The Lender’s Equations: How Much Mortgage will you Qualify for?

GDS and TDS debt service ratios.

Knowing how much you can reasonably, comfortably and responsibly contribute to home ownership is paramount in your making a wise and sound investment on your Canadian property. The big four factors that generally contribute to this mortgage amount are:

  1. Monthly income generated
  2. The amount you can contribute to your down payment
  3. The mortgage interest rates and term you qualify for
  4. Other financial commitments or debts you are obliged to pay

Lenders basically use two rules to determine the mortgage you are eligible to be funded to receive, in addition to examining your credit history and FICO score:

  1. Gross Debt Service Ratio (GDS)
  2. Total Debt Service Ratio (TDS)

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Refinance and Consolidate Your Mortgage

Refinance / Consolidate
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The Dirty “R” Word

If the word “Recession” fills you with unease, you’re not alone. The word doesn’t sit well with many people. Unless you are in the rare circumstance of having just come into a gratuitous fortune, or you are employed in a sector of the economy that has somehow been unaffected by it, a recession will to affect you. Even then, depending on the severity of the recession, unaffected sectors can be effected by proxy.

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Tax benefits for homeowners

While tax season can be a stressful time for most Canadians, it also gives homeowners a little something extra to smile about. The Canada Revenue Agency has a number of programs geared toward helping homeowners, and by taking advantage of these services, Canadians can ensure that purchasing a property results in added savings. After all, once a homeowner braves the world of home loans and mortgage rates, it’s nice to receive a break on their investment.

First-Time Homebuyers’ Tax Credit
As its name implies, the First-Time Homebuyers’ Tax Credit helps first-time buyers pay for the expenses incurred while purchasing a property. Taxpayers can claim $5,000 on a home purchase as long as it’s a qualifying home and they did not live in another home during the year of purchase, as well as the four preceding years. In addition to first-time home buyers, this tax credit is also available to persons with disabilities. Continue reading

Canadian debt levels not much of a concern for residents

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Stop for a moment and consider the last time you swiped a plastic card. Was it as the gas pump? Getting an early jump on holiday shopping before massive crowds take over? Perhaps you prefer to pay credit for your daily Starbucks latte fix?

Whatever the case, it's likely you thought little before pulling out a credit card and running it through the card reader at checkout. But don't worry – a recent study shows you're not alone.

A poll by Hoyes, Michalos & Associates, an Ontario-based bankruptcy service, found that most Canadians aren't really that concerned with the rising national debt. Although the numbers are higher than ever, half of respondents said they have never had a serious personal debt problem, and many consider debt a totally normal thing – even when small things like Starbucks and movie tickets are purchased with plastic.

"It's frightening to see that Canadians have become totally blase about debt – it's becoming their new 'normal' and they're numb to this dangerous trend," said Douglas Hoyes, of the bankruptcy firm. "For many, the use of debt to not only pay for big ticket items like cars, but also to cover day-to-day living expenses, has become commonplace." Continue reading

Now is the time to budget for holiday shopping

Just before the 2011 holiday season – already one year ago, if you can believe it or not – retail sales started creeping up in September, increasing $38.2 billion in one month. Statistics Canada reported that increase as the largest increase since November of the previous years, but it meant one thing for most Canadians: Holiday season was back, and it was time to do some shopping.

Alas, residents across the country made lists, bought gifts for upcoming holidays and generally did not follow their budgets. According to the 2012 Royal Bank of Canada Post-Holiday Spending Poll, one-third of Canadians spent more than they budgeted for. The good news was that the number was down 2 percentage points from the 2011 RBC poll, but most of the people overspending were parents. After all, it's harder not spend oodles of money on children around the holidays than it is to abide by some silly budget, isn't it?

Except that budget isn't really so silly, especially because Canadians are facing the largest amount of credit debt ever and the stability of the economy actually relies on people better managing their money. This definitely includes staying on track budget-wise this upcoming holiday season. Continue reading

Order up: Canadians face financial diet

Canadians sure are a hungry lot, it would appear. In its recent analysis of Canadian debt levels and the housing market, the Canadian Imperial Bank of Commerce said that, "After gorging at the table of plenty for years, Canadian consumer appetites may already be satiated."

Yum. Nothing beats a well-cooked cut of consumer debt, but boy, are our stomachs full!

Yes, Canadians are slowing their rate of borrowing, one morsel at a time. After a veritable open buffet of low mortgage rates, Canadians are stuffed. Home loans, credit card purchases, auto loans, all taken out with low interest, are a heart attack waiting to happen, some suggest.

So rather than popping a few buttons on the nation's trousers, Finance Minister Jim Flaherty has tightened its belt, imposing new limits on the mortgage industry. In an announcement recently, he said Canadians would no longer have access to 30-year mortgages, cutting the maximum amortization period down to 25 years. Income standards will also be tighter. Mortgage debt payments will be limited to 39 percent of income, down from 44 percent. Continue reading

Home equity credit comes under regulatory fire

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Over the last few years, the popularity of home equity lines of credit, or HELOCs, has risen across Canada. But now, regulators are saying some changes may need to be made in order to protect consumers – and the economy.

Canadians' debt-to-income ratio has soared to 1.5 to 1, and a large portion of that debt is due to HELOCs, reports Dow Jones Newswires. Since 2001, the prevalence of HELOCs has grown 170 percent, to account for roughly half of all Canadian consumer credit. In total, the home loans comprise $183 billion just from the nation's six largest banks.

Currently, HELOCs can be issued for 80 percent of the value of a home, but regulators from Canada's Office of the Superintendent of Financial Institutions say that may be too high. These types of loans were rampant in the United States before its housing crash, the news source notes. The OSFI has issued a draft of guidelines that would lower the maximum value of HELOCs from 80 percent to 65 percent of the value of a home. At the same time, the agency would like to shorten the amortization for the loans. Continue reading

Report: Canadian debt increases in Q4 2011

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A recent report from TransUnion shows the total debt in Canada increased to close out 2011, with holiday shopping likely responsible for the rise in credit spending.

The fourth quarter of 2011 in Canada saw total debt, excluding mortgage, rise to $25,960. The nation is still experiencing decelerating annual growth below 1 percent for the first time since TransUnion started analyzing credit trends eight years ago.

"The fourth quarter increase in average consumer debt is in line with seasonal patterns as consumer debt levels generally rise during the holiday shopping season," said Thomas Higgins, TransUnion's vice president of analytics and decision services. "The continued deceleration in the annual growth of total debt is the bigger story." Continue reading

Canadians with HELOC loans don’t fully understand agreement

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A significant portion of Canadians are attaining a home equity line of credit, but more than half with a HELOC don't completely understand the loan's agreement.

According to Moneyville, a recent poll by Leger Marketing and LawPRO revealed more than one-third of Canadians have a HELOC, but 57 percent of those borrowers didn't know the lender establishes a mortgage on the borrower's home. Additionally, 58 percent of HELOC borrowers weren't aware that lenders can place a second mortgage on a home or adjust the original.

Almost 70 percent of Canadians with a HELOC didn't know it could potentially affect their credit rating or future loan applications, the report said.

"But people don’t understand the complexity," said Ray Leclair, vice president of LawPRO, as reported by the news source. "When you use your home as collateral, the bank has legal rights to your property and you cannot close on a sale of that home without paying back that loan."

Debt from strenuous mortgages and other large expenses has become an increasing problem in Canada, as the national debt-to-income ratio has spiked to near 150 percent.

Investment Strategies for Young People

Helping Your Kids Get into Investing Early

In this Internet-dominated, economy-fearing age it may be possible that your kids will out-know you in terms of stocks and trading before they finish grade school. American author Katherine R. Bateman suggests in her book, The Young Investor: Projects and Activities for Making Your Money Grow that no age is too young to get kids making sense of their dollars.

She suggests that even in delivery babies are buying currency – that is, the effort they exert coming into the world is generally awarded with monetary gifts. Bateman says that rather than encouraging your children to begin saving in piggy banks, go one step further and have them deposit into real bank accounts as soon as they can, or open an account for them as soon as they are born. Continue reading