General

Free Financial Resource E-Book

General Joel Scott 1 May

We’re all experiencing the pandemic differently.

From our emotional health, to our families, friends, social connections, our employment, our business and financial health, everyone has a different experience dealing with the pandemic.

My hope in offering this FREE E-book, is to provide some clarity and answers to many questions you may have about your mortgage and financial situation.

You’ll find

  • Mortgage Lender Contact List
  • 5 point Checklist for Managing Financial Difficulty
  • Tips for Emotional Support
  • How Lenders are Helping
  • List of Financial Measures offered by Government
  • Links to Provincial Pages for Support Measures

I hope you find the information helpful. Please share with anyone you feel could benefit from the information.

To download your FREE Mortgage/Financial E-book please click  CovidBooklet-Joel Scott

Should I Defer My Mortgage Payment?

General Joel Scott 30 Mar

It’s been a wild and weird past few weeks in unprecedented financial times.

Shutdowns, physical distancing, lay offs, income interruptions, fear, uncertainty, all of it ….AAACK!

We all need a little reassurance. Whether it’s emotional, financial or otherwise.

Time to breathe…..focus…and look at things through the lens of what’s in front of us, not the million and one “what if’s”.

A question homeowners want answered is,

“Should I defer my mortgage payment?”  

If your income has been cut off, or is in danger of not covering your monthly expenses, my advice is:

YES.

Steady cash flow in your home can be the difference between feeling unsettled, anxious and uncertain to calming and relieved. It can also prevent further financial problems down the road.

In these unprecedented times, the entire financial industry has come together to find solutions and provide relief for people fearing losing their home due to income interruption.

There’s never been anything like it.

It’s the Cheapest Money in the Borrowing World

Deferring your mortgage payment for 1-6 months can provide you the financial relief you need short term, in the most cost-effective way.

Your mortgage interest is the cheapest loan you’re going to find.  Deferring your payments and accruing interest at 3%, or thereabouts, is a better option than credit cards, lines of credit, RRSP withdrawals, and don’t even think about a pay day loan place. (No seriously, please don’t ever go to a pay day loan place)

The Myth of Interest Upon Interest

There is so much info flying around so fast, it’s hard to understand and prioritize what affects YOU.

The most common theory out there is that if you defer your payments, you’ll be paying interest upon interest, because the interest clock keeps ticking during your deferment. While this is true that your interest will continue to accrue, the math isn’t quite as catastrophic as you might have been led to believe.

One of our industry leaders Dustan Woodhouse points out “it is complex because the true ‘cost’ of the payment deferral varies depending upon mortgage amount, interest rate, remaining term, remaining amortization (amortization is different than term), and of course the lender’s policy of repayment timing”.

He also did the math and an average mortgage it works out to approx. 175$ month per $100,000 of mortgage.

In a previous video I did with YourTV Northumberland I mentioned the interest upon interest …and thought I should clarify my comments.

Are you paying interest upon interest for the next 25 years?  No. Interest will be added to your mortgage during the deferral, but you are not paying interest upon interest for the next 25 years. Why?  Because you can pay back the deferred funds through standard prepayment privileges at just about anytime, (contact your lender for details – this is a link to 36 major lenders as well as tons of COVID-19 financial info – click here ). Besides that, if it free up $1500-$2000 in cash flow monthly ( times 4-6 months = up to $12,000) during a time of extreme stress and crisis, then I say easy trade off.

Long Story Short 

If deferring your mortgage payment frees up space in your head mentally, emotionally and financially, it’s a good idea to take advantage of the deferral.

If the cost of deferring a few payments helps you prevent larger losses down the road or higher interest payments, it’s a good idea to take advantage of the deferral.

If deferring the payments helps you keep from losing a property and driving you further into debt, it’s a good idea to take advantage of the deferral.

Think of Your Lender

If you’re in a position where you’re not in income jeopardy, or not yet, I would ask that you think of your lender.  They are overwhelmed with people asking questions, asking about deferrals and calls and emails are being prioritized. One lender told me they had 1000 voicemails before 10am on ONE day this week. They only had a 1000 because that’s what their voicemail maxes out. So, if you’re not in immediate need, hold off on calling or emailing. Free up that time for lenders to deal with people in emergency situations.

And be kind … it’s easy to swing to ME over WE mentality when times challenge us (Toilet paper hysteria anyone?).

But we’re all riding this tsunami together.

Stay safe, stay home, and be well.

Yours in success.

Joel

A Beginner’s Guide to Mortgage Rates and Terminology

General Joel Scott 4 Feb

When you start shopping for a mortgage (stop, we can do that for you) you’ll come across a lot of financial lingo about interest rates.  You’ll likely come across several different types of rate terminology and knowing this terminology is important in understanding how you make decisions for your mortgage.

There are a few different rate types you’ll read/hear about.  Here’s a quick cheat sheet for reference.

Posted Rate

Posted rates are the rates advertised by the big banks and financial institutions.  They are often slightly higher than actual rates that they will lend to you, and what you may not know is that you are expected to negotiate down.  Also notable to mention is that the posted rate is the rate that banks use to calculate their penalties when breaking a mortgage. Meaning, they can use this inflated rate to calculate your penalty and charge you more.

Benchmark Rate

The Bank of Canada qualifying rate (Benchmark Rate) is different from the actual mortgage rates offered by banks.  When you’re applying for a mortgage, a lender will ensure you can withstand rate increases and afford future mortgage payments by using the higher of either the Bank of Canada qualifying rate (5.19% at time of writing) or +2% the contracted rate (the rate you agree to in your mortgage contract).

Contract Rate

This is the official rate that you agree to in your mortgage commitment. It’s the interest rate at which your monthly (biweekly whatever) payments are based on for the term of your mortgage. It should be noted this for FIXED rate mortgages.  If you’ve chosen a variable rate mortgage, your interest rate will fluctuate with your lender’s prime lending rate and adhere to specifics in your mortgage contract.

Qualifying Rate

Like the Benchmark Rate, The Qualifying Rate is what lenders use to ensure you can afford the payments of your mortgage, as well as withstand any possible increase in payments if rates change (If you’re in a fixed rate mortgage, your rate stays the same for the term of the mortgage).  Your qualifying rate is either the Benchmark Rate (currently set at 5.19% by the Bank of Canada) or 2% points higher than the rate you’ve agreed to in your mortgage contract.  This helps protect both you and the lender, ensuring that you can afford your payments moving forward.

Prime Rate

This is the interest rate set by the Bank of Canada. It dictates how much it will cost financial institutions to borrow money. Your bank and other lenders will base their own “Prime Lending Rates” on this rate. Banks and instutions will set their own prime rates based on the Bank of Canada prime rate.  So, when you hear a bank or lender offer a lending product at “1 over prime” or “prime plus 1%”, they mean 1% over the prime rate being offered by them.

Overnight Rate

The Bank of Canada sets its overnight rate which dictates how expensive it will be for the major financial institutions in Canada to borrow money. Then those major financial institutions set their own prime rates based on the overnight rate (as a side note, each of the 5 big banks in Canada set their own prime rate but, often, it’s the same). Simply put, the higher the Bank of Canada sets the overnight rate, the higher a bank’s prime rate will be and the higher the interest rate you’ll be offered when you go to borrow money. (Source: Loans Canada)

Summary

If you’re looking to secure a mortgage or any type of loan, use this reference to help understand the rates you are looking at. Be sure you know the difference when it comes to interest rates, it could save you thousands of dollars!

Yours in Success

Joel

905-376-1625

joels@ndlc.ca

Finance Basics for YOUTH ! This Sunday at 1pm!

General Joel Scott 21 Jan

Money and Finance is the only game in the world, you HAVE to play, but no one tells you the rules!

Think of it like swimming lessons. In the deep end, it’s scary, there’s a good chance you could drown if you don’t know how to swim. So that’s why you learn to swim in the shallow end first before you venture into deeper waters.

As young adults, you get thrown into the deep end in the world of money with no life jacket. It’s a deep pool with plenty of sharks. Protecting yourself and learning the basics of how to swim in the shallow end is the best way to start.


This Sunday January 26th at the YMCA Cobourg,  I invite you to join us in the shallow end of the money pool!!

I am hosting a workshop on finance basics aimed at youth and young adults. Parents, you’re welcome to join us too!! It’s a chance for young people to be introduced to the world of money, budgeting, and begin the path of learning about healthy finances.


Y Members can sign up by phone 905.372.0161
Non-Members $25 www.ymcanrt.org

Yours in Success!

Joel

7 WAYS TO REPAIR YOUR CREDIT SCORE FAST AND SAVE THOUSANDS!

General Joel Scott 17 Jan

Life Happens.  I get it.

You get blindsided with some major unforeseen expense, or catastrophic life event that affects your income or ability to pay your bills.  When life happens, your credit score can pay a hefty price. And that can result in costing you thousands in unnecessary interest costs. (for more on this – click here)

Sometimes it’s not a life event, it’s just that you’ve gotten a little excited about buying stuff.  A little old-fashioned over-indulgence and you’ve ended up with some credit issues.

Regardless, if you’ve found yourself with damaged or bruised credit, there are ways to get your score back up relatively quickly. Here’s 7 things you can do immediately to repair your credit score and improve your chances to dig out of any credit hole.

  1. Correct errors on your credit report.

This one is easy. You can secure a free copy of your credit report from either of the agencies in Canada that track your credit. Review the report and make sure there are no errors or unknown issues like a fraud in your name.  Identity theft leaves you holding the bag on your credit report (and sometimes the payments).  If you do find an error or fraudulent record on your report, you can call the agency and follow their protocol for having it removed. This improves your score.

Equifax             1-800-465-7166          www.Consumer.Equifax.ca

Trans Union    1-800-663-9980          www.Transunion.ca

  1. Increase your credit limit.

Sounds nuts right?  I’m having credit issues, so I should increase my credit limits?  Although it’s counter intuitive to managing your credit, increasing your limits improves your utilization. For example, if you have a $1000 limit on a credit card, and your balance is $600, your utilization is 60%, which could cause your score to drop. If you ask for an increase to $1400, your utilization changes to 42% which could help your score go up. Reminder that preferred utilization is 40% or less to keep healthy credit.

  1. Pay your bills on time – every time. (if not contact lender)

This one is critical and easy to execute. When your monthly bills come in, pay the minimum payment no matter what. This is a minimum. If you can pay more than minimum payment, great. Otherwise don’t miss a payment ever.  This keeps the score moving up.  If you can’t make a payment for any reason, call the creditor to let them know. They can put a note on your file to help, or make arrangements to adjust the payment with you.

  1. Set up automatic payments

This one is best especially if you have regular steady income.  If you automate your payments on the same day monthly, this ensures you never miss a payment and helps you budget more efficiently. Automating payments of all kinds is beneficial for this reason. The less you have to keep track of the better!

  1. Use your credit more. (Responsibly)

Again, this is something that may seem counter-intuitive but using credit regularly and paying it off on time is an excellent way to increase your score fast. An easy way to execute this is to use your credit for small purchases, on a regular basis, and pay it off right away.  For example, put a tank of gas on your credit card, and pay it off right away.  This shows responsibility with credit and helps your score increase.

  1. Keep a low credit card balance and pay monthly.

Ya easier said than done, but if you have a card with a low balance, pay it off and keep it paid off as you go. A good tie in with number 5 above.

  1. Monitor and request a copy of your credit report/score.

Energy flows where your attention goes. You may have heard this before.  It’s true of your credit report. This is good practice to get into at least twice a year. This allows you to be aware of your credit and how you’re using credit. It also allows you to be aware of fraud if you get targeted. If you’re focused on and aware of your credit score and credit health, you’re less likely to behave in a way that damages it.

If you have questions or concerns about your credit and your ability to secure financing, please contact me at any time.

Yours in success!

Joel Scott

905-376-1625

joels@ndlc.ca

 

 

Credit 101-Knowing the Basics Can Save You $$ Thousands $$

General Joel Scott 7 Jan

Quick, what’s your credit score? …….waiting…….waiting…..oh, you don’t know?  Don’t panic, most people don’t know their credit score.  Why would you? Who cares? Why is it important to know?

Well the answer is simple. Knowing your credit score, and how it can impact you, can save you thousands of dollars.

To understand the world of credit and how it can save you thousands, you first must know the basics of what your credit score is, and how it is measured. There are 2 aspects to your credit world. Your Credit Report, and Your Credit Score.

Your credit REPORT is a summary of your credit history:

  1. It contains your personal information. Name, address, DOB, employer etc…

  2. It also contains a review of all your past credit history. This includes all loans, credit cards, mortgages, lines of credit, and other credit vehicles you’ve used over your lifetime. It also shows any occasions where you’ve applied for credit and when your credit report was requested by a lender.

I get asked about sourcing your credit score from places like Credit Karma and asked if they sell your information to 3rd parties? Good news is, they don’t sell your info. The bad news is, they do sell tailored, targeted advertising by financial companies so after you open an account with Credit Karma, you may start to receive offers from various financial companies.

I recommend you source your credit report and score from either of the 2 agencies that monitor credit in Canada. You can request a free copy of your full credit report for free by mail.  Best to check both agencies to see their guidelines.

Equifax          1-800-465-7166          www.Consumer.Equifax.ca

Trans Union    1-800-663-9980          www.Transunion.ca

Your credit SCORE is a measurement of 5 components:

  1. Payment history 35% – Do you pay your bills on time, every time? Do you miss or skip payments? Do you pay less than minimum payments?

  2. Utilization 30% – How much credit do you use? If you have for example $10,000 in credit available on a card, and your balance is $8,000, your utilization is 80%. Anything under 40% is optimal. Paying off cards monthly is ideal

  3. Length of credit history 15% – How long have you been using credit? Most lenders require a minimum of 2 years of credit history, with at least 2 different credit vehicles open.

  4. New Credit 10% – Have you recently opened any new credit vehicles? If you’ve recently opened several credit cards, this could cause a hit to your credit rating. Lenders view it as shopping for credit.

  5. Types of Credit Used 10% – What credit vehicles are you using? Mortgage? Line of credit?

The Impact of Having Strong Credit 

Knowing the basics of credit and having a strong credit score has a direct affect on your ability to get loans, interest rates on your mortgage, credit card approvals, and even a job or housing application. It’s good practice to review your credit report and score frequently – make sure there are no errors or fraud on your report and look for ways to improve your score.

Let’s assume you have a healthy score of 750 and are looking for a mortgage. A higher score like this opens you up to what we call “A” rates, or best rates available.  If you have a score of 600, you don’t have access to those rates, and we must source your mortgage from a “B” lender where rates are higher and sometimes carry extra lending or broker fees.

Scenario 1

A $400,000 mortgage with a credit score of 750.

Assuming an A rate of 2.74% fixed for 5 years, with monthly payments, and 25-year amortization.

Total interest paid over the life of your 5-year term = $50,575.16

Scenario 2

A $400,000 mortgage with a credit score of 600.

Assuming a B rate of 3.79% fixed for 5 years, with monthly payments, and 25-year amortization.

Total interest paid over the life of your 5-year term = $70,458.39

The difference in interest payments over the 5-year term of your mortgage is $19,883.23!!!

Would that be worth paying attention to your credit score?

This principal applies to all forms of credit. If you have solid credit, you have negotiating power and you’re open to lending options. Poor or damaged credit limits your choices and your access to preferred rates.

If you’re looking for some guidance on consolidation or need some ideas on reducing debt or interest payments, please reach out anytime. 905-376-1625 or email joels@ndlc.ca

Yours in success!

Joel

Mortgage Default Insurance – It Doesn’t Protect You, But It Does Cost You. Know before you buy!

General Joel Scott 2 Jan

When you’re applying for a mortgage, many people are faced with having to secure Mortgage Default Insurance or what most people refer to as CMHC insurance. This is insurance that protects the lender in the case of a default on the mortgage loan. It does not protect you or cover payments in the case of death or disability. Insurance that protects you can come in the form of Mortgage Protection Plan (which we offer), other life insurance policies or any number of products offered by insurance companies. Default insurance protects the lender.

Who Has To Secure Default Insurance?
Any time you’re securing a mortgage with less than 20% down payment, you are required to have mortgage default insurance. The exception being homes priced at over 1-million dollars. Mortgage default insurance is not available on homes purchased for more than $1 million; this means that a 20% down payment is required on these homes. If you’re buying a property between $500,000 – $999,999 a higher down payment is required. The minimum down payment is 5% of the first $500,000, and then 10% of the remaining amount. When your mortgage is insured, the maximum amortization period you can attain is 25 years.

How Much is Default Insurance?
This depends on your down payment. The premium you pay is tied to the amount of money you’re putting down. If you are putting down less than 20% of the purchase price, YOU pay the premium. This is referred to as an “Insured Mortgage”. If you are putting down more than 20% the lender will pay the premium. This is referred to as an “Insurable Mortgage”. Catch here, is that often-insurable mortgages carry slightly higher interest rates. An insured mortgage offers protection for the lender without the lender assuming the cost of the premium – so they offer preferred rates for these types of mortgages.
If you’re putting down less than 20% – the cost of the premium varies – this chart from CMHC gives an overview of their structure.

Image Courtesy: CMHC

Example:
You’re buying a $100,000 property. You put down $5,000. Meaning you’re borrowing 95% of the amount (your loan to value). In this case, your Default Insurance premium would be 4% of $95,000. Or $3,800. So, your total mortgage would be $98,800. Plus, your taxes on the premium. PST in Ontario is 8% which would be due on closing. The cost of the insurance can be rolled into the mortgage and paid off over the amortization period or can be paid at closing (which almost no one does). Taxes are not rolled in. The government gets paid up front.

Can I Shop for Default Insurance?
Not really, kinda sorta????  I say that with a little sarcasm, you see there is only 3 companies that offer default insurance and they’re often selected by the lender. Those 3 companies are: 1. Canada Guaranty 2. Genworth and 3. CMHC (Canada Mortgage and Housing Corporation). CMHC is government owned, Genworth is a publicly traded company, and Canada Guaranty is owned by a private investor collective made up of the Ontario Teachers’ Pension Plan and National Guaranty Holdings Inc.
As for shopping for Default Insurance, you or your broker/agent can request the lender apply to a specific insurer, but there are only 3 choices.

Can I Reduce My Default Premiums?
Yes. But you need to increase your down payment.
If you’re able to do this, it is recommended as it can save you thousands in interest long term. If you’re buying a home for $400,000 and you put 10% down (40k) Your mortgage is $360,000 plus your premium (3.10%) $11,160 bringing your mortgage to 371,1160. The interest difference over your 5-year term is substantial.

Scenario 1:  At 10% down payment with Default insurance – assuming 2.89% interest rate – and monthly payments. Total interest paid over a 5-year fixed mortgage is $49,551.

Scenario 2: At 20% down payment – same parameters -no default insurance – Total interest paid is $42,721.

***A savings of $6,830 (not including tax).

What Does it Look like for me?
If you’re looking to see what the numbers look like for your situation, click here

If you have any more questions on default insurance and how if can affect your purchasing, please give me a call or drop me an email anytime we can set up an appointment.

Yours in success!

Joel Scott
905-376-1625
joels@ndlc.ca

2020 Financial Reboot – 5 Steps to Take Now

General Joel Scott 30 Dec

2020 Financial Reboot – 5 Steps to Take Now

As we recover from the visiting, the parties, the gifts, the meals, the company and the general hustle and bustle of the Christmas Season, it’s a great time to review your money and give your self a financial reset. For many of us, December is a whirlwind of shopping, eating out, travel and commitments. It’s easy to lose track of your money or to over-indulge.  Here’s 5 Steps you can take NOW to reset your finances for 2020.

Review Your Spending for December

This is your chance to review your spending for the Christmas season. Open up all your accounts so you can see everything and add up how much December cost you above and beyond your regular month. This is especially helpful, so you know for next year too. You can look and see what you spent your money on. There’s so much we forget about.  Little stops here and there, that add up. Have a good look at WHERE you spent your money.

Analyse Your Numbers

After you’ve had a thorough look at everything, it’s time to do some basic math. Add up what you spent on different categories.  How much on eating out? How much on gifts? How much on groceries? This step is critical to make sure you have a clear picture of EXACTLY how much you spent or overspent at Christmas. Does one category stand out? Identify spending that is out of your norm.

Debt Help

If you’re carrying credit card debt, lines of credit or other form of consumer debt, this is a perfect time to review and re-negotiate. Call your credit cards company, or lending institution and ask them to present you with any current promotions? Rate reductions? Bonus programs? You’ll be surprised what you can be offered.  If you’re carrying several balances on high interest cards or lines, this is a good time to shop around and negotiate a consolidate load with lenders. By consolidating your debt, you can save your self thousands in interest costs as well as help repair/boost your credit rating.

Review Your Policies

This is a great time to review parts of your finances you don’t normally look at.  These include things like your car, home, life insurance costs.  Make sure your coverages haven’t changed, or ask yourself whether you need more coverage? Call your insurance provider and conduct a full review with their help.  While you’re at it, update your will, or if you don’t have one yet, time to get one done.

Planuary! January is the time to re-set your plan!

Once you’ve reviewed and analysed your financial picture, it’s time to do the same to your monthly spending plan. Revise your numbers with your fixed expenses (mortgage, hydro, insurance etc.) and your variable expenses (Clothes, gas, entertainment etc). Take into account any changes in income, increases or decrease in regular bills, or debt re-payment.  If you’d like a FREE template that does the calculations for your home spending plan, email me direct and I’ll send you a copy of one we use! joels@ndlc.ca

What are Debt Ratios? And Why Do I Care?

General Joel Scott 16 Dec

When it comes to mortgages, whether you’re buying a home, or refinancing an existing property, there are 3 main ratios you need to know about that can affect your ability to secure financing. The first two are related to the ratio of debt a person carries in relation to their income, and housing. The 3rd is the ratio of how much mortgage you’re asking for in relation to the value of the property.

1. GDS – Gross Debt Servicing.

This is the percentage of your gross income that go towards paying your mortgage and housing related costs. It’s calculated by factoring in what is known as PITH
Principal, Interest, Taxes, Heat.
Ideally, your GDS ratio should remain at or below 32%. If it’s higher than that, it may mean looking to a lender that accepts higher debt ratios. This could mean additional lending fees and a higher interest rate on your mortgage.

2. TDS – Total Debt Servicing.

This is the percentage of your gross income that go towards paying your mortgage and housing related costs as well as all other debts a person may be carrying. This could include credit cards, lines of credit, car loans or any other registered debt.
Ideally, your GDS ratio should remain at or below 44%. If it’s higher than that, it may mean looking to a lender that accepts higher debt ratios. This could mean additional lending fees and a higher interest rate on your mortgage.

3. LTV – Loan to Value.

This is amount of the loan you’re looking for as a percentage of what the property is worth. It’s used as a risk assessment by lenders before they approve your mortgage. If you’re looking for a loan with an LTV above 80% (ie. A $100,000 home and you’re looking for a 90,000 mortgage – that would be a 90% LTV ), mortgage insurance (CMHC/Genworth/Canada Guarantee) would be required at your expense to protect the lender. If you are asking for a mortgage with less than 80% LTV, the lender may also purchase mortgage insurance, but at their expense.

Summary:

When looking for a mortgage the 3 ratios that come to play are GDS/TDS/LTV. If you’re GDS/TDS are below 32% and 44% respectively you are viewed as a lower risk and open to better interest rates from lenders. Higher ratio’s can mean higher rates and often additional lender fees.

If your LTV is higher than 80% you will be required to pay an insurance premium to protect the lender.
Keeping your debt ratios in line, in addition to a healthy credit score, can save you thousands of dollars in mortgage interest and fees.

For more information please contact me anytime. 905-376-1625

Apply Now:  Click here