What’s my buying capacity? Maximum versus reasonable

Probably the number one question I get asked as a mortgage broker is “Hey Mark, what’s my buying capacity?” As a first time buyer or even a repeat buyer your buying capacity is mission critical. With my weekly column in the Hudson Gazette and my blog montrealmortgageblogger.com, I’ve received quite a few calls from home owners that are over their heads with mortgage and debt payments. It’s always good for the ego to see our maximum buying capacity, but does it make sense to stretch it that high? I will tell you from several horror stories that I’ve seen the past three weeks, clearer it’s not worth it.  

Your buying capacity is based on a couple mortgage calculations, one in particular referred at TDS or Total Debt Service ratio. Typically all Canadian banks use this calculation. This calculation takes a look at your annual expenses namely school and municipal taxes, home heating, and your personal debt load and is divided by your gross income (combined if you are a couple and a portion of your rental income, if any) multiplied by one hundred. On an insured purchase meaning your putting less than 20% down payment, your TDS can go up to 44%. Depending on the lender a refinance the TDS can range from 40-44% whether you are refinancing conventionally (up to 80% of market value of your home) or insured (85% of market value).

First and foremost if you are buying or refinancing mortgage planning is invaluable. You will not always get that detailed service at the branch-level at a bank. That statement is not intended knock the banks but one needs to be careful and budget conscious. A good mortgage broker can help you establish a plan and keep you on budget. What I mean by that is take a much closer look at that TDS calculation. TDS is a crude ratio and does not take into account a lot of your other annual expenses such as insurance, school tuition for the kids, food, gas, etc. With that in mind you can create a reasonable buying capacity. Lastly, when taking your income into account typically I look solely at base incomes and if appropriate exclude or take an average of your over time, bonuses and commission. I treat those as sugar because they can all disappear or fluctuate tremendously in this economy.

If you have any questions or would like to share a mortgage experience, I’d love to hear from you. Have a great week.

Doing some work with the Montreal ReStore

Helping to organize the ReStore today. Love the cause but need some volunteers please

Choosing the right fixed mortgage

If you looking to buy or refinance in the near future then it's not a bad idea to take a closer look at what mortgage term your considering. The big banks have spent a lot of advertising dollars to attract us to sign on for shorter term mortgages (1, 2, 3 and even 4 years). I'd argue given current economic circumstances this may not be the ideal strategy.

Clearly no one knows where the economy and rates are headed but there is some consensus that recovery will arrive in the next two years or so. If you buy into a short term fixed rate then you may be re-signing as rates begin to rise again. That may not be ideal. Currently the seven and ten year fixed rates are very attractive and not much higher than the five year fixed rates. Clearly it’s important to think ahead whether you’re planning on hanging onto the house for the next five years or more.

More and more Canadian statistically break their mortgage before their mortgage term is up. Here are some penalty tips to keep in mind. If take a seven or ten year fixed and you sell or refinance your home five years into your term then penalty to break would only be three months interest penalty. This rule applies to all banks at its part of the Interest Act of Canada. If you think you will break your term before five years then it may be wise to take at least a five year term or less.

If you have a mortgage, debt-related questions or would like to share an experience, feel free to contact me.  Have a great week.

Mortgage conference in Montreal

@ a mortgage conference today in Montreal hosted by all the lenders I work with. I try to attend these things as much as I can. Believe it or not the mortgage industry changes regularly, maybe not daily but often! It's also a good way to spend time with my banks and the people behind the scenes that make my mortgages happen

Quick mortgage and buying tips for first time buyers

Are you thinking of upgrading your home? Are you tired of renting? Wellit’s definitely not too late as the buying season is upon us. Here are couplequick tips to keep in mind:

Tip #1: Make a personal budget. If you’ve been renting all yourlife and now looking to buy then it’s not a bad idea to put pen to paper andget an idea your monthly expenses.

Tip #2: Get a mortgage pre-approval with a mortgage broker.  A mortgage pre-approval will give you a good ideaof your buying power. Look closely at your future mortgage payments, taxes,heating, and new home insurance costs. Ask yourself, does this make sense? Doesthis fit within your personal budget?

Tip #3:  Save for a downpayment. Try to save at least 5-10% of your purchase price. You also canconvert your RRSPs to help you with that down payment. Did you know you can useup to $25,000 per applicant? If you only have a little aside but not enough fora full 5% then consider a "cash back mortgage" but look at the fine print.

Tip #4:  Build good credit.Credit is very important. As a first time buyer it’s a good idea to have atleast two major trade lines for good two years. Hmm I think I've said this before...pay your credit cards on time. Watch your limits. And keep those creditinquiries in check. Too many can definitely effect your credit score.

If you have a mortgage, debt-related questions or would like to sharean experience feel free to contact me.  Havea great week.

Genworth and CMHC Mortgage Assistance Coordinates

Hey everyone, I had a quite a bit of feedback and calls in response to my blog post related to Home Owner Assistance Programs. Thanks for the feedback and glad to hear that the information was useful. I got a couple calls requesting Genworth's and CMHC's mortgage assistance coordinates. I thought I'd post them in case others might need them too. If you don't remember if you are insured with the CMHC or Genworth then simply call your bank and ask. They will know.

Genworth Financial Canada
1-800-511-8888
http://www.homeownerassistance.ca

Canadian Mortgage and Housing Corporation (CMHC)
1-866-358-9999 and ask for a default agent or "agent gestion défaut"

Tips on how to improve your credit score

Managing your personal debts is often on our minds but have you thoughtabout your credit report? I met with a client over the weekend who told me he’snever seen his credit report. So we pulled it together and had a look. To hissurprise his score was in the 640s which is decent but clearly he could havebeen over 750. The credit system in Canada is an algorithm that tracks ourconsumption of credit. This “points system” ranges from 300 to 900 points. Ideally,to get mortgage with a top bank, meaning best rate but also favourable conditionsshould be generally above 650.

Tip #1: Watch your credit limits. In this gentleman’s particularcase he had maxed out all his lines of credit personal and secured. I am not afan of lines of credit as it’s very easy to spend the money and once you exceed50% of your limit then your score begins to drop over time.

Tip #2: Watch out for those pesky credit checks. Every time you applyfor a cell phone, satellite TV, a retail card, and even your contractor maypull a credit check on you. They need your permission but they don’t alwaysask! Too many checks in a concentrated period of time can drop your scoresignificantly.

Tip #3: Pay on time and pay at least your minimum. Sounds simplebut pay all your credit cards, car lease, lines of credit and even that cellphone bill on time. Remember even a wire transfer of funds can take 3-5business days to clear. The credit report tracks payment history for 6-9 years. If you have any collections take care ofthem ASAP.

If you keep all three factors in check then your score will increase butkeep in mind positive results are not real time rather can take 2-4 months adjuston your report. If you have a mortgage, debt-related questions or would like toshare an experience feel free to contact me.