What are the Benefits of Debt Consolidation using home equity?

Consolidating debt with a home equity line of credit (HELOC) or by using 2nd mortgages is a simple strategy to implement and has multiple benefits. Consolidating debt from various sources into a single loan means that you can amortize a single monthly payment over a fixed period of time at much lower mortgage rates of interest. Some of the advantages to this strategy include:

1. Consolidate debt to pay more principal and less interest and reduce debts faster. 
2. Decreased monthly payments improve your cash flow so you can stop playing catch up and start getting ahead. 
3. Instead of juggling multiple bills, you make one payment each month – freeing up time and reducing stress. 
4. Get multiple creditors and collection agencies off your back.

Benefits of Second Mortgage
 

Second mortgages come with a wide range of benefits for borrowers. Being able to get rid of high-interest debt, repairing credit, completing home renovation projects, funding college, and starting up a business are just a few of the things that can be done with a second mortgage.

What is a Second Mortgage?

Second mortgages are loans that can be applied to either residential or commercial buildings.

These loans sit in the second position, behind the first mortgage loan on the property.

Second mortgages can be easily obtained once the property owner has built up enough equity in their home or business.

By tapping into the equity already accumulated, home and business owners can borrow from money that is already theirs.

Has your property value recently gone up? Or do you nearly have that first mortgage entirely paid off?

Contact me to see how much of your equity you can tap into.

Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects and a retired licensed, real estate broker with 30 years experience in residential real estate. He can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca

Simple Steps to Rebuilding Your Credit

When you have bad credit, many doors are closed to you. A poor or bad credit score is one that falls at or below 619 on the Beacon Score. You might not qualify for loans, or have to settle for less-than-desirable terms that cost you thousands of dollars over the loan’s term.

Many lenders are also wary of those with a credit rating also known as a Beacon score of between 620 and 679. You might qualify for a loan, but you won’t get the best terms; instead, you are likely to pay a higher interest rate, costing you hundreds – or thousands – of dollars over the life of the loan. Until you achieve a good score of 680 to 739, you will likely pay the price. And if you want the best terms on some loans (particularly mortgages), you need to achieve an excellent credit score of 740 or more.

Most of us could use a little improvement in our scores. If you have average credit, you might want to bump it into the “good” range. Someone with good credit might want a credit score upgrade to an “excellent” rating. And, if your credit rating is poor, it’s especially important that you work to improve your situation.

Rebuilding your credit, whether you have been through a bankruptcy, consumer proposal or whether you have made mistakes with your finances, doesn’t have to be complicated. As long as you have patience and create a plan, you can rebuild your credit and eventually obtain an excellent credit rating.

Check Your Credit Report
Know where you are at financially. Check your credit report to see exactly where you need to improve. Do you have a lot of missed or late payments? Is your debt utilization too high? These clues can help you figure out what items to tackle first. You can order your credit report directly from each of the two bureaus:
* Equifax
* TransUnion
Check your credit report for errors and fraudulent accounts as well. Errors can bring your credit score down. If something is inaccurate, dispute it, and fix the problem. Each of the reporting agencies offer information on disputing inaccurate information. This can be one of the easiest ways to give your credit score a little bump higher. Don’t forget to bring fraudulent accounts to the attention of the credit bureau and have them removed. If you are concerned about fraudulent accounts and identity theft, can place a freeze on your credit to avoid further identity theft problems. Each bureau has its own procedures, and you can learn more about how to place a credit freeze on your report by visiting the bureaus’ web sites. Understand that a freeze needs to be placed with each bureau individually.

Arrange to Catch Up on Your Payments
Payment history accounts for the largest factor affecting your credit score. If you are behind on your payments, you won’t be able to improve your credit situation. Try to bring all of your accounts up to date. If you can’t afford to bring everything up to date at once, you can contact your creditors and work out a payment plan. Be up-front when you contact your creditors, explaining your situation and letting them know that you want to pay your obligation. Let your creditors know how much you can pay, and how long you expect to pay it. In many cases, it’s possible to work out an arrangement that all parties can live with.
You can also seek the services of a legitimate credit counseling agency to help you create a plan. Credit Counseling Canada -  has some good information on managing your debt, contacting creditors and finding accredited credit counselors.

Pay Your Bills on Time Moving Forward
Going forward, pay your bills on time. This includes non-credit bills. Missed utility payments and late rent payments can be reported to the credit bureaus. Because payment history is so important, establishing a reliable pattern of timely payment is vital to rebuilding your credit. At the very least, you want to avoid reports that you are missing payments, or paying habitually late. Consider setting up automatic withdrawals for the minimum amounts in order to avoid missing payments in the future.

Try to Avoid Closing Credit Card Accounts
When possible, avoid closing credit card accounts. The longer your credit history, the better your score. However, if you are very far behind in your payments, you may not have a choice. A payment plan may require you to cancel your credit card. If possible, though, keep your older accounts so that you have a substantial credit history on your side. If you're at risk of having your account closed by the credit grantor or you feel you must close your card, initiate the process yourself by contacting the credit card company and have them close it at your, "the Customers Request" this reflects more favourably to lenders and other credit grantors when reviewing your credit report in the future.

Pay Down Debt
The second most important factor in your credit score is credit utilization. Your credit utilization is a measure of how much debt you have. It is expressed as a portion of the available credit on each credit facility you are using. If you have a total credit availability of $10,000, and you are using $7,500 of it, your credit utilization is 75%.
If you are using a great deal of your available credit, it can count against you. Create a plan to pay down your debt a little faster. Honestly evaluate your expenses and cut back. Use the money you save to reduce your debt. Try to get your credit utilization down to 30% or less. At the very least 60%. If you can reduce your debt, the credit utilization portion of your score will improve and help your credit overall. Another strategy for reducing credit utilization on a single credit card is by taking out a second credit card and transfer a portion of the balance using balance transfer promos by other credit card companies. This will help your utilization score while you're paying down your credit card balances. The additional credit facility will also help build your credit history provided you follow these steps for rebuilding your credit. Failure to do so could actually compound any negative impact on your credit history.

Use a Secured Credit Card
One of the best ways to quickly build a payment history is to use a credit card. A secured credit card can help with this step if your poor credit precludes you from qualifying for a “regular” credit card. A secured card requires that you have equity in your home linked as collateral or a security deposit with the credit card issuer. Because the money is already there, it is easier to get approval for a secured card — especially when you have poor credit. In either case, your payments are reported to the bureaus every month, so it makes a big difference in showing that you pay regularly — and on time.
An unsecured credit card carries more positive weight, but you might not qualify for an unsecured card right now. If this is the case, begin using a secured credit card. Double-check to ensure that the card is truly a credit card. Prepaid debit cards look similar, but they are not the same thing and your payment history isn’t reported to the credit bureaus. Ask the secured card issuer if your payments will be reported, and only use a card that will report to bureaus.
After a few months, ask if your secured card can be “upgraded” to an unsecured card. If you stay within your balance, and make your payments on time, it should be possible to transform your secured card into an unsecured card. This will also give your credit score a bit of a boost.

Remember, though, that any credit card isn’t an excuse to spend more money. Whether you get a secured card or use an unsecured card, getting a card just to “free up” more money that you don’t actually have to spend out of control won’t help you in the long run. You have to keep a tight rein on your spending. If you can’t change your habits so that you are in control of your spending, don’t get a credit card, secured or unsecured.
(Download my HT Secured Visa Application)

Obtain an Installment Loan
Now that you have a secured credit card and are on your way to improving your payment history, you can try to obtain other loans. Part of your credit score is based on the types of account you have. There are two main types of account: rotating and installment. A rotating credit account is like a credit card or a home equity line of credit, where you have an available limit and you free up more funds as you pay down the loan. An installment loan has a set term and a set payment. Auto loans and mortgages are installment loans.
It’s important to be careful with this step, though. If you apply for too many loans, it can damage your score. Instead, you need to plan your credit applications carefully. Start with a small installment loan. You might be able to get a small, low-balance installment loan from your bank. It might also be possible (if you are looking for a car) to get an inexpensive car from a dealer that specializes in customers with poor credit. Your small loan will probably have a relatively high interest rate, so plan to borrow a small amount, and keep the loan term short.
Your installment loan will show diversity in your account types and help your credit score. As you apply, though, keep it targeted. If you shop around, do so over the course of a few days, and your inquiries will be clustered together and considered one inquiry.


Debt Consolidation Mortgage
Sometimes life events can cause you to get into a position where you may have maximized credit balances on several high interest rate credit cards and payments, even keeping up minimum payments can be overwhelming. Rather than being late or defaulting on payments altogether consider a debt consolidation mortgage to ease the burden of high interest payments. If you own your own home and you have built up some equity, you may be able to tap into this equity either through refinancing or a second mortgage to payout the higher interest card cards. Interest payments on a secured mortgage loan are typically a fraction of what they are on a credit card. The reduced payments will help you make payments and at the same time help build your credit history if done correctly. (Apply free, online for a debt consolidation mortgage loan with me)

Maintain a Current Credit History
When many people first attempt to start rebuilding their credit they make the mistake of cancelling all their credit cards and paying off all loans so they have no credit at all. This strategy actually has a negative impact when applying for future credit.
Try maintaining at least two active facilities of credit, i.e.credit cards, consumer loans. in addition to your mortgage, three is better. These are known as Trade Lines on a credit bureau report. Loans and credit cards for a financial institution are always best for bettering your credit score.
When it comes to applying for a new mortgage or refinancing an existing mortgage, lenders not only look at credit scores but the number of active trade lines you have with a 12 month or more credit history. You may have a great credit score but if you haven't any recent credit history you risk the likelihood of being turned down for a mortgage or at the least paying a higher interest rate.


Practice Good Financial Habits
It can take 60 to 90 days or longer for you to start seeing improvement in your credit score. In some cases, depending on how bad the situation is, it can take two or three years to see solid improvement to your credit history. As a result, it’s important to change your financial habits so that you reduce the chances of poor credit in the future.
Develop the good financial habits of living within your means, setting aside money in your emergency fund, and saving for the future. That way, you’ll be less inclined to skip payments, and you’ll have something to fall back on if you run into financial trouble. Keep with the good habits you formed while rebuilding your credit, and it will be easier to maintain your new, better credit history.


Rebuilding Your Credit Is Worth Your Patience
Follow the steps listed above, and you will be well on your way to a credit score of more than 700. Don’t forget to show patience, though. Credit improvement doesn’t happen overnight. Depending on how bad your credit is, it can take years to achieve excellent credit. But, if you keep at it, you will be rewarded with better rates, and thousands of dollars in interest savings.

Banks turning you down? Creditors on your back? Contact me about debt consolidation solutions that work for you.


Steven Porter is a licensed Mortgage Agent with Mortgage Architects
Steven can be reached through his website at www.1800Mortgages.ca or calling 1-905-875-2582

10 Things to Know About Second Mortgages

When I talk about second mortgages, I don’t mean it in the sense of getting a mortgage on a second property. In this case I’m talking about a second mortgage, following an existing first mortgage secured by the same property. Second mortgages aren’t for everyone, so I’m going to highlight what I think are the top ten things you should know about them to determine if one is right for you.

1. Get the cash you need quick

A second mortgage is a great way to access any available equity quickly without having to break the terms you presently have in place for your first mortgage.  This way you will avoid any potential payout penalties associated with that first mortgage.

2. Types of second mortgages

Basically, you can get a home equity line of credit (HELOC) secured by a 2nd mortgage behind your first mortgage, or a 2nd mortgage that is a separate loan on the property. The HELOC is limiting, because it is only available for up to 65 percent of your home value and has strict qualifying requirements - whereas the 2nd mortgage loan can go as high as 95 percent of your property value depending on the lender, private lenders being the most flexible.

3. Private lenders have looser qualifying guidelines

If you are having problems qualifying for a 2nd mortgage with the lender who presently holds your 1st mortgage or any other lender for that matter, you may want to have a look at what private lenders have to offer by going through an independent mortgage professional. As you are not dealing with a large and potentially rigid institution, private lenders tend to be more flexible when it comes to qualifying and will work with you to find a solution that works for both you and them. Keep in mind - they lend on a smaller scale so, while their qualifying guidelines and document requirements are a bit looser, they tend to be more selective about the property they use to secure the mortgage. Talk to your favorite mortgage professional about how second mortgage lenders products are different than going through a typical first mortgage lender.

4. Higher rates and fees

While the HELOC usually comes with favorable terms like interest-only payments, an open term and a low variable interest rate, they are restrictive in their loan-to-value and qualifying guidelines. Private second mortgage lenders, on the other hand, are more adaptable in that they know they will not be paid out first in the event of a sale or a default. Because they are essentially taking on a greater risk being paid out second, they will likely charge higher interest rates and an upfront fee. But don't worry - there are still deals to be had. Some mortgage professionals have established relationships with a private lender that afford them competitive terms. Or, some first mortgage lenders have arranged special discounted rates through an exclusive relationship with a second mortgage lender, allowing them to offer a blended product for the customer that enables them to borrow more.

5. Watch out for renewal fees and increased payout penalties

Private lenders usually consist of an individual or group of individuals lending out their capital in the form of real estate secured financing (also known as mortgages). As private lenders are not a bank, they are not governed by the usual bank rules and can lend to higher loan-to-values, ask for less qualifying documentation and charge higher renewal and payout penalties at their discretion. This information will be disclosed in your mortgage commitment or in the documents you sign with your lawyer. So, whichever type of 2nd mortgage lender you choose to go with, ensure you fully understand all the terms and fees involved in borrowing those funds.

6. Short term is best

I recommend only using a second mortgage as a short-term financing solution. Higher interest rates, coupled with larger penalties and fees should propel you to find a less expensive financing solution if possible. If you have no other options available to you, know exactly what you are getting into and find out what is necessary to avoid private lending again. You may need to fix your credit or aggressively reduce your mortgage amount in order to build enough equity to eventually combine the two mortgages you have into only one, at a competitive rate with a lower payment amount.

7. When would taking a second mortgage make sense?

Most importantly, there has to be sufficient equity in your home to support a second mortgage as the “A” lenders will only allow you to refinance up to 80 percent of the home's present value. If you are in the first year or two of a closed fixed rate mortgage term, or your mortgage rate is higher than rates offered today, there could be a large penalty involved in accessing equity via breaking your term to refinance. In this case, a second mortgage could be a potential solution for you to access funds from your home. Alternatively, if current interest rates are higher than the rate on your existing first mortgage, instead of a second mortgage, you could consider refinancing your first mortgage to access home equity. I would ask your favourite mortgage professional for some savings calculations that should help you with your decision on how to obtain that equity, and if it's worth it to do so.

8.  One, two, me

If you have a second mortgage on your home, you are third in line to benefit from any equity available once the property sells and all costs associated with the sale (including any real estate fees) have been paid. Your first mortgage holder gets their mortgage balance owing, then the second mortgage is paid out, then the fees associated with selling. Finally, you will receive the remainder as proceeds of the sale. Second mortgage financing reduces the equity you have in your home and you should keep that in mind if you’re selling soon and want to maximize your profits earned.

9. Who you know makes a big difference

If you’re looking for a Home Equity Line of Credit, visit your personal banker as well as a independent mortgage professional to explore the options available to you as not all HELOCs are the same. I mentioned this as some lenders have what is called a “bundled product” which allows you to access home equity a number of different ways under one umbrella. This could include lines of credit, or various credit card accounts, fixed and variable rate mortgages, and more. When it comes to private financing, who you know matters more than what you know. Access to multiple private lenders, instead of just one or two, optimizes the best solution for your financing needs. In addition to access to more financing options, working with a mortgage professional who has experience with both private and second mortgage financing can also benefit you, especially if you're still unsure that it's the best solution available to you at this time.

10. Have an exit strategy

It is usually the intention of a majority of homeowners to pay down their mortgage balances as quickly as possible and a second mortgage can only cause delays in reaching that goal. Before you commit to second mortgage financing, ensure you have an exit strategy planned in order to protect your assets. Work with your mortgage professional on a plan that either has you paying off the 2nd mortgage financing quickly, or an eventual refinance solution in place to avoid the renewal of your second mortgage multiple times.
By Jackie Woodward 

Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects and a retired licensed, real estate broker with 30 years experience in residential real estate. He can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca

All the Ways Bad Credit Can Make Your Life Difficult

Anyone who has had bad credit knows that it can be a huge pain in the butt. Oh sure, it doesn’t seem to affect your day-to-day too much. But when it comes time to get a car, or fill out a rental application, that crappy credit score comes back to haunt you. Here are a few disadvantages of having poor credit, and what you can do about it.
Your Cable, Phone and Internet Bills Can be Higher

If your credit isn’t great, don’t be surprised if your cable, Internet, or cell phone bill comes with an extra fee. We’ve told you before: service providers are allowed to charge you more for having poor credit. It’s called “risk-based pricing”. 

You’ll want to check your monthly bill, or even call your service provider, to see if you’re paying extra. Then, review your credit report (which you should do anyway) and see why your score is so low in the first place. If there are any errors, write the credit bureau a letter disputing them. If that doesn’t work, there’s not much you can do to get rid of this fee aside from improving your credit.
 
It’ll be Tough to Apply for a Mortgage

If your credit is really bad, you might have a hard time buying a house. It’s difficult, but not impossible. Some mortgage lenders are becoming more lenient about low scores, especially if applicants have proven a year of on-time payments. You can get a mortgage loan with a credit score as low as 580, assuming you have the cash for at least 10% of a down payment. In some cases, you might even be able to get a loan with a 500 credit score, but expect to put down even more up front.

However, even if you can get a mortgage loan, your interest rate will be a lot higher than someone with great credit. 

Even half a percentage point can cost you more in the long run, so you might consider improving your credit before taking out a mortgage loan. Of course, mortgage rates are really low right now, so you also have to consider the market, but your credit score plays a big role, too.
 
You’ll Have Higher Interest on Other Loans

High interest rates aren’t just limited to your mortgage. If you take out an auto loan or a personal loan, you can expect higher than average rates, too.

If your credit is really bad, you’ll probably have to take out a subprime auto loan (if you have to take out a loan at all). A subprime loan is a special loan for borrowers with weakened credit histories—and according to Edmunds, your interest rate on a subprime loan could be as high as 18%.

You may want to try to getting a loan with a local credit union, which might be a little more lenient. Also shop loan terms, not just monthly payment. You want to consider what you’re paying in total over time:
 
Look for the cheapest money — the lowest APR over the shortest period. Don’t be distracted by promises of a lower monthly payment over a longer period of time. If the only way you can make the payments is to take out a long-term loan, you probably can’t afford the car.

Credit card interest rates have a pretty wide range. According to Investopedia, they can be anywhere from 7 to 36 percent. If your credit score is poor, you can probably expect a rate of 22 percent or more, Investopedia says.

Work on improving your score, and when you notice it’s a little higher, call your credit card company and follow this script for a better rate.
 
You May Have Trouble Renting an Apartment

Renting an apartment can be a huge hassle if your credit isn’t great. Again, you’re seen as a risk, and the landlord or rental company wants to make sure you can pay on time each month. Luckily, there are a few things you can do to improve your chances of getting the apartment you want. We’ve detailed these methods here, but a few options include:

    Provide a brief explanation: Add a statement to your credit report explaining any negative items.
    Ask for a recommendation: If you’ve been current on your payments, ask previous landlords to offer a letter of recommendation stating that.
    Offer an incentive: Offer to move in immediately, put down a bigger security deposit, sign a shorter-term lease, or a direct deposit from your bank.

Of course, cosigning is also an option, but not one that should be taken lightly. You may also want to consider looking for smaller, independent owners who might be willing to work with you.

When it comes time to turn on your water or electricity, the utility company might ask you to pay a security deposit if you have bad credit. If so, make sure you’re clear on what happens to this money when you move. In most cases, you’ll simply get it back when you move, but you want to make sure this is the case.
 
Really, that’s what the solution to all of this comes down to: improving your credit. Get a free copy of your report, review it thoroughly, then implement a few strategies to boost your score. Either way, it helps to simply be aware of each of these drawbacks so you’re prepared when the issue comes up. While there are some workarounds to each of these hassles, fixing your score is the best long-term solution.

Original article by Kristin Wong, edited for Canada by Steven Porter


Posted by Steven Porter. Steven is a licensed Mortgage Agent with Mortgage Architects and a retired licensed, real estate broker with 30 years experience in residential real estate. He can be reached at 1-905-875-2582; steven.porter@mtgarc.ca or online at 1800Mortgages.ca