Trusted Tips and Resources

Trusted Tips & Resources

Trusted Regina Mortgage Expert Answers Questions About Rising Lending Rates

Trusted Regina's Skott Enns and Ryan Boughen of TMG The Mortgage Group can be found in the Mortgage category.  


We sat down and asked Skott Enns of TMG The Mortgage Group some questions we thought you'd like the answers to!


"As many of you have now heard, the Bank of Canada       increased it's lending rate to 0.75%. That is an increase of 0.25%, from their previous rate of 0.50%."


QUESTION #1: Who will be affected by this?


 "When the BoC increases their rate, this will typically translate into an  increase in the Prime lending rate, which is how banks calculate their  variable mortgage rate. Hence, if you have a variable rate mortgage (or  there is a line of credit component attached to your mortgage), you can  expect your mortgage rate (and likely your payment) to increase by 0.25%  in the very near future."



QUESTION #2: What does this actually mean?


"Of course no one likes to hear that their interest rate is increasing, but before panicking, it is important to look at what this actually means in dollars and cents. With this 0.25% increase, your mortgage payment will increase by $13/month for every $100,000 you owe."


"So if you have a $300,000 mortgage, this will increase your mortgage payment by $39-ish per month. Clearly you would rather keep that money in your own pocket, but this is not a scenario where the sky is falling."


Image result for arrow going up with house


QUESTION #3: What to do?


a) "We can lock in your mortgage rate by converting it to a fixed term. When you originally received your mortgage financing you (in most cases) were committing to that particular lender for a 5 year period. If you are now 2 years into that variable rate, and wanted to lock in to a fixed term, you would be locking into a term of at least 3 years. Make sense? Keep in mind, however that in many cases, the fixed rate that you would be locking into is still going to be higher than your new increased variable rate."


b) "We can do nothing, and stay the course with a variable rate. Although one can never guarantee what will happen with mortgage rates, history shows that those borrowers with variable rates who stay the course as opposed to locking in mid term still save more money."


SKOTT'S TWO CENTS:


"As a blanket statement, I am encouraging the clients who are calling me to stick with their variable rates. As mentioned, in most cases your new variable rate will still be lower than the fixed rate you would be locking into. If you consider this, in addition to the ultra low penalty that comes with breaking a variable rate mortgage (should it ever happen), I still believe a variable term is the right way to go."


"That being said, every situation is unique. If you have any questions at all about your mortgage please do not hesitate to contact me at 306.201.6500."


I am happy to answer any questions/concerns you may have.


If you are looking for honest, unbiased advice from a mortgage broker in Regina they would love to talk with you!

Skott Phone 306-201-6500  Ryan Phone 306-570-3379 

No Time to set up an appointment! No Problem! You can also click here to apply now  with Ryan or apply now with Skott and get the ball rolling.

TMG The Mortgage Group Skott Enns & Ryan Boughen are Trusted Regina Mortgage Brokers


 

Trying to get a mortgage? Do you understand your credit? Our Trusted Regina Mortgage Broker has some helpful information

Skott Enns – Skott’s goal isn’t to simply help you get a mortgage with the best mortgage rates, it is to help you figure out a plan to pay off your mortgage as quickly as possible!  Has been voted Regina’s best mortgage broker for 2013, 2014, and 2015 & 2016 by Prairie Dog Magazine and named to the Summit 20 group, which means that he is in the Top 20% of all TMG Mortgage Brokers in Canada for the last two years.

If you are looking for honest, unbiased advice from a mortgage broker in Regina they would love to talk with you!

TMG The Mortgage Group Skott Enns is a Trusted Regina Mortgage Broker

Understanding Credit

Credit Explained by Trusted Regina Mortgage Broker Skott Enns

 















How you manage your credit plays a big part in how a lender looks at your mortgage application. By understanding the makeup of a credit score and working towards establishing a solid credit profile, you can increase your chances of getting approved for a mortgage. This article is part three in a short series that aims to help you understand mortgage qualification. 

There are four key areas that come under scrutiny when a lender looks at a mortgage application; income, credit, downpayment, and the property. You can find the previous articles in the series here:

Part 1. Understanding the Mind of a Lender
Part 2. Understanding Income

The following is an in depth look at how your credit is viewed by a lender when assessing your mortgage application. 

Credit Agencies

In Canada there are two credit reporting agencies, Equifax and Transunion. Typically Transunion is used by consumers as a monitoring service to protect against identity theft, while Equifax is relied on about 90% of the time by lenders looking to determine if you are credit worthy. Every time you borrow money, a history of that loan is sent by the lending institution to both Equifax and Transunion, this makes up what is called your credit report. The information on your credit report is then boiled down into a single three digit number called your credit score (sometimes called a beacon score).

It’s not uncommon for your credit score to be different between Equifax and Transunion as not all lenders report all information to both agencies at the same time. Although your Equifax credit report will be used for mortgage qualification, lenders may also want to have a look at a your Transunion report as well, especially if your Equifax report has some issues with collections or late payments.  

Understanding Credit – Credit Score

Credit Score

Your credit score is a three digit number between 300 and 900. The higher the score the better. Depending on where you look online, you will find several variations of the ranges that indicate credit worthiness. Although somewhat general, the following is pretty accurate when talking about mortgage financing:

  • If you find yourself between 300-600, you have bad credit and won’t have access to the best products and rates available. 
  • If your credit score is between 600-680, there is a good chance you have had some issues in the past, you can qualify for mortgage insurance, but it’s gonna be touch and go.
  • If your credit score is between 680-720, you have good credit, not incredible, but a check in the right box for sure. 
  • If your credit score is over 720, you have excellent credit and lenders will view you as a “good risk”. 

Now, a credit score is both a snapshot in time and a moving target. Your credit score will change as new information is reported to the credit agencies as these new variables impact your score. When applying for a mortgage, we will “pull a credit report” which gives us a picture of where your credit score is at currently. This snapshot is what the lender uses to assess your credit when determining if they want to lend you money or not.

It’s good to note that although your credit score is a single indicator of credit, it certainly does not make up the entire picture. Lenders will also look at the particulars of your credit report and they will most certainly ask for more information if something seems out of place.

Understanding Credit – Calculating a Credit Score

Both Equifax and Transunion consider the following factors when building your credit score: payment history, amount of money owed, length of credit history, new credit, types of credit. Although there is an exact science to their algorithms, that information is not public knowledge. They have however given us the following categories with a corresponding percentages of how much weight is being put on each. 

Credit Score Calculation

Payment History – 35%

When building your credit score, the most weight is given to how you have dealt with paying your previous debts. And this makes the most sense. If a lender is going to give you money to purchase a property, they might want to see how you repaid your car loan, or your student loans, or your $1,000 Mastercard. If you can’t pay your Rogers cell phone bill on time, what assurance are you giving them that you will pay your mortgage on time? 

Your payment history looks at all your consumer debts or trade lines. A trade line represents a single debt owed to an institution. Trade lines come in many forms, credit card, line of credit, car loan, student loan, and so on. Any time you borrow money, the history of that trade line shows up on your credit report with the payment history from the last 6-7 years being visible. Obviously your most recent payment history will have the most impact on your credit score, positive or negative. 

Payment history is all about how you have managed your trade lines. Have you made all your payments perfectly, or have you been 30 days late, 60 days late, 90 days late, or has the trade line been sent to collection or closed for non-payment? These factors contribute to your score, but are also visible on your credit report for lenders to review when assessing your mortgage application. 

Amount Owed – 30%

How much you owe on a trade line compared to the limit of that trade line impacts your credit score greatly. For example, if you have a limit of $5,000 on your Visa, and you simply use that card to buy gas and groceries every month, and pay it off without ever carrying a balance, that is excellent management and this action will increase your credit score. However if you have a $10,000 Mastercard that you have maxed out and you are making minimum payments, your amount owed compared to the limit is really high, this sends up red flags and will negatively impact your credit score. Not to mention as a lender looks at your credit report, it is a strong indication that you might not be able to handle any more debt. 

Typically you want to use less than 75% of the credit available to you. Going over 75% will negatively impact your score. By staying under 25% of your available credit limit, you demonstrate strong credit management. And that is exactly what lenders want to see, strong credit management. 

Length of Credit History – 15%

Credit-8001

How long you have had credit plays a role in determining your credit score. It also plays a role in how a lender looks at your credit. Unlike smaller loans, when applying for a mortgage, lenders want to see that you have had credit for a minimum of 2 years. Regardless of your credit score, if you haven’t had at least 2 trade lines reporting for 2 years, you are going to have a hard time getting a mortgage. 

The length of your credit history shows how responsible you have been long term with your credit. Time is needed to get the real picture of how responsible you are. Each trade line that is reporting on your credit report will show the date it was opened and a monthly history of your management. Although your history of management is only kept 6-7 years, the age of your trade line will always be visible.

It’s a great idea to always keep your oldest trade lines open and active. Even if you don’t need the credit available, keep the card open, and use it once every 3 months so that it stays live on your credit report. Your credit score will thank you! 

New Credit Inquiries – 10%

Frequently applying for new credit can be a sign that you are experiencing some financial difficulty, especially if the amount owed compared to the limit is over 75%. Applying for new credit can temporarily impact your credit score negatively, however if a new trade line is established, once it gets some positive payment history, your credit score will increase. 

As far as the mortgage process is concerned, instead of going to several lending institutions on your own, and having each one of them pull your credit, as a mortgage broker, I pull your credit report once and then use that same report with multiple lenders. This is a win for you. 

Pulling your credit report multiple times can impact your score negatively, but credit inquiries do only make up 10% of your score, so it’s not really anything to be worried about. Multiple credit inquiries won’t make good credit bad, but it can make bad credit worse. 

Types of Credit – 10%

This is the most insignificant factor in determining your credit, however the type of credit you have does impact your score. Trade lines like fixed installment loans show a scheduled repayment and are considered favourable. While deferred payment loans or payday cash loans from Money Mart can be a sign of money struggles.

Understanding Credit – Established Credit Profile

Established

So when you take your credit score and you combine it with your credit report, as the lender sees it, this is called your credit profile. It’s not just about having a score above 720 (although that is really good), lenders will want to see that you have at least 2 active trade lines, reporting for a minimum of 2 years, with a minimum limit of $2,500. This is the bare minimum to make sure that your credit score has been established over enough time. 

So as you can see, the lender has a lot to think about when it comes to looking at your credit profile and deciding if they want to lend money to you for a mortgage. Next in the series, we will take a look at how your downpayment plays a part in the lender’s decision as well.

If you aren’t sure what your credit score looks like, or if you have established enough credit to be considered for a mortgage, please contact me anytime. I would love to talk through the specifics of your credit report with you and put a plan in place to get you to where you want to go. 

If you would like to know more about the mortgage and housing market, please don’t hesitate to contact me anytime! I am a Trusted Regina Mortgage Broker!

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