Sunday, 23 March 2014

Improving your credit score

If your credit score is not as high as you think it should be, make sure that the information in your credit report is correct. If it is correct, read your report carefully to find out which factors are most likely having a negative influence on your score, and then work to improve them.

Here are some tips, from the Financial Consumer Agency of Canada (FCAC), on how to improve your credit score:

  • Always pay your bills on time. Although the payment of your utility bills, such as phone, cable and electricity, is not recorded in your credit report, some cell phone companies may report late payments to thecredit-reporting agencies, which could affect your score.
  • Try to pay your bills in full by the due date. If you aren't able to do this, pay at least the required minimum amount shown on your monthly credit card statement.
  • Try to pay your debts as quickly as possible.
  • Don't go over the credit limit on your credit card. Try to keep your balance well below the limit. The higher your balance, the more impact it has on your credit score.
  • Reduce the number of credit applications you make. If too many potential lenders ask about your credit in a short period of time, this may have a negative effect on your score. However, your score does not change when you ask for information about your own credit report.
  • Make sure you have a credit history. You may have a low score because you do not have a record of owing money and paying it back. You can build a credit history by using a credit card.

Are you thinking about hiring a company to repair your credit?

Beware of companies that promise to help you re-establish your credit for a fee. Their ability to change the information that appears in your credit file is no different than anyone else's. Only your creditors are able to alter this information; therefore you do not need to pay a third party to obtain, discuss, review or make changes to your credit report. You have the right to access your information and make changes to your file if there is an inaccuracy or if you want to include a comment.

If you are thinking of hiring someone to repair your credit, remember this:

  • A credit bureau will not remove accurate negative information from your credit report before the legal time period has expired; therefore, do not believe anyone who claims they can get negative information removed from your credit report faster than is legally required.
  • There are no "loopholes" or laws that credit repair companies can use to get correct information off your credit report.
  • No credit repair company can do anything you can't do for yourself. It is impossible for a third party to make changes in your file if the facts have been correctly reported. There are individuals and companies that claim they can fix a bad credit file. This is not the case. If a file includes accurate, yet negative information about your credit history, this information cannot be changed. Information will only be changed when your file contains an inaccuracy.
  • The only way to rectify a poor credit rating is to adopt sound credit practices for a period of time.

To learn more about your credit file and credit score, visit the Financial Consumer Agency of Canada (FCAC)'s publicationUnderstanding Your Credit Report and Credit Score.



Source: Government of Canada

Wednesday, 12 February 2014

How to cut your mortgage costs

Whatever type of mortgage you choose, try to pay it down as quickly as possible. That way, you'll pay less interest and cut your mortgage costs.

When you apply for a mortgage

  • Make the largest down payment you can.
  • Pick the shortest amortization period you can afford.
  • Pick an accelerated bi-weekly payment option. This works out to 13 monthly payments each year.
  • Shop around for the best deal you can get.

3 ways to pay down your mortgage more quickly

  1. Increase the amount of your payments.
  2. Make a lump-sum payment each year (prepayment) in addition to your regular payments. For example, apply any tax refund or bonus to your mortgage.
  3. Keep your payment the same if you renew at a lower interest rate.

Use this calculator to figure out how much money and how many years you can save by making prepayments.

Consider penalties for leaving early: If you plan to exit your mortgage before the end of your term, find out the penalty you may pay. Learn how this penalty is calculated.

Special features

Only choose the special features you need, like:

  • Mortgage insurance – Covers your mortgage payments if you lose your job.
  • Portability – Carry your mortgage with you when you sell your home and buy another one.
  • Prepayment options – Make extra lump sum payments.
  • An assumable mortgage – The buyer of your home can take over your mortgage.

Don’t just compare rates and features when you go mortgage shopping. Also consider penalties and fees. For example, look at mortgage prepayment penalties. Lenders must calculate and disclose these in a standardized way.

Monday, 3 February 2014

Investment Properties: The Pros And Cons

There are a number of advantages and disadvantages to buying a property and then renting it out. Talk to an accountant, lawyer, mortgage professional or other financial expert about how it may affect your taxes and financial situation.

3 Key Advantages

1. You pay less tax

You can deduct certain expenses from your income – reducing the taxes you owe. The list includes:

    -mortgage interest
    -property taxes
    -insurance
    -maintenance/upgrades
    -property management
    -utility bills (if you include them in the rent)

2. You may be able to deduct losses for tax purposes

If your expenses exceed your rental income, you may be able to deduct that loss from any other sources of income you have. This could reduce your total tax bill.

3. You get a regular monthly income

Other kinds of investments may pay out less often or income may be less predictable.
As a landlord, you can deduct certain property expenses from your income – reducing the taxes you owe. If your expenses exceed your rental income, you may be able to deduct that loss from any other sources of income you have.


3 Key Disadvantages

1. You take on the responsibilities and challenges of a landlord

Rental units need repair – sometimes on an emergency basis. Dealing with tenants can be challenging, especially if they don’t pay their rent on time and cash flow is tight. If you hire a property manager to take care of these things for you, their salary is an added cost.

2. It may be difficult and costly to sell the property later

Real estate is not a liquid investment. That means it can take time to sell, depending on market conditions. It can also be costly to sell due to real estate and legal fees.

3. It may be difficult to finance the purchase

You must have a down payment of at least 20% when you buy a second property. You may need a mortgage. And, you will have high monthly expenses to cover when you own a building. Of course, you hope the income you receive from your tenants will cover this.

Remember there are always pros and cons of purchasing and owning investment property. Do your research and find out if investing in property is right for you.

Click here more information on investment properties.




Sunday, 12 January 2014

Fixed or Variable? Why not both!

Here’s the situation: you’re in the market for a mortgage. Your timing is perfect because rates have never been so low.  Your colleagues at work took a variable and can’t believe the unbelievably low effective rate they are paying. Your parents are conservative old school and think it would be foolish to pass up on locking in a fixed 5 year for less than 3.50%. What are you to do?
Take the best of both worlds!
At the time of writing the effective rate for a 5 year variable rate mortgage is 2.55%* with very little probability that the Bank of Canada prime rate will change in the near to mid-term. A fixed 5 year is at 3.49%*.  The spread between the two options is only 0.94%.  If you are a consumer trying to decide fixed vs variable, it would be difficult to determine which option will out perform the other. We are really in uncharted territory… both have pros and inherent drawbacks.
Here’s how you can protect yourself: take a 50/50 mortgage. The 50/50 mortgage allows you to lock half of your balance as a fixed rate and the remaining half as a variable rate mortgage.  In doing so you are benefiting from the positives of each and spreading the risk over your entire mortgage.
Most people would agree that investment diversification is the key to a solid investment portfolio. The same holds true for your mortgage: Rate diversification.
There are only a handful of lenders who offer these great 50/50 mortgage products. One of my favorites is CIBC who are currently offering their Home Power Plan.