Credit Score and Report Overview

Have you ever wondered how your credit score is calculated? Have you ever asked, but are always given vague answers? I will tell you exactly how credit scores are determined for Canadian credit users. Over the next 4 months I intend to inform, educate and coach you through on how to increase and maintain your credit score to at least a minimum of 680. The reason for choosing the benchmark of 680 is simply because the federal lending guidelines and policies provide more debt servicing leverage for borrowers with a score of 680 or more.  I want you to have that option when it comes to purchasing or re-financing your property.  It’s just one less things to worry about when it comes to the intricate process of mortgage applications.

Over the next 4 months we will cover topics such as:

• 1. What is a credit report?
• 2. What is a credit score and how is it calculated.
• 3. How to repair, increase and maintain your credit score: The Do’s and Don’ts.
• 4. Common myths about credit scores.

Good credit score and overall report = Maximum Opportunities!

• Get better mortgage rates; access to more funds for a nicer home.
• Saves you thousands in interests.
• Allows for faster approvals.
• Makes it easier to attain credit.
• And can even be the difference in your career.

You see the difference your credit score can make. There is a significant amount of money you can save by having good credit. Interest rates is something you cannot control, but your credit score is. Why not opt to save thousands and provide yourself the best opportunities.

What is a Credit Report A credit report contains information about you; DOB, SIN, past/present addresses, employment, types of credit issues (credit cards, loans, LOCs etc) and total amount of inquiries you have made to obtain credit. A credit report also details balances along with repayment history. Basically a lender wants to know what is the probability that they will be repaid. Creditors and financial institutions report to the credit bureau every month. There are 2 agencies that receive and compile this data, Equifax and TransUnion. You’re probably asking yourself now, who has access to this sensitive information. Credit grantors, employers landlords, insurance agents and utility companies all do but only when consent is granted by you.

Here is an example of a real credit report. This part of the report details the score (not good) and address. I have omitted their birthdate and SIN.

This part of their credit report displays the creditors executing their credit checks along with his/her type of employment. This person seemed to be seeking alternative credit over the past 3 years. There were 4 collections listed.

In this credit report snapshot it details the creditor, when you applied for the credit, limit, balance and minimum payment along status and the last time the trade or creditor reported it to Equifax. Along with making the necessary payments one if required to make them on time, this being once a month. The R2, R3 and R4 mean that it was 2 months late etc…

this blog courtesy of Genworth Canada

What to keep in mind when creating a second suite Reporter/Byline: Mark Weisleder for the Toronto Star

Income from a basement apartment can help first-time buyers carry the costs of their home. But it’s not as simple as placing an online ad; homeowners must take due diligence to ensure their basement apartment is legal and that their tenants are trustworthy. The legalities of basement apartments

If the apartment doesn’t comply with local zoning bylaws and fire codes, the apartment isn’t legal.

You need to check with the city municipal standards department or the fire department to see if your basement apartment is registered as a second unit. If it is, then it is legal and compliant with the fire code. If it’s not registered, then you have to conduct further research.

A city’s zoning bylaw will tell you if your area permits a basement apartment. In Ontario, if the basement apartment in your home has been rented since October 31, 1995, then it is legal even if the current zoning bylaw does not permit it.

In Toronto, for example, a “second suites” bylaw passed in 2000 permits second suites in all single-detached and semi-detached houses throughout the city with certain conditions. If you do not meet these conditions, you must apply to the city for permission to create your new basement apartment unit.

If you want to apply for a new unit, you will need a building permit that satisfies the provisions of the fire code in your province.

When looking at a property, if the basement apartment is being advertised as a “nanny suite” or “in-law apartment,” be wary — this unit is most likely illegal. If a neighbour complains about your unit to the city and an inspection occurs, you will be required to pay to upgrade your unit to proper standards.

You must advise your insurance company if you intend to rent out your basement apartment. By not disclosing this information, it may refuse to pay a claim if, for example, a fire occurs later. Finding a good tenant

Besides advertising in a local newspaper, consider posting a listing on Viewit.ca, Kijii.com or Craigslist.ca.

You must be very careful when interviewing any potential tenant that you do not inadvertently violate any sections of the Human Rights Code by asking any inappropriate questions.

You are permitted to ask prospective tenants on a rental application if they smoke, whether they have pets and how many people will be living with them in the apartment. You can also ask for references and their rental history. You cannot ask about their ethnic background, religious or sexual preference, or marital status.

It’s important to conduct the proper research in advance before renting your basement to a residential tenant. You can use websites such as tenantverification.com or rentcheck.ca where for fees as low as $21 to conduct a credit check on a potential tenant. Be sure to ask for a current pay stub from where they work and call previous landlords for references.

Basement apartments, if created and rented out properly, can give you peace of mind and additional income to assist you in carrying the costs of your home and increasing its long-term value.

The ‘Starbucks effect’: Higher home prices

Living near a Starbucks has its benefits for homeowners, whether you’re a coffee drinker or not.

The value of homes within a quarter-mile of a Starbucks rise faster than those that aren’t, according to real estate research group Zillow (Z).

With tens of thousands of Starbucks locations in the U.S., that’s good news for a lot of homeowners.

Between 1997 and 2013, home closer to the coffee shop increased in value by 96%, compared to 65% for all U.S. homes.

Related: 4 trends popping up in high-end kitchens

The biggest “Starbucks effect” was in Boston, where nearby home values went up 171% in the same time period. That’s 45 percentage points more than all homes in the city.

Starbucks is usually a harbinger of good times for a locality. A new Starbucks gives a sense to developers that the neighborhood is on the rise, wrote Zillow CEO Spencer Rascoff and chief economist Stan Humphries in their new book “Zillow Talk.”

Related: Buffalo’s $1 homes aren’t as cheap as they seem

But dig a little deeper and it’s kind of a chicken and egg situation — it’s not like Starbucks (SBUX) can take credit for changing a community. The coffee chain is very good at finding locations that are up-and-coming, the authors said.

Homes near Dunkin’ Donuts (DNKN) also appreciate faster than the nation’s housing as a whole, but not as fast as those next to a Starbucks, according to Zillow’s analysis.

Vancouver, British Columbia – Canada’s largest private mortgage and lending institution Dominion Lending Centres (DLC) has announced that celebrated economist Dr. Sherry Cooper has taken the position of Chief Economist effective immediately.

Prior to joining DLC, Dr. Cooper was the chief economist with one of Canada’s largest financial institutions and is well versed in the mortgage sector.

“We are extremely honoured to have Dr. Cooper join DLC as our Chief Economist as the organization moves forward into 2015,” said Gary Mauris, President and CEO of Dominion Lending Centres. “Dr. Cooper’s knowledge, insights, and ability to forecast changes in the economy will not only benefit the company but Canadian consumers from coast to coast.”

Dr. Cooper has an M.A. and Ph.D. in Economics from the University of Pittsburgh. She began her career at the Federal Reserve Board in Washington, D.C. where she worked very closely with then-Chairman, Paul Volcker, a relationship she maintains today. After five years at the Federal Reserve, she joined the Federal National Mortgage Association as Director of Financial Economics. Dr. Cooper also served as Chief Economist and Executive Vice-President of BMO Financial Group (which includes the Bank of Montreal in Canada and BMO Harris Bank in the U.S.), where she led a highly respected team of economists. She was responsible for global economic and financial forecasting as well as country-risk and industry-risk analysis. She joined BMO Financial Group in 1994 when it acquired Burns Fry, where she had been Chief Economist, Co-Head of Fixed Income, and Vice- Chair.

“Joining DLC as Chief Economist represents a natural evolution in my career,” said Dr. Cooper. “For over 30 years I represented financial institutions by providing my insights into both the Canadian and global economies; now I am pleased to add my voice to an organization that provides choice directly to consumers. Mortgage professionals are really one of the best options for consumers seeking mortgage and financing advice for a home purchase, home debt consolidation, investment properties or home refinancing.”

Dr. Cooper will be advising on economic matters, issuing quarterly economic updates, and other statements as they pertain to the economy and the mortgage sector on behalf of Dominion Lending Centres. The financial sector can look forward to her returning expert opinion and analysis on all markets and areas of the economy that affect Canadians and in particular the housing and mortgage sectors. Dr. Cooper will work with all DLC’s business units and as one of the company’s primary spokespersons, she will also work with DLC’s external communications advisors Laura Ballance Media Group going forward.

The Week in Economic and Real Estate News The Canadian Real Estate Association published national December sales data last week which showed that activity in December, although down from November’s level, was about 8% higher than in December, 2013.

More than 481,000 resale homes changed hands in Canada in 2014, the highest level in seven years. Average home prices in Canada grew by 3.8% in 2014 and the MLS Home Price Index advanced by 5.4%. Royal LePage published its latest House Price Survey last week which calls for home prices in Canada to gain an average of 2.9% in 2015.

The national realtor suggests that recent weakness in energy prices will be a benefit to markets in central Canada and may cause some western markets to slow and create better opportunities for buyers.

The Calgary Real Estate Board published its annual forecast last week which predicts that sales volumes will fall by 4% this year while average prices in Calgary will stay on the positive side with a projected gain of 1.58%. The last Teranet House Price Index reading of 2014 was released last week. The index slipped by 0.2% in December but the annual gain came in at 4.95%.

The benchmark government of Canada five year bond yield ended the week at 1.09%, down from 1.22% the previous week.

1. More mortgage restrictions to come With Ottawa paring down its mortgage exposure, the Bank of Canada estimating up to 30 per cent overvaluation in Canada’s housing market, over-indebted consumers and average home prices incessantly breaking records, policy makers will restrict the mortgage market yet again. New limits on government-backed mortgage funding will make it more expensive for lenders to fund mortgages, or new underwriting rules will make it harder to qualify for a mortgage. Maybe both.

2. Record discounts for variable mortgage rates Lenders’ funding costs should continue to improve for variable-rate mortgages in the next twelve months. As a result, we’ll see a small number of lenders and/or brokers advertising discounts better than prime minus one per cent before the end of 2015.

3. Brokers will break into three camps Mortgage brokers will split into three camps in 2015: Full-service brokers who create detailed mortgage plans to support one’s financial goals, online mortgage brokers who provide less advice for a lower rate, and your run-of-the-mill everyday broker. That latter type will suffer job losses in 2015 as their rates and service offerings prove uncompetitive relative to other brokers, banks and credit unions.

4. A glut of private money Alternative mortgage lenders – such as mortgage investment corporations (MICs) – will grow flush with cash, as investors chase higher yields and as Ottawa’s stricter mortgage rules create opportunity for them. That abundance of capital will motivate sub-prime lenders to take more risk in search of higher returns. In turn, we’ll see some of them offer mortgages with only 10 or 15 per cent down, instead of the traditional 20 to 25 per cent equity The result: Credit-challenged consumers will have more lending options at lower interest rates.

5. Brokers will pitch you other stuff Don’t be surprised if your mortgage broker offers you other financial products. Declining margins will motivate many brokers to diversify their revenue streams. They’ll take a page from banks’ playbooks and cross-sell you everything from GICs, to insurance, to credit cards, to RRSPs.

The Canadian Real Estate Association published national resale data for October early last week. Both sales volumes and average prices were about 7% higher than a year ago. The MLS Home Price Index rose by 5.5%.

CAAMP’s Fall survey report and analysis was published last week. It forecasts that the rate of growth in mortgage credit in Canada will likely slow over the next year.

CIBC Economics published research last week which looks behind the official immigration statistics and indicates that the number of non-permanent residents in Canada has been significantly under-counted, making suggestions of overbuilding less valid.

Statistics Canada released inflation data for October on Friday. Headline inflation was 2.4% (annualized) and core inflation (which excludes some volatile items) was 2.3%, well above the Bank of Canada’s estimate.

The benchmark government of Canada five year bond yield ended the week at 1.52%, unchanged from the previous week.

Annual State of the Residential Mortgage Market in Canada Significant Statistics

During 2014, 31% of Canadians obtained their mortgage from a mortgage broker,61% directly from a bank.

For mortgage holders who renewed their mortgage in the last 12 months, 78% saw a reduction in their rate.

Mortgage discounting remains prevalent across Canada, for a 5 year fixed mortgage the average discount was 1.85%.

69% of all outstanding mortgages are fixed rate, 24% variable and 6% combination.

For the past 12 months 76% are fixed rate.

In the past year, 38% of mortgage holders either increased their amount of payment, made a lump sum payment or increased their frequency of payments.

85% of all homeowners in Canada have 25% or more equity in their homes.

Mortgage credit growth will continue to slow, averaging 4.5% by end of 2015. Mortgage credit growth has averaged 8.1% per year during the past decade

70% of homeowners see their home as a place to live, 30% see it as an investment.

11% of all homeowners took out equity from their property last year with an average take out amount of $58,000.

Debt consolidation and renovation are the top two areas where money was used.

The average mortgage interest rate in Canada is 3.24%.

Spousal Separation – Maximum Loan-to-Value (LTV) In situations where two parties are on title to a property in the process of a legal separation where one party will keep the existing property, the following guidelines will now apply:

Applications may be submitted as a purchase loan up to 95 per cent LTV The following criteria will apply: Both parties must be on title to the property prior to the legal separation

The following documents confirming

the sale price and transfer of title must be on file: Finalized separation agreement

Offer to purchase Since this purchase transaction is non-arms length,

a full internal appraisal is required.

The mortgage cannot be used to payout debt unless it is joint debt.

The mortgage cannot be used to provide funds for renovation.

The guidelines are specific so please consult with a mortgage broker to get the paperwork correct!

In my 14 years of mortgage brokering I have never come across a better true life example of the wonderful story of a client of mine that I would like to share with you now. Their names have been protected but I can assure you that this story is true.

They came to me 5 years ago looking to get approved to refinance their high interest mortgage that they obtained on their own that allowed them to buy their first home.

They were a young family of 4. He had been working on a 2 year contract for Honda and she was employed as a clerk at local retail store. His income was approximately $70,000 per year and hers was approximately $35,000. Their mortgage balance was at the time $200,000.

I managed to get them out of a 5.5% PC financial mortgage and into a 2.15% RMG variable mortgage based on the then available 35 year amortization. The 35 year amortization is not for everyone but recognizing that this family was very financially responsible it was the best choice for them. The mortgage terms allowed them to cash flow approximately $400 extra per month.

I knew they were responsible with their money as they had already managed to save $50,000 and had no debt other than the mortgage. Their cars were bought and paid for.

The extra cash flow would allow them to save more money or provide a safety net in case of future job loss.

Only months after the mortgage closed the husband was laid off. The family had to survive solely on mom’s income while dad looked for another job.

Having the low mortgage payment and some savings gave them comfort. Not long after, being a smart young man, he landed another factory job but at a starting wage of only half of his previous.

The family was now living on household income of $70,000 per year. Fast forward 5 years later after the original refinance of their mortgage. He has been promoted up the ladder at work where he now earns $70,000 and she is a stay at home mom looking after three children. Their mortgage balance is $180,000 and they still do not owe a penny to anyone.

Their savings are now at over $90,000 and they are renewing into a new 4 year mortgage at a rate of 2.55%.

I was intrigued by their storey and asked if I could share their life style with those of you that are finding it hard to make ends meet. Here is what I learned..

In their own words:

“We only use one major credit card- and it gives us a % back on every purchase. We then take the rebate cheque and apply that cash to Christmas presents.

When we do use our credit card we try to come home and pay the purchase off right away. This helps us get money back for the purchase but also makes us responsible purchasers. This way we know we can afford it and we do not incur interest payments.

We always pay our credit cards off each month.

We do not eat out or do take outs.

We buy our cars-we don’t finance them.

We only bought the house that we could afford. We did not want to be house rich and cash poor.”

They subscribe to Netflix – no cable

No cell phones

They have a line of credit available in case of emergencies. Something I highly recommend to all my clients with a No fee chequing account

They buy their groceries in bulk from costco

Kids – sports – They are enrolled in swimming ,dancing , hockey, and have a membership at the ymca

Holidays – The family camps all summer – she is with them all summer. He joins them for his two weeks of holidays and after work.

Car loans -$0

Christmas – this shopping is done all year and is completed no later than the end of October.

She is constantly bargain hunting

What can I say. This works!

David Chilton and our finance minister would be very proud to hear of their accomplishments. I am also very proud that they have selected me as their mortgage broker to hunt them down the best mortgage and to provide them with the best financial advice I could.

The line of credit is something I also preach and because I see the value in this I have hunted down and can now offer the same to all of my clients with a very exclusive bank account that offers a high interest savings account, no fee chequing and low interest unsecured line of credit. A low manageable mortgage payment and a safety net in the line of credit are musts in each households financial arsenal.

Congratulations to them! If you would like the same line of credit security, if the 35 year amortization suits you or would like to discuss your own personal finance feel free to call me anytime. I would love to try and help you accomplish the same scenario. my cell phone is 705 623 8658.