What you need to know about credit scoring: Part II
September 9, 2008 by Montreal Real Estate Blog
Filed under Mortgage & Financing
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
Visit her website
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What you need to know about Credit Scoring
August 7, 2008 by Montreal Real Estate Blog
Filed under Mortgage & Financing
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
Visit her website
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Should you lock in your mortgage?
June 27, 2008 by Montreal Real Estate Blog
Filed under Mortgage & Financing
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
Visit her website
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Why Deal with a Mortgage Broker?
June 3, 2008 by Montreal Real Estate Blog
Filed under Buying Real Estate, Mortgage & Financing, Popular
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
May 26, 2008 by Montreal Real Estate Blog
Filed under First Time Buyer, Mortgage & Financing
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.
