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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Ottawa is tightening mortgage insurance rules

The federal government said Wednesday that it is tightening the rules relating to government-guaranteed mortgages.

The new rules, set to take effect Oct. 15, are a “responsible and measured approach … to reduce the risk of a U.S.-style housing bubble developing in Canada,” the Department of Finance said in a news release.
The measures will apply to new, government-backed, insured mortgages. “Canadians who already hold mortgages will not be affected,” it said.

The changes include:
• Cutting the maximum amortization period to 35 years from 40.
• Requiring a minimum down payment of five per cent, whereas loans for 100 per cent of the price are possible now.
• Establishing a requirement for a consistent minimum credit score.
• Introducing new loan-documentation standards.

The government acknowledged that the proportion of bank mortgages in arrears is stable at 0.27 per cent, “near the lowest levels experienced since 1990 and well below the highs of 0.65 per cent experienced in each of 1992 and 1997.”

Source: CBC News

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.

Need a mortgage?

1. Let us help you find the best mortgage rate for you.
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3. Email(valid email required)
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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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Canadian Interest Rates Morning Recap

Interest rates drop half a point - The Star.com
“Bank of Canada governor Mark Carney has signalled the need for lower consumer borrowing costs and hinted further interest rate cuts may be required to shield Canada from a worse-than-expected slowdown in the United States. For the second time in eight weeks, the Bank of Canada slashed its policy-setting overnight interest rate by half a percentage point, to 3 per cent.”
Read the complete article

Big banks slow to react to Bank of Canada rate cut - The Vancouver sun.
“The Bank of Canada slashed its key interest rate a further half point, and hinted at more rate relief to come in an effort to keep Canada from being dragged into recession by a deeper and more protracted than expected downturn in the United States.”
Read the complete article

Canadian Mortgages Getting Cheaper, Variable Rates Gaining Popularity - CEP News
“With the Bank of Canada’s easing of interest rates over the last several months, including the most recent half-point reduction Tuesday, variable rate mortgages are gaining in popularity as Canadians try to take advantage of lower credit.”
Read the complete article

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Interest rates news headlines

• Scotiabank Forum Predicts Another Healthy Year Ahead For Canadian Real Estate Markets (Exchange Morning Post)
  TORONTO - Canadian real estate markets remain remarkably buoyant, especially in light of the deepening housing downturn in the United States and the generally softening conditions in most other advanced economies globally, according to experts who presented today at Scotiabank’s Canadian Real Estate Outlook and Trends Forum 2008.
  >>> Read complete article

• Bank of Canada sets interest rate, Tuesday. (Globe and Mail)
  Bank of Canada makes its interest rate announcement. Economists expect the target for the key overnight rate to be set at 3.75 per cent, down from 4 per cent.
  >>> Read complete article

• Interest-rate cut expected, question is how much. (Financial Post)
  OTTAWA — It’s no longer a question of to cut or not to cut for the Bank of Canada, but of how low will it go. Canadians will find out Tuesday.
  >>> Read complete article

Today’s Headlines: Interest Rates and Subprime Mortgage

• Bank of Canada’s Carney ponders degree of rate cut - (Reuters) The Bank of Canada has to weigh strong domestic demand against the spillover effects of the slowing U.S. economy when deciding how much to cut interest rates next month, Governor Mark Carney said on Monday. Carney used his first speech since becoming central bank chief on February 1 to convey that he is keeping his options open, suggesting he could potentially reduce the bank’s overnight rate by 50 basis points, as most market players expect.

>> Read the complete article on reuters.ca

• U.S. credit woes seep across the border (Globe & Mail)
  American subprime shemozzle is beginning to squeeze mortgage and funding availability in Canada.

“Canadian chartered banks have been the main source of financing for real estate projects, but they have got caught up in the U.S. subprime mess and have had to write off those investments. Now, they have returned to what is known as balance sheet lending - or traditional mortgage financing. To maintain government-mandated equilibrium between a bank’s equity and its loans outstanding, the banks have had to both call in loans and cancel commitments for new ones, industry observers say.”

“Intense competition for funds has both increased interest rates on mortgages and created a demand for higher cash-to-mortgage ratios, says David Bowden, president of real estate broker Colliers International Canada in Toronto.”

“The credit crunch is having its greatest effect in smaller centres, says Sheila Botting, senior managing director of Canada for the capital markets group at Cushman & Wakefield Lepage Inc.”

>>Read the complete article on Globe and Mail

• Rate cuts likely to trump inflation fears (Globe & Mail)
  The inflation watch is under way this week in Canada and the United States, but investors are betting the U.S. Federal Reserve Board will to continue to cut regulated interest rates despite price pressures, while the Bank of Canada is expected to play some catch up.It’s anticipated that domestic inflation data scheduled for release today will provide plenty of leeway for the Bank of Canada to lower its target overnight rate on March 4.>> Read the complete article on Globe and Mail

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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

Housing Starts to Fall Slightly in 2008

OTTAWA, February 4, 2008 — Housing starts reached 228,343 units in 2007, an increase of 0.4 per cent from 227,395 in 2006, according to Canada Mortgage and Housing Corporation’s (CMHC) first quarter Housing Market Outlook, Canada Edition report. In 2008, residential construction will decline to about 211,700 units, given higher mortgage carrying costs. Nevertheless, Canada’s housing market remains strong and 2008 will mark the seventh consecutive year in which housing starts exceed 200,000 units.

“Despite some global financial instability with regards to the U.S. housing market, Canada continues to experience robust employment levels, ongoing income gains and low mortgage rates,” said Bob Dugan, Chief Economist for CMHC. “This has strongly supported Canada’s housing markets. However, housing starts are expected to decrease in 2008 mainly due to recent increases in house prices, which will push mortgage carrying costs higher for home buyers.”

Existing home sales, as measured by the Multiple Listing Service (MLS^®)¹, are poised to experience a very strong year with about 520,000 units in 2007, a 7.6 per cent increase over 2006. In 2008 the level of MLS^® sales is expected to fall by 3.9 per cent to 499,650 units, while 2009 will see an additional decrease to 488,300. Growth in the average MLS^® price has remained high at 10.6 per cent in 2007, mainly because of continued strong price pressures in Canada’s western provinces. However, as most resale markets move toward more balanced conditions, growth in average MLS^® price is forecast to slow to 5.2 per cent in 2008 and 3.8 per cent in 2009.

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