What you need to know about credit scoring: Part II

Part II: The Five Factors of Credit Scoring

There are five factors that comprise the credit score. They are listed below in order of importance, just as an underwriter would look at the score:

1. Payment History: 35% impact. Paying debt on time and in full has a positive impact. Late payments, judgments and charge-offs have a negative impact. Missing a high payment has a more severe impact than missing a low payment. Delinquencies that have occurred in the last two years carry more weight than older items.

2. Outstanding Credit Balances: 30% impact. This factor marks the ratio between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit when trying to purchase a home.

3. Credit History: 15% impact. This marks the length of time since a particular credit line was established. A seasoned borrower is stronger in this area.

4. Type of Credit: 10% impact. A mix of auto loans and credit cards are more positive than a concentration of debt from credit cards only.

5. Inquiries: 10% impact. This quantifies the number of inquiries that have been made on a consumer’s credit history within a six-month period. Each hard inquiry can cost from 2 to 50 points on a credit score, but the maximum number of inquiries that will reduce the score is 10. In other words, 11 or more inquiries in a six-month period will have no further impact on the borrower’s credit score.

Remember, a computer that’s not taking any personal factors into consideration calculates these scores. When a credit report is generated, it is simply today’s snapshot of the borrower’s credit profile. This can fluctuate dramatically within the course of a week, depending on the individual’s own activities. The borrower should be made aware of this when they enter into the loan process, and know that it’s not in their best interest to go out on a shopping spree. They need to make sure they are not creating a negative impact on the score while the lender is reviewing their file.

Secondly, it is often beneficial to compile a duo-merge credit report. This provides scores from the two credit bureaus, TransUnion, and Equifax. The lender should be provided with this rounded profile because these two scoring systems can vary in their results.

Stay tuned for Credit Scoring, Part III: Dealing with Challenges

Written by Danuta Levitzki.
Conseillère en Financement Hypothécaire | Mortgage Loan Specialist
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What you need to know about Credit Scoring

Part I: Good Credit Translates into Lower Rates for the Consumer

In the 1960s, Fair Isaac Corporation started working on a system lenders could use to evaluate the likelihood of receiving repayment on loans. Prior to that, it was really a matter of trusting an individual to be a “man of his word,” so to speak. Fair Isaac sought to take human error out of the equation with a reliable system that could determine whether or not consumers were truly worthy of credit, and thus FICO was born. This evolved to become the standard for lenders by the 1980s.

Credit scoring has an enormous impact on a borrower’s ability to purchase a home. It can mean the difference between getting a good interest rate and the home of their dreams, or whether they even qualify at all. For this reason, it is important for borrowers to understand the credit scoring process, and to know what their credit score is when they look to obtain mortgage financing.

What the credit scoring model seeks to quantify is how likely the consumer is to pay off their debt without being more than 90 days late on a payment at any time in the future. Credit scores can range between a low score of 300 and a high of 900. The higher the client’s score is, the less likely they are to default on their loan. Only 5% of the people in Canada have a credit score above 800. These are the slam-dunk clients that walk away with the best interest rates. On the other hand, approximately 4% of the people in Canada are faced with the possibility that they may not qualify for the loan they want because they have a score between 500 and 600.

Stay tuned for Credit Scoring, Part II: The Five Factors of Credit Scoring

Written by Danuta Levitzki.
Conseillère en Financement Hypothécaire | Mortgage Loan Specialist
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Should you lock in your mortgage?

Interest rates are still low, but they’ve been steadily increasing. Here are some points to help you make the right mortgage decision.

If you are buying a home, you may be wondering whether it’s better to lock in a fixed rate in case rates continue to go up, or choose a variable rate that floats with the prime rate. Similarly, if your existing mortgage is variable, you may be wondering whether now is the time to lock in.

Mortgage rates are difficult to predict. It is best to base your decision on your personal situation and comfort level, rather on economic expectations.

Going variable

Variable-rate mortgages can be attractive - the interest rate is lower than for a fixed mortgage of similar size and duration.

With some mortgages, as rates fluctuate, so does the amount of your mortgage payments. Or, with set payment amounts, the portion of the payment that covers your mortgage principal will fluctuate.

In an environment of falling rates, you’ll pay down more principal and pay less interest. But if rates go up, your principal payments will shrink and it may take you longer to fully pay for your home.

Should you choose a variable-rate mortgage? If you can tolerate the uncertainty, the variable rate could save you money over the long term.

Locking in

When you lock in to a fixed-rate mortgage, the interest rate will be higher than for comparable variable-rate products. The benefit, however, is that your rate is fixed for the term of the mortgage.

Even if rates in general rise substantially, your rate is guaranteed not to change. From the moment you lock in, you’ll know exactly what your payments will be and how much of the principal will remain at the end of the term.

Should you choose a fixed-rate mortgage? If fluctuation rates are going to keep you awake at night, then a fixed-rate mortgage may be worth the peace of mind it can give you.

Your decision

Ultimately, the decision to choose a variable or a fixed-rate mortgage is as personal as choosing the right home. It should always be made with informed advice from a professional, who can help you evaluate the options based on your unique circumstances.

For any questions about mortgage financing, programs, options, interest rates etc., feel free to contact Danuta at 1-800-605-6154

Written by Danuta Levitzki.
Conseillère en Financement Hypothécaire | Mortgage Loan Specialist
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Why Deal with a Mortgage Broker?

Brokers search for the best lender package to suit your specific financial situation, whether it’s with a Chartered Bank, Trust or Insurance Company. There is a wide variety of options and features available to homebuyers today. To find the best offer takes a lot of time and effort. The mortgage process within today’s very competitive marketplace makes many Canadian homebuyers puzzled. It truly pays to work with a mortgage professional that will represent you and ensure the mortgage you get is the one best tailored to your needs.

NOTE: Choosing the wrong mortgage can cost you thousands of unnecessary paid interest money.

Why Should You Go To a Mortgage Broker First?

A professional presentation to a lender on the first application will get the best response and save you valuable time and money. Secondary applications with previous credit bureau inquiries may be more costly.
Often the success of obtaining mortgage approval depends on the way a proposal is presented and to whom it is sent. Your Mortgage Broker is trained to present your mortgage proposal to obtain the most immediate and positive result.

Example: You don’t call an insurance company for insurance - you use an insurance broker, because of their expertise, product knowledge and rates. So remember, call your mortgage broker first!

How Do Brokers Get Better Deals Than Many Banks?

Brokers often develop professional relationships with private sources of funds, termed private lenders. These lenders can provide many various mortgage products not available at conventional sources.

Can You Still Go Through Your Bank With Your Broker?

Yes, letting a Mortgage Broker represent you to your own financial institution can often result in a better rate than you could get on your own.

Written by Danuta Levitzki. Conseillère en Financement Hypothécaire | Mortgage Loan Specialist
For current interest rates or to get more information on mortgage financing feel free to visit her website or call direct at 1-800-605-6154.

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Your Mortgage Broker: A Source for Financial Solutions

A mortgage broker can assist you in ways that go well beyond offering great rates.

Many people think of a mortgage broker as someone who can help them get a good rate on their mortgage. While this is certainly true, a mortgage broker can also help you with much more than that.

A mortgage broker is a licensed financial professional with whom you can form a long-term relationship that can extend to various types of financing. Here are some examples:

• If you have an upcoming expense, such as sending your child to college or university, your mortgage broker can help you cash out equity in your home or secure a home equity line of credit.
• If you are looking to buy a cabin or lakefront property, a mortgage broker can help you with financing for it.
• Little-known fact: If you are having problems meeting all of your financial obligations, a mortgage broker can help you consolidate your debts by securing a debt consolidation loan, so you have just a single, manageable payment every month.
• If you want to finance a renovation or other major expenditures, your broker can help arrange suitable refinancing options.
• When it’s time to renew the mortgage, your broker can find a competitive mortgage program and interest rate other than your current bank or financial institutions resulting in further savings.
• Mortgage brokers may also be able to give you information about legal services for buying a home and recommend realtors, appraisers, and home inspectors.

Written by: Danuta Levitzki.
Conseillère en Financement Hypothécaire | Mortgage Loan Specialist.
For current interest rates or to get more information on mortgage financing feel free to visit Danuta’s website at www.HYPOTHECA.net or call direct at 1-800-605-6154.

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Homebuyers have more reasons to go green with TD Canada Trust

Photo source:Imtl

TD Canada Trust announced it is increasing the cash rebate on its Green Mortgage and Green Home Equity Line of Credit for qualified purchasers who apply between April 25th to July 31st, 2008.

Customers will continue to receive 1% off the posted interest rate on a five-year fixed rate mortgage or on a five-year fixed rate portion of a Home Equity Line of Credit AND will now receive a cash rebate up to 1.5% (up from the regular rebate of up to 1%) of the amount of the mortgage/HELOC when customers make ENERGY STAR qualified purchases.

In addition, TD Canada Trust will donate $100 to the TD Friends of the Environment Foundation each time a customer receives a rebate. “Both our Green Mortgage and Green HELOC products meet a growing desire among customers to make environmentally friendly choices like energy efficient upgrades or purchases,” said Joan Dal Bianco, Vice President, Real Estate Secured Lending, TD Canada Trust. “At TD we are very committed to the environment, so it’s great to be able to offer even more of an incentive for homebuyers to go green.”

A wide range of ENERGY STAR qualified products are eligible for rebate in the following categories:

• Major appliances
• Heating, cooling and ventilation equipment and controls
• Windows, doors and skylights

The cost of a residential energy efficiency assessment is also eligible for the rebate.

Source: Canadian News Wire

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Interest rate cut will help Canadian home owners and buyers

The interest rate cut announced today by the Bank of Canada will help Canadian home owners and buyers, according to The Canadian Real Estate Association. The Bank of Canada cut its benchmark overnight lending rate by one-half of one percentage point to 3 1/2 per cent on March 4th, and signaled further cuts in the near future. The trend-setting Bank rate, which is set 0.25 percentage points above the overnight lending rate, now stands at 3.75 per cent.

“The threat of inflation is being eclipsed by concerns about slower economic growth, so the Bank of Canada cut its trend-setting bank rate to boost growth,” said CREA Chief Economist Gregory Klump. “Financial market turmoil will remain a downside risk to growth for some time. This means the Bank will probably continue lowering interest rates.”

Lower lending rates will help offset the effect of tightening credit conditions and allow homeowners to obtain better mortgage terms. This will also benefit Canadian homeowners dealing with variable rate mortgages. [Read more]

BMO Bank of Montreal Lowers Mortgage Rates

TORONTO, Feb. 15 /CNW/ - BMO Bank of Montreal announced today it is
decreasing its residential mortgage rates, effective February 16, 2008. The
new rates are:
Fixed Rates: To: Change:
6 month open 8.90% 0.00%
6 month convertible 7.10% 0.00%
1 year open 9.40% -0.10%
1 year closed 7.25% -0.10%
2 year 7.30% -0.10%
3 year 7.30% -0.10%
4 year 7.19% -0.20%
5 year 7.29% -0.10%
6 year 7.45% -0.10%
7 year 7.65% -0.05%
10 year 8.00% -0.05%
18 year open 9.20% 0.00%

(The interest on fixed-rate mortgages compounds semi-annually, not in advance.)

The Five-Year Protected Variable Rate ceiling changes to 7.29%.

Special Offers(*)
To: Change:
3 year (fixed/closed) 6.23% - 0.10%
5 year (fixed/closed) 6.23% -0.10%
7 year (fixed/closed) 6.38% -0.05%

Homeowner ReadiLine(R)
5-year variable rate closed term 5.50% 0.00%

(*) These special discounted rates are not the posted rates of BMO Bank
of Montreal. Rates are subject to change without notice. Offer may be
withdrawn or extended without notice. Mortgage funds must be advanced
within 90 days of the application

Pre-approval: what it really means

Early on and even before you start home shopping , you need to determine the price range that suits you. If you plan to finance your purchase with a mortgage loan, sit down with your lender or mortgage specialist to discuss your needs and get mortgage pre-approval. That way, you know exactly how much you can spend on your new home.

• Pre-approval means that your lender commits to giving you a mortgage loan up to a specified amount at certain terms and conditions, including the interest rate.
• Pre-approval are only valid for a specific period.
• Pre-approval doesn’t lock you into the mortgage. You are still free to pursue other arrangements, including getting a mortgage loan through another bank instead.

The benefits of having a pre approval letter with you before starting the home hunting are numerous since it gives you advantage over those home shoppers who have no clue on what their factual financial limitations are.

[Read more]

Buying with zero cash down. Is it really possible?

The first time you see the ad Scotia Bank 100% Mortgage Program, you may ask yourself…What’s the catch?
Perhaps Scotia Bank still requires the 20% down, but gives you the option of a line of credit?
OR…they really offer to finance you 100% BUT with rates a lot higher than the regular mortgages?

Something to ponder about.

The real answer is none of the above and it was confirmed this afternoon, after speaking with a mortgage specialist Nadine Emony from the Scotia Bank who informed me that the only thing needed in order to be eligible for a 100% Mortgage is to have very-good credit.

Not bad, uh?

In addition to that, you need to:

· Have a min of 2 years of good credit history with one of the major credit cards: Visa and/or Mastercard.
· Have a steady job.

There probably are a few more requirements to be eligible for a 100% mortgage, but for the most part, these are the two most important factors.

Information and link was kindly provided by Mortgage Specialist Nadine Emony. Visit her page for more details.