How to Calculate Your Credit Score for Free

In the last few years, your credit rating has become increasingly important. While it seems obvious that your credit report and credit score are used in making decisions about loans, there are other less obvious uses for your credit history. Others might use your credit information to make decisions about other financial services and products. Poor credit could lead to you paying hundreds, or even thousands, of dollars more over your lifetime.

Understanding your credit, and knowing your credit score, can help you learn more about what’s at stake, and help you improve your financial situation. However, it’s not always straightforward to get an idea of where you stand with your credit.

When it comes to checking your credit reports, it might be worth paying for your credit report to get your credit score. This is because, while you are entitled to a free credit report, you aren’t entitled to a free credit score. While your free credit report can give you an idea of what you look like financially, on paper, it’s not the same as seeing the credit score that lenders will use to determine whether or not they will approve your loan. Your credit score is a quick look for others; they make snap judgments about your level of financial responsibility using your credit score. It might not be fair, but it is the reality of our financial system right now.

However, it you aren’t planning to apply for credit anytime in the immediate future, you might not need your exact credit score to keep tabs on your general financial progress. If you’re not too worried about an exact number and would like to have a general idea of your credit score, there is a way to calculate this for free.

How to Calculate Your Free Credit Score

It’s actually fairly easy to see where you stand when it comes to your credit score. All you need to do is visit this credit score estimator and fill in the fields. Once you have done that, the calculator will tell you what range your score falls into. This can provide you with a starting point for improving your finances. If you are considered to have “Fair” credit, you can make it a goal to move up into the “Good” category. If you are in the “Good” category, knowing your estimated score can provide you with a starting point to take you into the “Excellent” category.

The score estimator works by asking you for information that indicates where you fall in terms of the factors that the official credit scoring algorithm works. Factors such as payment history, amount of debt you have, the types of accounts you have, how many credit inquiries are on your report, and the length of your credit history are weighted differently and used to come up with your credit score.

The calculator can’t be perfect, since the exact scoring algorithm is proprietary. But using the information that has been made public about the way some of the factors are weighted, it’s possible to come pretty close. In fact, I found this calculator to be quite accurate when I compared the results with my own credit information.

I have three different reports that I’ve paid for to get my credit score over the last five years. Two were from Equifax and one was from TransUnion. I answered the questions using the information in these reports and not only did the calculator get the range right, all three times the score on the reports came within 10 points of the middle of the calculated range for that report. That’s not bad at all!

While you may have all the needed information handy and could check your score at any time, I recommend ordering your free credit reports and using that information with the calculator. You can order your free credit report, use the exact information provided by the report to ensure maximum accuracy, and then write the score the estimator gives you on the report for your records.

If you plan to apply for credit, it’s best to pay for your “official” credit score. However, if you are just keeping tabs on your financial progress, Bankrate’s free credit score estimator is a great resource that you can use for your own information.

Written by: Tom Drake, Canadian Finance Blog

Posted by: Steven Porter, Mortgage Agent - Mortgage Architects

Rate shopping sites…tested again.. and failed again.

A few years ago, I published a study on Rate shopping sites.   These sites were gaining popularity with consumers as a  place to go if you wanted to get the best rates.  And they attracted a lot of attention.

You know the sites… they have catchy ads like ‘shopping for the Best Mortgage rates in Canada’ or ‘comparing Canada’s mortgage brokers for the best rates’.
Hey, who doesn’t want the best rate?  These ads work. Canadians were clicking these links to get more info. 

Sounds great, right? Yet, it’s not.

LOWEST RATE OR PAY THE LEAST AMOUNT OF MONEY TO OWN YOUR HOME?

The original study found that consumers wouldn’t ask too many questions. They were too rate focused and didn’t focus on the terms of the mortgage.  Most consumers don’t bother asking any further questions or spend the time required to read the 30 or 40 pages of legal jargon in their mortgage.  And this where it can become a costly experience.

The original study showed that if you asked a borrower whether they wanted the ‘lowest rate’ or ‘to pay the least of money on their mortgage’ , the average person would choose the latter.   And make no mistake, these are two very different things.

My original study revealed that these sites didn’t shop all mortgage brokers or lenders.   The sites listed only a small handful of brokers.  Only brokers that got in early, would be compared….and only brokers that were willing to pay a fee per lead, can participate.   The ‘low rates’ were NO FRILLS products, in most cases…products that carried restrictions, limitations and inflated prepayment penalties.   Hardly a true comparison of ‘All mortgages and All mortgage brokers’.  And hardly unbiased.

Today, not much has changed..  well, that’s not true.   They’ve become worse.  Here’s an update:

• One of these large sites was purchased by another online rate site.  A quick review of their current rate offerings revealed they no longer had competitive rates.  It’s advertising rates well above the best in today’s market.  They seem to just be promoting Banks rates… which are higher than broker rates.
• Another popular site has a BIG conflict of interest, in my opinion.  They decided to start their own mortgage brokerage but are still running and operating their Rate shopping site.  Seriously, it’s true!  This raises the obvious question, ‘how can they remain unbiased and neutral when they own one of the brokerages they are comparing?’  It’s like asking TD Waterhouse or Investor’s Group who has the best Investment Advisors?   Or like asking Burger King or McDonald’s, ‘who makes the best burgers?’.   If I ask Rogers who has the best cell service, I wonder if they will say ?  
• And yet, you’ve see these sites advertised and promoted in our country’s largest newspapers, as unbiased and independent!!   Anyone else see a problem with this.

HOW TO PAY THE LEAST OF AMOUNT OF MONEY TO OWN OUR HOMES

Hey, if you want to compare rates, it’s easier today. Just contact an experienced mortgage specialist.   Ask a friend, your real estate lawyer, your real estate agent or financial advisor for a referral.  

by Steve Garganis

The Myth of the Property Ladder (A Warning to Young Canadians)

Parents are great, they spend thousands of dollars and countless hours on their children and get almost nothing in return. Joking aside, my point is that parents usually mean well. There is one area however where I believe Canadian parents are leading their precious children astray, real estate.

The property ladder refers to when buyers attempt to get their first house, where they can than save up and subsequently trade up to a better house. The whole idea, is just to get on the first rung and according to baby boomers you'll be on your way. But just as getting good grades and a good University degree was once a sure fire way to success in the past, what worked for one generation might not work for the next.

Real Estate for most young Canadians is a leveraged investment. Well not just leveraged, but very leveraged. My generation is quick to scoff at the executives from the financial crisis who ran investment banks at sky high debt to equity ratio's of 20:1+. Yet, they think nothing of putting 5% down on a house (which of course is the exact same amount of leverage). A measly 5% drop in house prices and you are wiped out. That's if you can even put 5% down in the first place. Many can't. This is where the parents step in. 

Beyond the emotional push to buy a first house with the common (yet ridiculous argument) of "why pay somebody else's rent?"  I have seen many of my friends' parents routinely gift the 5-20% of the down payment of their first house. No, they are not just giving them free money but rather giving them the money on the condition of a house purchase (and saddling them with massive mortgage debt). It's kind of a like a drug dealer offering free cocaine but only once you get addicted. It's a terrible system so why do parents do it?

The biggest reason is because it worked very well for them.  There is a very stark difference however that will dramatically effect these housing returns going forward: interest rates.   Baby boomers have ridden a three decade wave of falling interest rates. This low cost of financing has lead to the record high price to income ratio. With the end of quantitative easing in the US these low rates are very possibly coming to an end. (Remember Canadians' don't have 30 year fixed mortgages, they reset after 5 years for most people.)

This house price to income ratio chart on the right is from a September 2014 Bank of Canada presentation. Note that although it once cost just a little over 2x your annual income to buy a house, now it is 5x. 

What is actually most disturbing about this chart  though is not the record high number but the linear trend line that CMHC was so kind to add. The price to income ratio over time will revert to its mean. If it didn't, you would have house prices continue to outpace incomes and consume well over take home pay. That's what makes this dotted black line so deceptive. To the casual observer (say the CMHC board which has a deep conflict of interest with its ties to the construction and finance industry) it makes it seem like 'everything is on track' when in reality the dotted line should stay relatively flat over time. Charlie Munger would probably call it 'bullshit graphing' or something along those lines. Anyways, if this graph were to revert to any where near its historical level there would be big problems for Canada and its record high debt binge.

Moral of the story to Canadian millennials: Don't let ma and pa get you unknowingly hooked on the debt cycle, a mortgage will ultimately be your debt, not theirs. Borrow accordingly or better yet, rent until prices make sense. - by hardcore value

Different Mortgage Options - What to Choose?

 

What is an open mortgage?

An open mortgage can be prepaid, in part or in full, during the term of the mortgage without paying a prepayment charge. The interest rate on an open mortgage is often higher than the interest rate on a closed mortgage. An open mortgage can provide flexibility until you are ready to lock into a closed term.

What is a closed mortgage?

A closed mortgage is one that cannot be prepaid, renegotiated or refinanced before the end of the term without paying a prepayment charge. However, most closed mortgages contain certain prepayment privileges, such as the right to make a prepayment of 10-20% of the original principal amount each year, without paying a prepayment charge.
A closed mortgage often has a lower interest rate than an open mortgage.

What is a fixed interest rate mortgage?

• With a fixed interest rate mortgage, in most cases your interest rate does not fluctuate during the mortgage term. Your regular mortgage payment amount does not change.
• You know exactly what your regular payments will be and how much of the principal balance will be paid off during the term.

What is a variable interest rate mortgage?

• With a variable rate mortgage, the interest rate changes with changes to the CIBC Prime Rate. In addition, your regular mortgage payment amount is fixed and does not change.
• When the CIBC Prime Rate decreases, the amount of interest you pay will also decrease. A smaller portion of your regular mortgage payment will be applied to pay interest, and a larger portion will be applied to pay down the principal amount of your mortgage.
• When the CIBC Prime Rate increases, the amount of interest you pay will also rise. A larger portion of your regular mortgage payment will be applied to pay interest, and a smaller portion will be applied to pay down the principal amount of your mortgage.

Why choose a short term mortgage?

A short term mortgage generally offers a lower interest rate than a longer term mortgage. When current rates are high and you think rates may drop, choosing a short term mortgage allows you to lock in for a shorter period. A short term mortgage may also be a good option if you plan to sell your home or pay off the mortgage early.

Why choose a long term mortgage?

A long term mortgage generally offers a higher interest rate than that of a shorter term mortgage. When current rates are reasonably low, choosing a longer term mortgage secures the interest rate for a longer period of time and makes budgeting easier.

Free On-Line Mortgage Pre-Approval

Steven Porter - Mortgage Advisor, CIBC - 1-888-885-8962, steven@stevenporter.ca
www.FreeMortgageInfo.ca

Public Alert – Unlicensed Syndicated Mortgage Brokering Activity

​The Financial Services Commission of Ontario (FSCO) is warning consumers that it has received complaints about some websites promoting syndicated mortgage investments. The businesses operating these specific websites are not licensed or registered to conduct this activity in Ontario.

These websites may refer to the investments as "pooled mortgage investments" or "principal secured investments". These websites, along with their online ads, may guarantee high rates of return, secured by real estate, and claim to be RRSP and LIRA eligible.

Consumers should exercise caution if they are contacted by any entity matching this description. Consumers should also be aware that all mortgage brokerages, brokers and agents in Ontario are required to disclose the material risks of any mortgage investment to investors in writing and in plain language. Investors should ensure they receive this disclosure and should carefully review it, ideally alongside independent legal advice, before making an investment or lending decision.

If consumers arrange a mortgage from a mortgage brokerage, broker or agent that is not licensed in the province, they are not protected under the Mortgage Brokerages, Lenders and Administrators Act, 2006 [New Window], which holds Ontario’s mortgage brokerages, administrators, brokers and agents to specific standards.

FSCO's website contains a list of all mortgage brokerages, administrators, brokers and agents licensed to do business in Ontario as well as tips on shopping around for a mortgage.

A licensed Ontario mortgage brokerage, administrator, broker or agent can provide information and advice on the risks involved in borrowing, lending or investing for different mortgage products.

CONTACT
Media inquiries
Aisha Silim
Phone: 416-226-7795
Email: Aisha.Silim@fsco.gov.on.ca
Public inquiries
1-800-668-0128
contactcentre@fsco.gov.on.ca

https://www.fsco.gov.on.ca/en/about/warning-notices/Pages/warning-unlicensed-syndicated-06-16-2014.aspx

Renewing your mortgage? Here’s why you should pick up the phone

I am one of those debt loving people who believe I can do more with my money by carrying a big debt at 3%, than by paying off my house and using up all that cheap capital – but that financial idea is a story for another column.

So, even though my mortgage comes due in October, I decided to lock in a rate four months earlier at a different institution at 2.79% for 5 years fixed. I was thrilled to have another five years of cheap money.

Even though I had already locked in elsewhere, I was interested in what my current mortgage lender would provide. I waited and I waited. Just four weeks before it was due for renewal they sent me a mortgage renewal notice. They could have sent it to me two or three months before my mortgage came due, but they may prefer to leave consumers less time to shop around and more inclined to just renew.

Here is where it gets interesting. “Please indicate which option you are accepting by signing your initials in the appropriate area indicated and return your signed agreement,” the letter stated.

I could just initial the 5-year fixed rate — for the princely rate of 4.79%.

Further on in the letter under a section called “Get the best rate,” it offered to extend to you our special interest rate hold guarantee provided if I signed by my renewal date. But all this says is that if the rate went down between now and about three weeks from now, I would get the lower rate.

This is a full 2% higher than what I am actually going to get somewhere else. If I had a $500,000 mortgage, this would cost me $47,600 more over 5 years by ‘just signing here’ vs. going to a mortgage broker three months in advance.

Just to be sure that I wasn’t missing something I called to make sure that I had the correct instructions and rate on my renewal. An interesting thing happened when I called. In about 30 seconds they said “I can actually get you a rate of 2.99% for 5 years.” I asked why my rate was 4.79%, and they said that this is the standard rate, but I can get this better special rate.

Doing the math, that phone call, using the same $500,000 example, would have saved me $42,800 over 5 years. That was a pretty valuable phone call.

I asked the kind sir on the phone how often people just sign the renewal form, and he said ‘quite a few.’

If a bank gets 5,000 people in the same $500,000 example to sign the renewal, that adds $42.8-million in profit to their bottom line each year.

Please do not automatically sign the friendly mortgage renewal form. At a minimum call to negotiate or call a mortgage lender to get the best deal for you. If you feel some sort of loyalty to your current mortgage provider, then be sure to see someone in person and ask for the very best rate that they give their very best customer. Your future net worth will be glad that you did.

By Ted Rechtshaffen, president and wealth advisor at TriDelta Financial