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What You Need to Know About Your Credit Report
Your credit report and score are important tools for acquiring a loan of
any kind including a mortgage. So it’s in your best interests to understand
what your credit report is and what is on there. In Canada there are two major credit
bureaus: Equifax and TransUnion Canada. It’s advisable to get a copy of your
credit report at least once a year to make sure all the information in there is
correct. Both agencies receive billions of data each month from banks, finance
companies, credit unions, retailers – just about everyone who grants
credit -- so it’s easy to see how
mistakes could be made.
The major
sections include: your personal identification, a consumer statement, credit
information, public record information, third-party collections and inquires.
First and
foremost, it’s important to make sure your identification information is
accurate. Secondly, your credit
information, which shows your payment history, should not exceed 30 per cent of
all credit granted. For example: if you have credit cards, lines of credit etc.
with available credit of $10,000, make sure you have only used $3,000.
Third-party
collections need to be cleared up before applying for a mortgage. And finally, limit your enquiries by not
applying for too much credit before applying for a mortgage. Too many enquiries
lowers your score.
To get get a
copy of your credit report free, write to the two agencies or for a fee your
report can be downloaded online.
High ratio insurance and the CMHC
Everyone is familiar with the Canada Mortgage and Housing
Corporation (CMHC), especially when it comes to financing your real estate deal
since they will insure high-ratio mortgagees which are over 80 80% the value of
the home. What you may not know is for years, CMHC has had an unfair advantage over
private mortgage insurers because its policies are backed 100 per cent by the
feds, unlike the 90 per cent guarantee given to private insurers.
This has been getting some media play recently as critics
speak out against the CMHC and the government wrestles with distancing itself
from the corporation. Taxpayers have often raised concerns that backing
mortgage insurers is risky business and can end up costing them as it did in
1997 when CMHC didn’t have enough in reserve to cover claims and needed
government assistance. But since then, CMHC increased premiums and have been
more cautious about maintaining its reserves.
Having a competitive market for mortgage insurance greatly benefits
homebuyers. Today there are two private insurers in the market: Genworth
Financial Canada and Canada Guaranty. Here are few benefits:
* Insured mortgages are portable saving homeowners
new insurance fees
* Refinancing is now insurable
* Lowered insurance fees
Canada has the second largest mortgage insurance market on
the world and is attracting more private insurers. Canada’s mortgage insurance has allowed more
consumers to own their own homes with minimal risk to taxpayers. Having an even playing field for all insurers
will benefit consumers and homeowners and further grow our housing market.
Cash Back mortgages still available
First time homebuyers may be wondering if they’ll ever be able to afford a home. On March 18, 2011, the mortgage lending rules will change, making it slightly more difficult for first time home buyers to qualify for a mortgage. But all is not lost. The one change that has a direct affect on first time home buyers is the amortization, which went from 35 years to 30 years. Despite the negative media reports, the real numbers, when crunched, are these: Assuming a 4 per cent interest rate, this means you will pay approximately $34.72 more each month for every $100,000 in mortgage.
Some lending criteria didn’t change. Financing is still allowed up to 95% of the value of the home, and condo fees are calculated the same way – only half are used to determine your total debt. You can still borrow your down payment and many lenders still offer the 5% Cash Back mortgage. This is a great option for first time home buyers who have the minimum down payment. You can get the cash you need to help pay your land transfer tax, lawyer's fees, moving costs, closing costs and other expenses. For example, if your mortgage is $200,000, which is about average, your cash back at closing would be $10,000.
This option is available for first time home buyers and for homeowners who wish to move up or to downsize. Having said that, The Cash Back option may not be for everyone and each situation is unique. What is important is getting the right advice before making any decisions.
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