Mark Oulahen interviewed Mortgage Specialist, Tony Iozzo from TD Canada Trust with all the frequently asked questions about mortgages.
What is good or bad credit? What rating do I need to have no issues to get a mortgage?
We want to see credit ratings at 680 or higher to have no issues. We will consider a credit rating under 680, however, a little extra due diligence would be applied. There’s a policy in place for lower credit ratings when seeking a CMHC (Canadian Mortgage and Housing Corporation) mortgage that would make out to a difference of approximately $20,000 in reduced mortgage financing
(that is, credit CMHC would be willing to extend), versus if your credit score were higher. Essentially, the credit bureau is more lenient if your credit score is 680 or higher. So, for example, if you’re looking for $500,000 and your credit score is below 680, you’re probably looking at getting a maximum of $480,000.
How do I improve my credit score, or keep my existing strong credit rating?
If you keep your utilized credit facilities below 50% of their limit, that typically will improve your credit score. If a consumer is paying over and beyond their minimum obligation for payment, that tends to improve it also. The issue with a lot of students, for example, is that they are coming right out of university, have a great job with good income, but are very thin in terms of credit (for example, one credit card and a cellphone bill). We recommend a minimum of three trade lines, with at least one being a major trade line. A basic example would be a credit card, cellphone bill, and car loan.
Where do you see rates going in the near future (six-month to two-year horizon)?
There’s been a lot of buzz and a lot of noise about interest rates going up. Although I know we have see an increase over the last year, I think we’re pretty much at a top in terms of higher interest rates. The reason I say that is because, over the last 10 years, we have extended a phenomenal amount of lending to clients. I can’t see consumers being able to withstand much higher interest rates. That gives me a reason to believe that interest rates are pretty much at a cap.
What’s something that clients often forget, either when they’re obtaining a mortgage or refinancing?
Confirmation of income and down payment need to be accurate and fully disclosed. Technically, the downpayment should be in your account. Any gifts from parents should also be disclosed upfront so there is no confusion when the package is sent to the underwriter.
People should also have a solid play for the payment of their property taxes, which often creep up in the last minute.
If I’m a client today (this interview took place in early June, 2018), should I go with a fixed-rate or variable?
I’m recommending variable because the spread right now between a variable versus a fixed is about 70 basis points. On a $500,000 mortgage, that works out to about $3,500 in interest savings a year. The consumer also has the ability to monitor the rates, with the help of their mortgage specialist, on an ongoing basis, to ensure that, if rates do continue to creep up, we have the ability to lock into a fixed rate. That’s why it is very important to ensure that your fixed-rate mortgage gives you the option of locking into a fixed rate.
Are there any tricks to paying down my mortgage?
In general, institutions do offer prepayment privileges. Ours is 15% per year, so we definitely recommend that our customers utilize that feature.
What percentage of my gross income should be going towards my mortgage payments?
Rule of thumb is 40% or less. The bank wouldn’t approve a consumer if their prospective mortgage payment were to exceed that.
Should I bother getting pre-financed?
Yes. Pre-approved is very important, because it gives the consumer an indication of where they stand, so there aren’t any surprises after to find out that they aren’t approved or that there are issues.
It will also give the bank a chance to ensure that there aren’t any credit issues with the consumer, and gives the client a locked-in rate for up to 120 days. And if rates fall over that period, it can be refreshed to the lower rate for an additional 120 days.
If I’m self-employed, does it make getting a mortgage more difficult?
It comes down to how much income you are declaring. Self-employed income is sometimes favoured and can be grossed-up to a certain percentage. For us, up to a maximum of 20%. Business financials help with that, and can lead to more than 20%, assuming the financials are very strong. In some cases, we can use a client’s business income to support their financing goal.
Who’s your prototypical “best candidate” for a mortgage?
Salaried employees with a regular income and a long employment tenure within that same field.
Did I miss anything else?
There’s a misconception out there that consumer proposals aren’t looked at the same versus a bankruptcy, but in all actuality, they are. If possible, you’re much better off going to the bank to consolidate your debts and negotiate a lower payment. They say it should not impact your ability to obtain a mortgage after 7 years, but I have seen scenarios in which it has taken longer.