What to do After Your Credit is Damaged

General Pam Pikkert 29 Feb

What to Do After Your Credit Has Gone Bad

 

                It is matter of fact that life can be much unexpected.  Perhaps you have been hit hard by this economic downturn or maybe an illness or even just plain old mismanagement has left you with a series of late payments on your credit.  No use crying over spilt milk so to speak.    This week we are going to look at what to do to repair your credit after such an event.

There are three main scenarios we most often see in conjunction with damaged credit. 

  1. Regular late payments.  All types of credit providers report to the credit agencies about you and your repayment history.  Cell phones, credit cards, student loans, vehicle or personal loans, lines of credit, and of course your mortgage.  You are assigned a credit rating based on if your payments are made on time, if you are at or near limit on your credit cards and a variety of other things.  Often the descent into bruised credit starts by missing a payment here and there.  Of course the more late payments you have, the more leery a new lender will be to extend you additional credit.  If you had a rough patch like this then the best thing to do is catch up ASAP and do not let it happen again.  Lenders will want to see that you have recovered financially and you now mange yourself well.  The magic number is 2.  They want to see 2 years of perfect repayment on at least 2 credit facilities.  After the damage was done it is imperative that you not have another late payment on anything including your cell phone.  It is also a good idea to save some money so they can see you have a fallback position if you lose your job.  Finally, keep your credit cards at no higher than 75% of the available credit.  It can be a sign of financial distress if you are maxed out.
  2. Orderly payment of Debts – This program is entered into voluntarily by people who need further help.  These agencies will meet with you to assess your situation and determine a repayment plan with your creditors.  They make calls on your behalf and negotiate for you which will stop the collection calls you may have been receiving.  Interest rates are negotiated down and you are set up on a repayment plan to pay your creditors every cent you owe.  Your credit bureau will reflect that you have opted for the OPD which means you have to do some work to be considered for lending later on.  Again, the magic number for re-establishing is 2.  You need to have 2 credit facilities reporting pristinely for 2 years once the OPD reports as complete.  At that point many lenders will consider you for mainstream lending.  You may have to start with a secured credit card or 2 or a vehicle with a higher interest rate to get back on track. 
  3. Bankruptcy – In this scenario you have gone through the formal bankruptcy process which involve a trustee and the court system.  Your debt obligations were negotiated down to a portion of what they were and you have paid out that amount as per your agreement.  2 years after you show as formally discharged with 2 years of established credit on 2 credit facilities you will once again be eligible for mainstream lending.  Without those criteria you may find yourself paying a higher rate for a mortgage or other loan. 

A few extras I would like to point out are these.  If you have ANY late payments after the OPD or Bankruptcy you will most likely be turned down for a mortgage at best rates. The lenders will allow that life threw you sideways but it is up to you to show them it will not happen again. If there was a foreclosure in your past, you are not likely to get any financing for a mortgage unless you are willing to pay some very high interest.    Finally, there are companies out there who advertise that they can fix your credit for a fee.  Be very cautious in your dealings with them  They can be very expensive and the credit reporting agencies are on record reporting there is NO quick fix for credit issues.   Do your due diligence before entering into an agreement with anyone telling you they can fix your credit.

That’s all for this week.  Until next time.

How To Get a Fully Loaded Mortgage

General Pam Pikkert 22 Feb

How to Get a Fully Loaded Mortgage

                Be it fully loaded or all the bells and whistles, as savvy consumers we want to know that we got every bit of extra awesomeness available to us and your mortgage should be no different.    Sure you want the best rate, that’s a given, wouldn’t you also like the extras which will make your mortgage even better with none of the yucky stuff?  Of course you would! This week we are going to look at what the mortgage extras are that you should be looking for and those you should beware of.

  1. Portable – Most mortgage lenders offer a portable mortgage.  This is where you can take your mortgage with you from property to property without penalty.  Not all porting policies are created equal so make sure yours is not going to limit you later on.   There are a few things to keep an eye out for.  The first is how long you have to port the mortgage to a new property.  Some lenders require you to do so on the same day as you sell.  This can make it difficult especially if you were hoping for a few days to move from the old home to the new.  Other lenders will put you into 2 separate mortgage components which means you are basically stuck with your current mortgage provider unless you pay a penalty on one or the other parts.  Finally, not all lenders like all property types or can lend in other provinces.  For example, if you currently reside in AB but plan to move to an acreage in BC then you should make sure you are with a lender who will allow this.
  2. Pre-payment privileges – There is a wide spread between the lenders on exactly how much extra you can pay on your mortgage.  It can vary from 10% to 20% of the principle amount.  There is also a wide range of how soon you can start to make those extra payments.  Certain lenders make you wait until the anniversary date.  If you plan to be aggressive with your mortgage re-payment then make sure your lender matches your plan.
  3. Pre-payment Penalties – I have said a thousand times or more that there is no standard in Canada as to how the mortgage lenders are required to calculate the penalty if you break your mortgage contract early.  They are required to present their calculation formula to you before funding but even to a mortgage professional these can be darn near impossible to navigate.  Do your research and ask a lot of questions to make sure you are not choosing to place your mortgage with a lender at the nasty end of the penalty scale. 
  4. Collateral Mortgages- A collateral mortgage is where the mortgage lender registers a higher amount on the title of the property than you have actually borrowed.  This can be useful later if you want to get a home equity line of credit as it saves you some steps in the borrowing process.  The down side is that collateral mortgages are more difficult to switch out at renewal which can leave you stuck with your current lender even if they have a higher interest rate than is available in the market.  It also allows your bank to tie in other borrowing such as credit cards and vehicles to the mortgage which may then have to be paid out when you sell leaving you less money to put down on your next home.
  5. Easy to use- There is something pretty nice about making extra payments or checking your mortgage balance on a Saturday morning while sipping coffee in your PJ’s.  Find out ahead of time what type of online mortgage management you can do if you are part of the new digital world and value such things

 

Think of your mortgage as a hamburger.  The good things above are the toppings you want like cheese and bacon.  The negative can be the things you hate like mustard or mushrooms.  Your mortgage can be great or it can be yucky but it’s up to you to order it the way you’d like.  Until next time!

The Mortgage Process

General Pam Pikkert 1 Feb

The Mortgage Process

                Obtaining mortgage financing can be very confusing especially since the rules are constantly changing.  Knowing the basics and what to expect along the way can take away some of the pain so this week we are going to do a quick rundown of the whole thing.

The application – At this point you are going to answer all sorts of questions about yourself.  Lenders are looking to find out just who you are before they loan you a whole bunch of money.

  • Employment – They need to know all the particulars including how long and how you get paid.  If you are self-employed, commissioned or regularly receive bonus or overtime they will want to see a 2 year history before they will allow this income to be used to qualify you for the mortgage.
  • Credit Bureau – Consider your credit history as a sort of report card if you will.  You need to show that you have managed your current debts obligations satisfactorily.  Lenders are looking for a 24 month history on 2 types of credit such as a credit card and a vehicle loan.  Keep in mind that late payments on your cell phone, cards, loans or even a previous mortgage better have a very good reason.
  • Assets – More and more lenders want to see that you have a safety net of some additional savings just in case. 

So you have completed the application and now it’s time to verify all of the information.  A few bad eggs have wrecked it for the rest of us so you are going to be asked for a lot of paperwork.  Mortgage fraud is huge and the lenders are accountable to the mortgage insurers, OFSI, and to their investors so you better bet they are going to verify until they are satisfied.  Here are some of the things your will have to provide.

  • Letter of employment outlining all the particulars and a recent paystub
  • Last 2 year’s Notice of Assessment from the CRA and proof that  all tax bills have been paid
  • 3 month history on all accounts you are using for the down payment with explanations of any large deposits
  • Mortgage statement, property tax bill and lease agreements on any other homes you own
  • You may also be asked for T1 Generals and Business Financials if you are self-employed
  • Various other documentation as required

So your mortgage lender has approved the documentation you have provided and you are having a look at the paperwork in front of you before you sign on the dotted line.  A few great questions to ask are:

  • What are the pre-payment privileges on my mortgage and do I have to wait for the first anniversary to make the extra payments?
  • Is my mortgage portable across the country and to a wide variety of properties?  How long do I have to port this mortgage?  Porting is where you can take the mortgage from one house to another without penalty. Some lenders do not lend on rural properties for example and so if an acreage is in your future then you want to make sure yours does.  Other lenders require the port to happen on the same day which can be tricky to navigate.
  • How are the prepayment penalties calculated?  In Canada, there is no rule about how a lender has to calculate this number.  I have seen them vary from $3000 to $18,000 on the exact same mortgage amount with the only difference being the lender.  Life happens and you want to make sure that if you have to break your mortgage that it will not cost you all your hard earned equity.

And now that you have asked your questions and met all the conditions you are off to the lawyer for the final signing.  There are a few costs you need to anticipate:

  • Mortgage Insurance- If you are purchasing a home with less than 20% down you will have to pay this which is based on a set percentage of the purchase price depending how much you are putting down and is added to the mortgage.
  • Legal Fees – The lawyer will have to complete the final paperwork and register the mortgage for you and this can cost up to $1750
  • Title Insurance – Many lenders now require this in lieu of an RPR – The cost is about $250 and will be collected at the lawyer’s office.

And there you have it.  The mortgage process as succinctly as possible.  Have a great week.