When Times Get Tough

General Pam Pikkert 25 Jun

What to do When You Can’t Make Your Payments

 

                So it is a hard reality that many people have been affected by factors well beyond their control.  Be it the economy or an illness there can be many life issues which leave you in a position where your savings are gone and you are unable to pay your mortgage or other bills.  So what should you do if you ever find yourself in this situation?

Mortgage Related Troubles?

  • Talk to your mortgage professional.

At the first sign of troubles make that difficult call to find out what options are available to you and keep in contact with them as things progress.

 

  • Clarify The Picture

Make a complete list of all credit obligations including any credit cards, loans and household bills.

You should also make a list of all of your assets including your current income, savings accounts, investments and RRSP’s.

 

  • Learn about your resources.

There is a great resource called Take Charge of Your Debts from the government of Canada.  You can use it to understand debt problems and how to budget, information on credit counselling, collection agencies, credit and credit repair.

 

  • Consider your options

If your mortgage was done through a mortgage insurer (CMHC, Genworth, CG) then you have a valuable ally.  They will work with you to find solutions such as:

-Converting a variable rate to a fixed rate to protect you against a sudden increase

-Offering temporary payment deferral

-Extending the original amortization

-Adding any missed payment or arrears to the balance and spreading them over the   remaining loan

-Offering a special payment arrangement until you are back on your feet

 

You need to stay in contact with your lender, your mortgage professional and whoever else is involved.  Avoiding the phone calls is no way to convince them you want to work to a solution

Other Credit Troubles?

  • Call the credit companies and ask for a reduction to your interest rate which will allow you to pay your debts out faster.
  • Apply for a consolidation loan which will allow you to pay one large payment as compared to many small which can be overwhelming.
  • Choosing to refinance your home to be pay out your smaller debts can be a valid choice if the penalty isn’t too high.  Again, it can be easier to manage one payment.
  • Orderly Payment of Debts – Under this government run program you allow this agency to take charge if you will.  They will negotiate with your creditors for a lower interest rate and then they will look at your overall financial picture and put you on a set repayment program until all of your debts are repaid in full.  You need to know that this program will require you to rebuild your credit carefully after the fact.
  • Bankruptcy – This is where you choose to work with a Bankruptcy Trustee.  Your assets and your liabilities are all weighed and then the trustee offers your creditors a set percentage of what you owe.  You will be required to go through the court system and there are additional costs.  This choice also requires a careful rebuild of your credit after the fact if you are to be able to borrow money down the road.

 

So as you can see there are options available to you when life throws you sideways.  Keep in contact with your creditors if they start calling so they know your situation and can make note of it in their systems.  Life happens my friends but there are solutions if you need them.

Property Taxes

General Pam Pikkert 25 Jun

Property Taxes

 

It is that time of year again when many of you will be receiving your property tax bill in the mail and are not quite sure what to do next.  Well fear not my friends, that’s what your trusted mortgage professional is for.  To clarify those murky property tax waters.

                You have a few options of how to pay your taxes though not all lenders will allow all the options.  The reason for this is that taxes owing to a governmental agency trump the mortgage.  So if for instance you fell way behind on your property taxes, the city has the ability to put a charge against the title of the property which has to be paid out before any mortgage.  This leaves the lender at risk as they may not be able to collect all of the funds you owe them

Option A

You can opt to pay annually.  Ideally you have a separate savings account where you will faithfully put away 1/12 of the property taxes owing each month so that when you receive you tax bill in the mail come June you can pop right down to City Hall and pay those nice folks in full.

Option B

You can chose to participate in the TIPP or Tax Instalment Payment Program.  This allows the municipality to collect from you 1/12 of the annual amount owing directly from your bank account on the last business day of the month.  There is no charge to enroll in this program and it is very easy to do so.  You will still get the annual Property Tax Bill but there will be a big bold DO NOT PAY written across the bottom.

Option C

You can opt to have the property taxes collected with your mortgage.  Many people like this option as it is one less bill they have to pay but there is something of which you should be aware, there can be an adjustment based on when the lender started collecting your taxes which can leave you in a shortfall position come tax time.  Gasp you say?  I say forewarned is best so let’s take a minute and figure this out.

The process is simple.  They collect a regular amount from you with your mortgage payment, and the money is set aside in Property Tax Savings Account.  When you receive your first tax bill, you may have to forward it to the lender and then usually the lender and the municipality talk directly to each other after that. 

Funds accumulate in your Property Tax Savings Account and are used to pay your annual property taxes.  They ensure the bill is paid for your property regardless of the balance in your account.  This means that at some point during the year your account ay have a surplus and at others times a shortfall.

A surplus is money accumulated in your Property Tax Savings Account.  As in a chequing/savings account at your bank, a surplus in your Account will be credited with interest.

A shortfall in your Account happens if there was not enough money in the Account when property taxes were paid.  This money needs to be reimbursed to the lender for taxes paid on your behalf.  If there is a shortfall in your Account, you are charged an interest rate equivalent to your mortgage rate.  They take the outstanding amount into account when calculating your new tax portion for the upcoming tax year.  You may reduce the shortfall in your Account by making a lump sum payment into the Account, or a series of payments over time.  If the new tax portion is not manageable, you can extend the repayment of the shortfall over more than one year.

                After they pay final taxes each year, they will review your tax potion to ensure we are collection the necessary amount.  They will send you a Property Tax Statement to show the status of your Property Tax Savings Account, and to advise of any change to the tax portion. This will show how they calculated the tax portion, and will tell you when the change will take effect.  The tax adjustment also takes into consideration possible increased in taxes.

 A tax year is the period between when your final taxes are paid, to the excepted date the final taxes are due for the upcoming year. 

Ok there you have it in a nutshell, property taxes 101.  Have a great week.

Your Credit Report

General Pam Pikkert 15 Jun

How Your Credit Score is Determined

                So one of the things that seems to cause the most confusion is the whole credit score issue.  This week we are going to take a look at this as having good credit can literally save you thousands of dollars but if you don’t know the basics of how it works then how can you manage this?

                There are 2 main credit reporting agencies in Canada:  Equifax and Transunion.  They collect information on millions of users on a daily basis.  This information is provided to them from a huge variety of consumer credit agencies who provide things like:

  • Cell Phones
  • Mortgages
  • Credit Cards
  • Lines of Credit
  • Loans – Automotive, Consolidation, Overdraft

From the data they receive they give each consumer a credit score.  Ideally you will have 2 active trade lines in addition to your mortgage and your cell phone.  A trade line can be a vehicle loan or a credit card.  Your score is calculated based on the following percentages.

35% Payment History – You need to make the set payment on a fixed loan and at least the minimum payment on all of your credit cards.  The credit bureau clearly shows your repayment history on all of your loans and this information is kept on your file for 7 years from the date of the last activity.

30% Utilization- Ideally you will not exceed 50% of the available credit on any Lines of Credit and/or credit cards you have.  If you are at or near limit and applying for additional credit facilities it can be a red flag that you are experiencing financial difficulties.

15% Length of Credit History- The magic number for mortgage lenders is 24 months.  They love to see that you have 2 trade lines cleanly reporting for this length of time.    Long standing, well taken care of credit cards are like music to the credit provider’s ears.  It shows that you are long term reliable.

10% Credit Mix – Ideally you should have at least 1 credit card with a minimum limit of $2500 along with another credit card or a fixed loan such as a vehicle.    They need something to base your credit score on so if you have paid out a loan then make sure you still have 2 others reporting for you

10% Number of Inquiries – Most people are very concerned about this particular aspect of their credit picture.  Most of us will go a full year or 2 between credit inquiries depending on how our life is rolling out.  The concern in this area would be if you apply for multiple new credit cards and a line of credit and a large overdraft on your chequing account.  You can see how this could look as though you are experiencing difficulties and need the additional credit to get through.    If you are an average consumer who is exploring their options for a large purchase then you do not need to worry.  Your credit score can take the slight hit of multiple inquiries especially if all of the other items listed are strong.

You can write into either Equifax or Transunion for a free copy of your credit report at any time.  This can take a few weeks though so there is always the option of going to the websites.  For $23.95 plus GST you will get an immediate copy of your credit report including your credit score.

And there you have it, your credit score demystified.  As always a well-qualified mortgage professional can help you through this and indeed all aspects of the mortgage world.  Have a great week.

Types of Insurance with your Mortgage

General Pam Pikkert 4 Jun

                The mortgage process can be confusing to say the least.  Most of the time our attention is focused on the rate and terms but there are many pieces to the mortgage and the types of insurance are something that deserve a minute of your time for sure

Mortgage Default Insurance

Mortgage default insurance is usually, though not always, for those who have less than 20% to put down on a new home.   This insurance is for the benefit of the mortgage lender.  If you default on your mortgage, the lender has insurance that this third party will cover any losses the lender then incurs.  There are 3 insurance providers in Canada; CMHC, Genworth and Canada Guarantee.  They all serve the same purpose.  You pay them a set percentage of the mortgage amount.

  • 95% (or 5% down) 3.60%
  • 90%-95%                 3.15%
  • 85%-90%                 2.40%
  • 80%-85%                 1.80%

(Please note that these rates can be very different for those who are self-employed, purchasing a second home or those purchasing a vacation home so please check with your mortgage professional.)

The mortgage default premium is added to your mortgage so don’t worry that you will have to provide a cheque up front.

Title Insurance

Title Insurance is becoming increasingly more common these days.  Lenders may require it and if so the cost is about $249 plus GST and will be collected at your lawyer’s office.  Title insurance protects the lender in case your home is not compliant with the municipal zoning.  Say for example that a garage was built which actually is 2 feet into the neighbour’s lot.  If the neighbor and the city will not agree to an easement which would allow for this, then the title insurance policy kicks in and they will do what has to be done to make things compliant.  For a small additional fee you can upgrade to a complete Title Insurance policy and be protected from things like identity theft, mortgage fraud or if the home had renovations done which were not up to code.

Home Insurance

If you have a mortgage then you are legally obligated to have home insurance in case of fire or the myriad of other things a good home insurance policy covers.  You will be required to provide proof of the coverage to the lawyer before the mortgage funds. 

Life/Disability Insurance

Your mortgage is likely your biggest debt and it’s so important to ensure that your people are protected in case the worse happens.  You will be offered a policy by your mortgage professional during the process. There is no legal obligation to accept so don’t let them convince you otherwise.  BUT, you really owe it to yourself to ensure you have sufficient coverage.   Disability is the number 1 reason for mortgage default in Canada so please for the love of Pete take them time to review your coverage.

 

There you have it.  The 4 types of Insurance your mortgage professional will need to tell you about.   As always dealing with a qualified professional is the best way to navigate the tricky world of mortgage.  Take care!!