equifax Archives - Canadian Small Business Women

Jan 19 2015

TIPS TO PAYING OFF YOUR MORTAGE FASTER!

I had a great meeting last week with a prospective client. They wanted to know how to pay off their 25 year mortgage in 10 years. It was a huge focus for them, as they wanted to take the money left over after paying off their mortgage and put it towards their retirement savings. They are both in their 40’s and want to be debt free by their early 50’s.

They, like many people did not take savings seriously and so now in their 40’s find themselves with a hefty mortgage and not much in the way of savings. I assured them that to do so would mean making sacrifices, such as less traveling, which they both love to do and eating at home instead of eating out, which they also love doing. They assured me they were committed. Of course there were many more sacrifices they would have to make but these were two of the biggest in their particular scenario.

Paying off your mortgage is the single most important step towards financial independence and a healthy retirement. Owning a principal residence outright gives you the financial freedom to channel money that formerly went to your mortgage into your savings or to pursue lifelong dreams or to invest in real estate, which in my opinion is the thing to do as it provides one with extra cash flow, which is another form of retirement savings.

If paying off your mortgage as quickly as possible is your goal you want to make sure you pay attention to the following tips.

Tip #1. First you want to make sure you have a good credit rating. You can pull your credit report from Equifax here: (http://www.equifax.com/equifax-credit-score/)

By pulling your own credit bureau, you will be sure that when you speak to your mortgage agent or broker, there won’t be any surprises and if there are, you have already taken care of them. You want to make sure that there are no “monsters in the closet” and that you are aware of your past credit problems, so that you can be prepared to discuss them with your mortage broker.

A good mortgage broker, will make sure that they explain your past indiscretions to the lender and that it does not impact your ability to qualify. You also want to make sure that you are not behind on payments as these can impact your score. It can make the difference between getting a great interest rate and one that is not that great. This can also impact the amount of interest you are paying on your mortgage.

Tip #2. You should be pulling your credit bureau every six to twelve months before shopping for a mortgage, just to make sure everything is on the up and up and that you are not faced with disappointment when it comes time to shop for that mortgage.

Tip #3. Don’t quit or change jobs just before applying for a mortgage, as that can drastically affect your ability to qualify. Lenders want to see at least 6 months on the job.

Tip #4. The next step is maximizing your down payment. The minimum required for most mortgages in Canada is 5% (depending on your credit rating) but by paying at least 20% down upfront, you cut down on your principal and interest payments and also avoid having to pay CMHC fees. Remember CMHC insurance protects your lender and not you in case of default so why incur that extra cost? Of course it’s not always easy to pay 20% down so what else can you do?

Tip #5. You can be mindful of the amortization period. Many people confuse amortization with term. Amortization is the life of your mortgage, while the tem can run from 1-10 years with a fixed-rate or variable-rate interest mortgage. After each term expires, you renew for another term. Amortization on the other hand, defines how much interest you will pay over the life of the loan. For example, you might pay less monthly (Principal + Interest combined) with a longer amortization, but the interest portion will be higher. Amortization can run anywhere from 15 years to 35 years (with at least a 20% downpayment). Interest can be the killer. It can amount to thousands of dollars over the life of your mortgage. Imagine what you can do with that extra money?

Tip #6. When it comes time to get that mortgage, don’t just go to your bank. It is understandable that people want to stay with the same institutions that they regularly bank with or have their credit cards and car loans with but it doesn’t always pay to get your mortgage there. By speaking to a mortgage agent or broker, you can shop around or more importantly they can shop around on your behalf. Your mortgage agent will get you the best product and rate that works for you. They have access to more than 40 lenders with different solutions and products, while the bank only has one – themselves. Furthermore, the bank will push you to insure your mortgage and just like CMHC, the beneficiary of this insurance is the bank not you.

I remember when my husband and I went to get our first mortgage more than ten years ago – just like most, we went to our bank, thinking that since we had all of our business with them, it would make sense to get our mortgage there. We were shocked when they offered us a rate that was higher than prime at the time and would not even consider a rate reduction based on our years of patronage.

On the advice of a friend, I called a mortgage agent and he was able to negotiate a great rate that was 2% lower. It saved us years of mortgage interest and was a less stressful expeience overall.

Tip #7. Furthemore, rate is not the only thing you should be concerned with; you want to know if the mortgage will be compounded monthly or semi-annually. Again this comes down to how much interest you will be paying – the less often the interest is compounded the better—semi-annual compounding could save you hundreds of dollars or more in interest.

Tip #8. Make sure you understand the difference between the variable rate and the fixed rate products, but more importantly how the penalties could affect you if you were to break the mortgage beforfe the term ends. A variable rate mortgage will cost you 3 months interest, but a fixed rate mortgage will cost you the IRD, which is the difference between the posted rate and the discounted rate, multiplied by the number of months left on the mortgage. In some cases it can cost you thousands of dollars in fees.

Tip #9. You want to take advantage of any and all prepayment privileges. This can also help you pay your mortgage off faster as you can make annual prepayments of 10% to 20%, which goes directly towards the principal. Not all mortgages allow this option so make sure that your broker factors this in, if this is important to you.

Tip #10. Finally and maybe most importantly, as it also has to do with budgeting and savings, is your payment schedule. Don’t choose something that you can’t stick to, as it will make your life and that of your budgeting very difficult. By paying bi-weekly instead of monthly, you put more money towards the principal as you have two extra payments every year. However, if get paid monthly and you are now paying bi-weekly, you may find yourself stretched too thin. Ask your broker to run different scenarios for you so you know what you can and cannot afford. The last thing you want to do is get into a mortgage that you can’t afford.

Paying off your mortgage early will take lots of sacrifice, great budgeting and keeping steadfast to your goal, but if you can follow these tips, the rewards will be aplenty!

To Your Wealth!

Amina

Please “like” my facebook page here
Please follow me on twitter here

Nov 19 2014

HOW TO REBUILD YOUR CREDIT AFTER IT HAS BEEN DAMAGED!

For the last few months I have been working with numerous other Rent-to-Own companies to help them qualify either potential tenant/buyers and/or potential investors.

One problem I have been coming across specifically is the lack of credit. Too much credit can cause just as many problems as no credit or lack of credit.

Some people are in the enviable position of paying for every purchase with cash. This is great – except for when it comes to establishing credit. The strength of your credit history determines if you qualify for a car loan, mortgage or even credit card and also at what interest rate you will pay.

Lenders will use credit reports and credit scores to quickly assess an applicant’s creditworthiness and to check their credit history.

For new or young borrowers or even borrowers who suffered damage to their credit and are now scared to have any credit, however, this poses a serious catch-22: How do you qualify for credit without a credit history, and how do you rebuild a credit history after it has been damaged.

Step 1 – CHECK YOUR CREDIT RATING
Credit bureaus will open a legitimate credit file in your name when a creditor (bank, credit card company or other lender) reports that you’ve had an active credit account for at least six months. All borrowers, not just first-timers, are encouraged to check their credit reports at least once a year and scan them for errors. Mistakes can damage your credit score for years — up to 5 years for negative information like late loan payments and 7 years for a serious default like bankruptcy. If you find a mistake, contact the credit reporting agencies immediately and have the mistakes corrected.

Step 2 – PAY YOUR BILLS ON TIME
Whether it is a credit card, utility bill or any other type of bill, get into the habit of paying your bills on time. While your utility bills are not recorded on your credit bureau, lack of payment that goes to collections, is recorded and that can affect your credit score and your ability to get a good interest rate on a credit card.

Step 3 – GET A CO-SIGNER
Most lenders will allow someone with an established credit history to co-sign the credit application with you. This can include your parents, older siblings or family friend. As with any financial transaction, you should be careful when co-signing for credit. First of all, make sure that your co-signer actually has a good credit history. If your older brother tends to exaggerate, don’t take his word for it. In the eyes of the lender, you are only as good as your brother’s credit score, so ensure that you see it in writing and you can only get that through their credit bureau report.

The most important thing to understand is that co-signing for credit means that both parties are now responsible for its timely repayment. If your dad co-signs your credit card application and you run up hundreds of dollars in late payment fees, both of your credit scores are going to take a hit.

Step 4 – START WITH A SECURED CREDIT CARD
Secured credit cards are a great way to establish credit or even rebuild your credit, when it has taken a hit. Unlike regular credit cards, secured credit cards are tied to collateral in your bank account. In other words, your credit limit equals your checking account balance or another amount required by the card company — although payments for purchases made with this card won’t be drawn from your bank account. If you have $500 in the bank, then your credit limit for the card is $500. If you try to charge more than $500 on the secured card, the transaction simply won’t go through.

Be careful of the distinction between secured credit cards and prepaid credit cards. Prepaid cards are not really credit cards. They’re actually debit cards in disguise. Because it’s not real credit, your activity on your prepaid card won’t be reported to the credit bureaus.

In addition, some secured credit cards carry higher interest rates and fees but with good history, most lenders will let you graduate to an unsecured credit card, which will increase your credit limit and help you establish a better credit rating.

Step 5 – APPLY FOR A SMALL LOAN
A loan is also known as installment credit, since you pay back the loan, with interest, in set monthly installments. A mortgage or a car loan is a good example of installment credit. If you want to make one of these major purchases someday, it’s a good idea to show lenders that you have some positive experience with installment credit.

Student loans are just one type of installment loan. Banks and other lenders allow you to take out small loans for just about anything: a used car, an appliance, a vacation or even a personal loan.

Where most people get in trouble is when they cannot make their monthly installment repayments, which in some cases leads to bankruptcy. It is important to remember to only borrow what you can repay.

Step 6 – GET A GOOD JOB!
If you apply for a mortgage, salary history is one of the most important considerations that lenders will make. Usually, you’ll be asked to supply income tax forms for the past two years and current pay stubs as proof of your earnings.

When lenders examine a borrower’s employment history, they’re looking for stability. If you’ve been at the same job for years and your salary has continually risen, then you’re a good prospect for credit. If you constantly jump from job to job and your salary has been erratic, that puts you in a less desirable position for lenders.

Your employment history is also a good indication of your capacity to repay credit. A person with a low average annual salary wouldn’t have the same capacity to repay a large credit card balance than someone with a higher salary.

Step 7 – DON’T MESS UP!
One of the best ways to build good credit over the long term is to avoid the small and large mistakes that can stain your credit report for years.

Pay all of your bills, loan installments and credit card payments on time. Not only will you pay a fortune in late fees, as most credit cards charge over $30 for late payments – but lenders will raise your interest rates for future credit.

Avoid bankruptcy at all costs; it’s the credit equivalent of death. Bankruptcies will mar your credit report for 7 years. Keep in mind that letting a debt go into collections is just as damaging as it also stays on your credit report for 7 years.

Establishing your credit can be done with due diligence and also making regular payments on time. Rebuilding your credit can also be done after it has been damaged – make sure to take great care and seek advice if you are unsure about the necessary steps. It will be time well spent!

The following links will assist you with establishing your credit.
There are two Credit Reporting Agencies:
-Equifax Canada – www.equifax.ca
-TransUnion – http://www.transunion.ca

You can read more about it here at Office of Consumer Affairs – Government Agency http://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca02178.html

Amina Mohamed is a Mortgage Agent and Real Estate Investor who believes in helping other investors look at all of their options when it comes to finding a mortgage. She writes a weekly blog on her own website and for other investors as well and is keen on helping people fix their credit issues so that they too can become homeowners and possible real estate investors. Amina can be reached through her website at https://www.aminasmortgageservices.ca or on Facebook here or on Twitter here

Share this:

Share this:

Stay Social with Canadian Small Business Women: