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UNDERSTANDING YOUR CREDIT

A good credit report and credit score are important factors in determining whether or not you will be approved for a mortgage. Here are some simple steps you can take to maintain a good credit history — and improve your chances of being approved.
Your credit score is a number that illustrates your financial health at a specific point in time. It also serves as an indicator of your financial past, and how consistently you pay off your bills and debts. This is one of the factors mortgage professionals consider in qualifying you for a mortgage.
How to Check Your Credit Score

To find out your credit score, contact Canada’s two credit-reporting agencies: Equifax Canada at www.equifax.ca and TransUnion Canada at www.transunion.ca.

For a fee, these agencies will provide you with an online copy of your credit score as well as a credit report — a detailed summary of your credit history, employment history and personal financial information on file. You can also obtain a free copy of your credit report by mail. If you find any errors in your report, notify the credit-reporting agency and the organization responsible for the inaccuracy immediately.

It’s important to begin building a credit history as early as possible. You can begin to build one by applying for — and responsibly using — a credit card. Your financial institution or mortgage professional can help.

Demonstrating your ability to manage credit is key to maintaining a good credit score. There are a number of things you can do to improve your credit score. These include:

  • Always pay your bills in full and on time. If you cannot pay the full amount, try to pay at least the required minimum shown on your monthly statement.
  • Pay off your debts (such as loans, credit cards, lines of credit, etc.) as quickly as possible.
  • Never go over the limit on your credit cards, and try to keep your balances well below the limits.
  • Reduce the number of credit card or loan applications you make.

Once your credit score has improved, work with your mortgage professional to obtain a mortgage that works for you.

MORTGAGE TYPES

This type of mortgage usually remains unchanged for whatever term you agree to. Prepayment costs will apply if you payout, renegotiate, or refinance before the end of term.

BENEFITS:

  • Provides lower rates than open or convertible mortgages.
  • Allows you to make an annual prepayment of up to 10-15% of your original mortgage amount.
This type of mortgage may be repaid, in part or in full, at any time during the term without any prepayment costs.  An open mortgage is generally categorized as a Home Equity Line of Credit (HELOC), in recent years the mortgages rules surrounding this type of mortgage have changed.  You can finance a property up to 65% Loan to Value on a HELOC, a top up mortgage can be added as a fixed portion.  Another important note on this type of mortgage is only a hand-full of lenders provide this product.

BENEFITS:

  • Provides flexibility until you are ready to lock into a closed term.
  • Allows you to pay off any or all of the mortgage without prepayment costs.

RATE TYPES

An interest rate that does not change during the entire mortgage term.

BENEFITS:

  • You can take advantage of the same interest rate for the entire term with a regular payment that stays the same.
  • You will have the security of knowing exactly how much your payments are and how much of your mortgage will be paid off at the end of your term.
An interest rate that can fluctuate during the term. The interest rate varies with changes in market interest rates (typically the bank’s prime lending rate). The mortgage payments can be fixed, or they could change if the interest rate changes – it depends on the lender and type of product.

BENEFITS:

  • Historically, variable rates have been lower than fixed rates and could save you more money.
  • If rates go down, a larger portion of your payment goes towards principal, helping you pay off your mortgage faster.Your regular payment stays the same even if rates change.