How Your Credit Score Impacts Your Buying Power

Your Credit Score that the lenders use, not to be mistaken by the Credit Risk Score you see when you check your own credit, is one aspect of determining your borrowing power. The better your score, the length of established credit and your payment history the better when it comes to mortgage financing.

Let's assume that all parts of an application are equal (available down payment, income, monthly liability payments etc.) except for the Credit Scores.  

First the definition of Gross Debt Service Ratio (GDS) is the combined shelter expenses (heat, property tax, half of condo fees & mortgage payment) in relation to the borrowers gross income. And Total Debt Service Ratio (TDS) is the GDS plus all other monthly debt liabilities in relation to the borrowers gross income.

Comparing the credit profiles of Jane and John both who make a gross annual income of $50,000 the following would apply:

Jane has a Credit Score over 680

• GDS allowed is 39%
• TDS allowed is 44%

John has a Credit Score between 600-679

• GDS allowed is 35%
• TDS allowed is 42%

Each year Jane may allocate $19,500 towards GDS and $22,000 towards TDS.

And each year John may allocate $17,500 towards GDS and $21,000 towards TDS.

Lets assume heat and property tax combined are $300/month. This means that Jane with her excellent credit can allocate $1,325 towards her mortgage payment and John can allocate $1,158 toward his mortgage payment.

Using the current Benchmark Qualifying Rate of 4.64% to qualify Jane may qualify for a mortgage of $236,066 and John may qualify for a mortgage of $206,313, a difference of$29,735.

As you can see there is quite the difference in mortgage amounts allowed under each credit rating. If you're thinking of buying  it's best to consult a mortgage broker who will check your credit, help you determine your maximum mortgage amounts and if necessary help you make credit decisions that may improve your credit score and buying power.

Kathleen Dediluke is a BC Mortgage Professional who works with clients to help them achieve their home ownership goals. For more mortgage information check out her website at www.BCMortgageOptions.ca or contact her at 1-866-557-1194.

What you Need to Know About No Frill Mortgages

You've been offered an amazing rate and you just can't believe how much you will save. You're super excited and getting ready to go sign off on the papers when you randomly run into a mortgage broker and mention the deal you scored. The broker says to you that's an awesome rate, any idea what the penalty calculation is if you need to refinance in the future?.  Wait what…isn't it the same as the last mortgage I had?

Maybe but maybe not. There are a lot of new mortgage products available on the market that offer lower rates while giving up other benefits. These mortgage options may have higher penalties, lower prepayment privileges or even worse they could have a bone fide sale clause.

As an independent Mortgage Professional I don't blame a consumer for always thinking rate first. The industry as a whole is guilty of shoving rates in our face anytime they possibly can. It's the easiest part of a mortgage to compare and easiest to advertise. But definitely not the most important part.

Being aware of all the terms and conditions is the key to finding your best mortgage option. You should be aware that there are mortgages that may come with one or more of the following terms:

• Sales only clause, meaning you may not be able to refinance your mortgage until your term is up
• A higher set pay out penalty. Meaning you may have to pay more than the standard 3 months interest or Interest Rate Differential penalty.
• Smaller prepayment options
• and more! 

Always ask these 5 Questions when offered a mortgage:

1. How is the pay out penalty calculated if I break the mortgage?
2. Can I refinance with another lender before my term is up?
3. Is the mortgage registered as a Standard or Collateral charge on my land title?
4. What are my prepayment privileges?
5. Is the mortgage portable and assumable?

Bottom line is that knowing all the fine print is essential in making an educated mortgage decision. We never know what is going to happen in life and saving a little bit on your mortgage rate may cost you more in the long run.

Contact BC Mortgage Professional Kathleen Dediluke to discuss your mortgage options today