When you are searching for a mortgage, you shouldn’t only base your decision on rate. It is important to search for the “best mortgage”. A mortgage that not only provides the best interest rate, but also the one with the best terms and conditions. By understanding mortgage terms and what they mean in dollars and sense, you can save the most money and choose the term that is best suited to your specific needs.

With a closed term mortgage, you can’t pay off your mortgage before the end of the term without having to pay a penalty.

The pre-payments without penalty clause is one of the conditions that can save you a considerable amount of money in the long run. This clause allows you to make payments on the principal of your loan, or increase the amount of your periodic payments (monthly, bi-monthly, etc.) without a penalty. Each lender has different programs for pre-payments, they usually vary from 10% to 20%, i.e., you can pay any amount within the approved percentage of the original value of your mortgage or increase your periodic payments once a year without paying a penalty.

Many people don’t take advantage of this clause because it is generally difficult to save the extra money to make additional payments.

Here is an easy way to take advantage of this benefit – “The Java Factor”. This is something that is very easy to follow and can save you thousands of dollars by paying down your mortgage.

Usually everyone buys a cup of coffee or two during their work day. When you see the cost of a cup of coffee at Starbucks or any other establishment, you realize that maintaining this habit can be very costly.

Suppose that you spend at least $5 per day, 5 days a week in “coffee, donuts, chocolates, snacks, etc.”, this would amount to approximately $108 per month; if you apply them to your monthly mortgage payments, the savings can be considerable.

For example:

In a $100,000 mortgage at a rate of 3.39% and 25 years amortization, you would reduce the total payment of your mortgage by 5 years and 4 months with savings of $13,185 in interest. For this calculation, we considered that the interest rate did not change during the life of the mortgage.

This calculation would vary case by case but depending whether you have a pre-payment clause with your mortgage or not, it is important to emphasize that by making a small sacrifice you can have significant long-term savings.

So remember “The Java Factor” next time you are thinking of stopping by for a coffee on your way to work and take a cup of coffee brewed at home.

• Effective today (Wednesday), newly-built homes up to $750k will be property transfer tax exempt, but only for Canadian citizens and permanent residents. This exemption will apply to homes that are owner-occupied for at least a year after purchase date (qualifications for this do not include relatives). This is in addition to the existing First Time Home Buyers’ Program for properties up to $475k.
• Homes over $2 million have an increase in property transfer tax of 1% bringing the total tax to 3%. This tax applies to both new and used homes.
• Buyers will be required to provide their citizenship information – this will be monitored by the government, which hasn’t been done since 1998.
• The premium on MSP is going up $3 per adult (new total of $78) and the discount for couples is being eliminated, which will effectively increase a two-adult family by $14. However, children will now be exempt. Changes will begin in January of 2017.
• The economy is anticipated to grow 2.4% and the budget is expected to have a $264 million surplus. The tax-payer supported debt is expected to increase as well to $43.2 billion, which equates to 3.7 cents per dollar of government revenue.
• Provincial debt is expected to increase to $67.7 billion.
• The disability income assistance rate will see a small increase of $77 per month, assuming there is no buss pass or transportation allowance already in place, which will alter the increase for that individual. The welfare rate is unchanged.

Some good news in this for First Time Home Buyers’ and those looking to upgrade to brand-new homes without paying the property transfer tax. Talk to you Dominion Lending Centres Mortgage Professional to discover your mortgage options!

Here are answers to some frequently asked questions on the government changes to down payment requirements that take effect today, February 15, 2016.

The down payment requirement has increased from five per cent, to ten per cent for the portion of the purchase price above $500,000, but less than $1,000,000.

The application of the government down payment requirement during any transition can often be confusing. To clarify the application of this requirement, and the grandfathering of this new requirement, here’s a few snippets of what we learned from CMHC’s underwriting department.

Purchases

• The new minimum down payment requirement naturally only applies to purchase transactions, not refinancing your mortgage.

Unchanged Premiums

• We are advised mortgage insurance premiums will remain unchanged.

Important dates to remember

• If you received an insured mortgage approval between December 11, 2015 and February 14, 2016 (inclusively) with a planned closing date after July 1, 2016, the new down payment requirement will still apply.
• If you received an insured mortgage approval before December 11, 2015, and you entered into a purchase and sale agreement also before December 11, 2015, the “old” down payment requirement may still apply regardless of the closing date.
• If your planned closing date is postponed after July 1, 2016, “CMHC acknowledges industry realities and will accommodate delays that may occur that are beyond a lender or buyer’s control and will be looked at on a case-by-case basis.”

Switching Lenders

• If you wish to give your mortgage business to a different financial institution for a more competitive rate or product and you received an insured mortgage approval under the “old” down payment requirement before December 11, 2015 and the property and the buyers(s) remain unchanged, the new mortgage insurance application request made by this new lender would be reviewed in accordance with the “old” requirement, regardless of the date the alternative lender requests mortgage insurance approval from CMHC.
• Similarly, if the mortgage insurance approval from the existing lender was submitted between December 11, 2015 and February 14, 2016 inclusively with a planned closing date on or before July 1, 2016, this new mortgage insurance approval request will be reviewed in accordance with the “old” requirement.”

Again, these are just a few snippets of some frequently asked questions. You may likely have a few of your own so let me know yours. Be certain to speak to your own mortgage broker concerning your purchase if you’re under way as well.

Have a great rest of the week and remember, we are always here at Dominion Lending Centres to help you with your mortgage questions!

Here are the steps you need to follow to ensure you get a mortgage that’s right for you!

Step One: Pre-Qualify & Strategize!

Step one is to get pre-qualified, which should not be confused with the term pre-approved. The big difference is that no approval is ever given by a lender until they have an opportunity to examine the property that you wish to purchase. Obviously that can’t happen before you actually go home shopping. Pre-qualifying will first focus on your credit, your debt load, your income, and what type of mortgage you are looking for. The best part is that an independent mortgage broker can do this in person at your house or our office, over the phone, or online through a secure mortgage application.

Once your mortgage broker has all the basic information, it’s time to find out what you’re financial and homeownership goals are. As mortgage brokers that ‘custom build’ mortgages to your specifications, this information is imperative in allowing them to seek out a lender and a mortgage product that will help you meet your goals. You’ll want to be sure you are getting a great rate, but just as important as rate are the other features of your mortgage such as pay down strategies, pre-payment privileges, and exit strategies. There’s a lot more to a mortgage than rate! Once you have selected the lender, product and strategies that meet your needs, you will know exactly what price range and quality of home you can look for!

Step Two: Find the Right Property

Once you have been pre-qualified, you can go house hunting! If you need a Realtor to help you with this, your mortgage broker can recommend a few for you to choose from.

Step Three: Approval

As soon as you have decided on the property you wish to buy, your mortgage broker will send your application and property information to the lender of your choice for approval. Once the lender has an opportunity to look at your application and the property you wish to buy, the lender will issue a “commitment” letter outlining the terms of the mortgage and any further documents they wish to see to verify your application information. Your mortgage broker will discuss the commitment from the lender with you and then forward any requested information to the lender for their review.

Step Four: The Lawyer’s Turn

At this point, the lender will have reviewed your supporting documents and notified your lawyer. Your lawyer will process all the necessary title changes and set up a time for you to meet with him to sign the mortgage documents and go over the fine print.

Step 5: Get the Keys!

By the day of your closing the mortgage lender will have sent the funds to your lawyer’s trust account. Your lawyer will communicate with the seller’s lawyer regarding an exchange of cash for keys and you are then the proud owner of your own home.

Understanding the mortgage process can help you see and understand how your entire team of professionals at Dominion Lending Centres work together to help you start your life in your new dream home!

New credit reporting and what it says about you and your spending habits may make all the difference between you buying a home now or later.

When home buyers contact me to apply for a mortgage, I always review their credit report with them along with the rest of their application, before they start looking at homes with a Realtor. If there are any issues with the credit history we can determine the reason, the next course of action and how it will impact financing a purchase.

There is a lot of valuable information in a credit report which provides an overview for lenders about your ability to borrow money. Consistent late payments, collections and bankruptcy have the biggest impact on lowering your score. Running a high balance or over your limit on your credit cards will also drive your credit score down. Scores range from 300-900 and a difference in score by as little as 50 points says a lot to a lender about you as the borrower. For example, a score of 550-599 represents 21% of delinquencies while a score of 600-649 only 11%. Delinquency rates are defined as those who have late payments beyond 90 days. If your score falls from one bracket to the lower bracket with late payments or collections, the difference can affect the interest rate you can receive or, worse yet, if you can qualify for the mortgage amount you need.

The most recent software update for the credit bureau reporting system has added some features which could have a significant impact on reporting. The new reports, which were released in early 2015, show three credit scores and one overall score.

The first score ranks based on open credit and balance to limit ratio. So if you have lots of open credit and your balances are low or reasonable the score is higher. High balances or over limit on all credit cards will drop your score.

The second score ranks based on late payments and collections over $250. If your late payments are beyond 90 days, your score will drop dramatically.

The third score ranks based on the number of third party collections in the last 3 years and the oldest revolving credit. So if you have outstanding parking tickets or an unpaid gym membership that you forgot about — they will come back to haunt you.

These individual scores were created to show specific behaviour by a borrower and if the credit score is trending up or down. This can give the lender an indication of a chronic issues with a potential borrower or if they are consistent with their credit usage.

With mortgage payments, lines of credit, auto loans, credit cards and even cell phone bills now reporting on the credit report,  consumers have to be diligent with spending and paying bills on time.

I recommend to all my clients to keep your credit report clean — after all, it is your identity.

Establish at least two trade lines of a minimum of $2,000. One credit card and one personal line of credit for example.

Maintain lower balances (< 65%) on all lines of credit or credit cards.

Make payments a few days before they are due to ensure you are always on time

If you get a parking ticket, fight it and lose – pay the bill and don’t let it go to collection.

Look at your credit report annually and certainly 3-6 months before making any major purchase such as a car or home. To view your own credit report visit www.equifax.ca.

Any time you apply for credit in the form of a credit card, personal loan, auto loan, or cell phone, the company lending you money will want to access your credit report first. Your credit report is a snapshot of how you have repaid your financial obligations in your past. Lenders will use this information to verify details about you, see your borrowing activities, credit applications and repayment history. Part of this information is used to make up your credit score.

WHAT IS MY CREDIT SCORE?

Based on the information contained in your credit report, you will be assigned a credit score. What is my credit score, you ask? Your credit score is used by lenders to predict the probability that you will repay your future debt. Your credit score can change frequently based on multiple credit applications in a short time, missing payments and maxing out your available funds.

WHAT IS A GOOD SCORE?

Depending on which company is calculating your credit score, you can expect a range anywhere from 300 at the lowest end up to 900 at the highest end. The higher your score, the better the probability you will repay your loan.

As far as mortgages are concerned, each lender has their own criteria for what scores they deem acceptable. Generally speaking, anything over 680 is considered good in most lender’s eyes and will give you access to the most lenders and the best rates. A score between 600-679 will give you a limited number of options and might not be the best rates. Anything below 600 will leave you with very few lenders and higher interest rates to account for added risk.

5 KEY FACTORS CONTRIBUTING TO YOUR CREDIT SCORE

A number of different factors go into calculating your credit score. These factors are based on what someone does or doesn’t do with the credit they already have available. That is why the score changes frequently. Here are the 5 factors that determine your credit score:

1. PAYMENT HISTORY – 35%
The most important factor when calculating your credit score is your payment history. Creditors want to know if you will pay them back the money you are asking them to loan you.

Payment history reflects all the re-payments you make on your consumer debts. Your creditors will report (monthly) every time you make a payment to your credit cards, lines of credit, auto loans, personal loans, student loans, cell phone bills on contract and any other debts you may have. Interestingly enough, mortgage payments are not reflected on your credit report.

Your payment history shows information about whether or not you have re-paid your debts as agreed, have deferred or missed payments, any past due payments, a history of late payments and if you have any debts in collection as well as any bankruptcy, judgments, or liens, etc.

Your score also reflects how recent any late payments or collection activities are. The older the information gets, the less it will impact your score.

2. HOW MUCH IS OWED – 30%
When applying for new credit, how much you already owe is a big factor in determining your approved limit. Your current payments and debt obligations will help creditors access your level of debt and your ability to repay your debt obligations.

If you show multiple credit lines maxed out, say three credit cards and a line of credit, in the eyes of a lender the chances of you repaying new debt is low and thus you would be considered a high risk to default.

The amount of credit you use on an ongoing basis is considered as well. If you continually use 75% of your limit on your credit cards and lines of credit, this will affect your credit score negatively. Try to carry no more than 30% of your available credit on a month to month basis if practical.

3. LENGTH OF CREDIT HISTORY – 15%
If you’ve used credit for many years, your credit report should provide an accurate picture of how you use credit. For someone who has not used credit for a very long time, it is difficult to tell if they really know how to use credit responsibly.

Good or bad, most information will be automatically removed from someone’s credit report after 6 – 7 years, so the only way to keep a credit report active, is to use credit, at least very minimally, on an ongoing basis.

Time is needed to get a true picture of how responsible someone is with credit. This is why the length of your credit history is the third most important factor in your credit score calculation.

If you have recently obtained credit for the first time, your credit score will not be very strong. However, if you have been using credit responsibly for many years, this factor can work in your favour. If you need to apply for a low interest credit card to build your credit, apply online here.

4. NEW CREDIT APPLICATIONS – 10%
Applying for new credit in a short time span can signify financial stress. If you are a smart consumer, you should always shop around to get the best deal. You might walk into seven different banks and credit unions to shop your mortgage and hear what they can offer you. Smart move, right? – wrong!

Every bank will want to run your credit report to access your creditworthiness and having multiple “hits” to you credit report in a short period will reflect negatively. One of the benefits of using a Mortgage Broker is we use one credit report and shop your business to multiple lenders.

This part of your credit score takes into account the number of times your credit has been checked in the last 5 years, the number of credit accounts you have recently opened, how much time has passed since you opened any new accounts and the time since your most recent credit inquiries. This part of your credit score will also evaluate whether or not you are re-establishing your credit history following past payment problems.

5. TYPES OF CREDIT USED – 10%
Different types of credit shed light on how you manage your money overall. For example, deferred interest or payment plans can indicate that you aren’t able to save up for purchases ahead of time. Consolidation loans mean that you’ve had difficulty paying your debts in the past. A line of credit is a revolving form of credit, like a credit card, and it’s easier to get into trouble with a revolving form of credit than with an installment loan where you make payments for a set amount of years and then it’s paid in full.

If you focus on managing your finances wisely and only apply for credit as you need it, this part of your score should take care of itself.

WHERE DO YOU GET YOUR CREDIT REPORT?

You may contact Equifax and Trans Union to access your credit report. They may charge you a fee.