying journey today with Realty Experts Group Ltd.!  Take advantage of our monthly incentive and receive a 'kick back' of $250 on your possession date!  Offer valid until July 31, 2010!