Realty Times April 30, 2002

Canadian Mortgages: Turning "No" Into "Yes"
by PJ Wade

Many Canadians who have been turned down by a bank or who are afraid to apply for a mortgage because they are certain they will be rejected may be eligible for the financing they need to buy a home if they ask a different lender. However, rising interest rates may be their enemy. David Dodge, Governor of the Bank of Canada, and the Bank's semi-annual Monetary Policy Report both made it clear recently that because Canada is in better economic shape than expected, interest rates will be on the rise to head off inflation. The Bank projects that the Canadian economy will grow between 3 1/2 and 4 1/2 per cent at annualized rates in the first half of 2002, and will continue to expand until it is at full capacity in the second half of 2003.

Since January 2001, the Bank lowered interest rates by 375 basis points to bolster business and consumer confidence. Now the Bank plans to "to reduce the substantial amount of monetary stimulus in the economy." It began by raising the overnight interest rate by 25 basis points to 2.25 per cent on 16 April. The Bank expects to continue raising rates "in a timely and measured manner."

As interest rates go up, the amount of mortgage you may qualify for goes down. It also means that borrowing the same amount of money gets more expensive. If you'd like to buy a home, why not talk to a mortgage expert before rising rates put financing out of reach.

Canadian banks, because they can afford to pick and choose customers, prefer to deal with those who have good credit ratings and stable employment histories. If you have had a few credit disasters or declared bankruptcy, there are other mortgage lenders who will be pleased to help you.

Self-employed people are looked on with similar disfavour by traditional lenders. You may be required to provide 3 or 4 years of income tax returns showing consistent earnings before you'll even be approved for a car loan, never mind a mortgage. Once again, there are mortgage lenders who appreciate your credit capacity. What makes you a less than attractive mortgage applicant?

  • No borrowing history because you are just starting out or have lost your credit identity through divorce.

  • Less than three consecutive years taxable income of an acceptable level.

  • Current late payments on credit card, RRSP, car or personal loans.

  • An extended period of late payments on the same items.

  • Self-employment.

  • Bankruptcy.

  • Poor credit rating caused by the above items or errors in your file that you have not had corrected. What can you do to make yourself a more attractive borrower?

  • Talk to a mortgage broker, mortgage company or real estate broker to find out which of the dozens of lenders other than the Big Five Banks would be interested in your business. Canadian bankers focus on your verified-monthly cashflow, but other lenders will consider additional aspects of your financial situation in helping you arrange financing. Even most bankrupts can arrange financing, so do your research.

  • Equifax or another large credit reporting agency and ask to see your credit file so you can correct any errors. No charge for this. Expect to provide documentation to resolve outstanding issues.

  • Establish a good rating by borrowing to buy a car or open an RRSP and then by scrupulously making every payment ahead of due dates.

  • Visit a non-profit credit counselling service for help paying off debts and improving your ability to handle money.

  • Save to accumulate as large a down payment as possible, but remember a minimum of 5 per cent may be all you need.

  • Existing or commercially-built residential properties are generally easier to finance while commercial properties, rental buildings, vacant land or a house you are building for yourself may require specialized lenders.

    Depending on your credit rating and current situation, you may be charged from 1/4 per cent to 1 per cent more. There may also be arrangement fees involved. Have these quoted in writing, in advance. Check with Canadian mortgage broker or real estate associations to confirm type of fees and arrangement costs to expect.

    When arranging a pre-approved mortgage, negotiate as long a commitment period as possible. If the lender will guarantee the rate for 90 or 120 days, you'll be under less time pressure to find the ideal home for your family and your pocket.


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