By Jim Yih, Edmonton Journal, as reported in The Vancouver Sun
Over the past 15 years, we have seen debt rise across the nation, and more and more Canadians are retiring with debt. According to a recent survey by CIBC, 59 per cent of retirees are carrying debt in retirement and the trend may continue as more baby boomers head into their retirement years.
What happened to the notion that we had to be debt-free before we retired?
Over the past 20 years I've been asked an increasing number of questions by attendees at my retirement seminars. "Can you still retire if you are not debt free?" "Is it OK to have debt in retirement?" "How do you pay down debt in retirement?" "Are reverse mortgages good?"
A common solution is to downsize. For most people, this simply means selling a large, family-style home and buying a smaller house that is more suited to retirement. While downsizing may appear to be an intuitive solution, it may not help with the finances as much as you think.
I recently met a woman who wanted to sell her bigger home and move into a condo, but she soon realized that despite being smaller, the condo would actually cost more. The condo designed for retirees was new, with lots of upgrades, compared to her 20-year-old house. It was a real reality check to discover that her downsizing retirement plan was not going to save her any money.
CONDO FEES IN RETIREMENT
Retirement communities are becoming increasingly popular for the lifestyle benefits they offer, such as lower maintenance from smaller houses and yards, and travelling with peace of mind knowing your place will be looked after.
It's important to be aware, though, that these communities usually involve monthly condo fees or strata fees, which can really impact finances in retirement.
While it's not always a solution, I've met many people for whom downsizing has been financially rewarding. Some have prepared for retirement by buying vacation property, then downsizing from two homes to one. Others have sold homes in more expensive cities to move to quieter ones and have saved money that way. Others have utilized traditional downsizing to their advantage by moving from a bigger home to a smaller one.
There is no cookie-cutter solution . The lifestyle you want in retirement - including family, hobbies, climate and health - will strongly affect the house you choose.
For some, downsizing brings the opportunity to clean out years' worth of collected household items and start fresh. But many struggle with throwing things away and selling a family home that is filled with memories.
If you are looking to downsizing as a way to reduce debt in retirement, make sure you plan ahead and explore your options early.
Jim Yih (twitter.com/jimyih) is a financial expert. Visit his award-winning blog , RetireHappyBlog.ca
Read more: http://www.edmontonjournal.com/homes/Downsize+thoughtfully/7072165/story.html#ixzz2EJt5xGlX
Thursday, 6 December 2012
Wednesday, 5 December 2012
Housing downturn may help young buyers
Dana Flavelle, TheStar.com
A cooler housing market isn’t all bad news, a major Canadian bank says.
Lower prices could benefit young couples struggling to save for a down payment and also retirees who dream of moving to British Columbia, the report by CIBC World Markets predicts.
While slowing home sales will “take a bite” out of Canada’s economic growth, “less well understood” is the fact there will be winners and losers across the economy, the report released Thursday said.
“What of the young newlyweds scraping by on mac and cheese in order to save for their first home? A slip in prices could ease that task, freeing up spending power in the process,” CIBC chief economist Avery Shenfeld wrote in a note to clients.
It could also benefit cities like Toronto and Vancouver that have been priced out of many immigrants’ and retirees’ reach, the report said.
Overall, slowing home sales will have a negative impact on the economy, the report acknowledges, chopping nearly a percentage point from Canada’s already tepid economic growth.
Fewer housing starts and related sales of furniture and appliances will cause most of the drag, the report said. As well, Canadian home owners who were counting on selling their homes to fund their retirement might find themselves with less spending money, the report said.
But Canada is not in danger of the type of housing crash seen in the U.S. and Ireland, Shenfeld wrote.
Falling prices weren’t the cause of the problem in those economies; rather, it was the accompanying wave of mortgage defaults that was the issue, Shenfeld wrote.
“Canada hasn’t lent as aggressively to its lower-income home buyers,” he noted.
Historically, most declines in wealth coincided with other economic problems, such as rising unemployment or high interest rates, he noted.
A gradual retreat in home prices now is preferable to a harder landing from higher prices down the road, he added.
“As a home owner, I’d prefer that one particular Toronto street stays insulated from any house price declines,” Shenfeld joked, referring to his own address. “But to look on the bright side, a gradual cooling in house prices, one early enough to avoid a larger financial sector shock, will look good in hindsight if Canada gets more support from global growth in the next two years.”
The report is the latest in a series by CIBC to downplay the potential for Canada to experience a U.S.-style crash in residential real estate.
A cooler housing market isn’t all bad news, a major Canadian bank says.
Lower prices could benefit young couples struggling to save for a down payment and also retirees who dream of moving to British Columbia, the report by CIBC World Markets predicts.
While slowing home sales will “take a bite” out of Canada’s economic growth, “less well understood” is the fact there will be winners and losers across the economy, the report released Thursday said.
“What of the young newlyweds scraping by on mac and cheese in order to save for their first home? A slip in prices could ease that task, freeing up spending power in the process,” CIBC chief economist Avery Shenfeld wrote in a note to clients.
It could also benefit cities like Toronto and Vancouver that have been priced out of many immigrants’ and retirees’ reach, the report said.
Overall, slowing home sales will have a negative impact on the economy, the report acknowledges, chopping nearly a percentage point from Canada’s already tepid economic growth.
Fewer housing starts and related sales of furniture and appliances will cause most of the drag, the report said. As well, Canadian home owners who were counting on selling their homes to fund their retirement might find themselves with less spending money, the report said.
But Canada is not in danger of the type of housing crash seen in the U.S. and Ireland, Shenfeld wrote.
Falling prices weren’t the cause of the problem in those economies; rather, it was the accompanying wave of mortgage defaults that was the issue, Shenfeld wrote.
“Canada hasn’t lent as aggressively to its lower-income home buyers,” he noted.
Historically, most declines in wealth coincided with other economic problems, such as rising unemployment or high interest rates, he noted.
A gradual retreat in home prices now is preferable to a harder landing from higher prices down the road, he added.
“As a home owner, I’d prefer that one particular Toronto street stays insulated from any house price declines,” Shenfeld joked, referring to his own address. “But to look on the bright side, a gradual cooling in house prices, one early enough to avoid a larger financial sector shock, will look good in hindsight if Canada gets more support from global growth in the next two years.”
The report is the latest in a series by CIBC to downplay the potential for Canada to experience a U.S.-style crash in residential real estate.
Monday, 3 December 2012
6 Ways to Make your Home More Enticing to Buyers
Investopedia.com
There's little doubt that the housing market is finally showing signs of a measurable recovery. The recent Case Schiller Index, a report that tracks the selling prices of homes nationally, showed a 1.2% increase in home prices from July 2011. The authors of the report cited stabilizing home markets and slight increases in household wealth as reasons for the encouraging data
. This is positive news for the real estate market but for homeowners still struggling to sell their homes, this data is of little value. Homeowners face stiff competition from the many other similar properties on the market. How do you make your home stand out among the many other homes prospective buyers will see before making an offer?
Make a Video
Before listing your home, switch roles. Make a detailed video that shows the interior and exterior of your home. Include closets, areas behind doors, the fence and all of the other less visible features. Then, view your video and think like a buyer. What do you see that would cause you to lose interest if you weren't the owner of the home? Show the video to friends and family, and ask them to give you candid comments. The smallest details are sometimes the difference between a buyer making an offer or moving on to the next home.
If your home isn't catching the eye of buyers, it might need more some work. A high-priced kitchen remodel to entice buyers probably isn't a great idea, but replacing damaged base boards, worn carpet and dead shrubbery are essential renovations in today's real estate market. If the video uncovered some eyesores, fix them. Luckily, these types of renovations don't have to be high-dollar projects.
Weekday Open House
The weekends are full of open houses. Not only are there more weekend open houses than there are prospective buyers, an increasing number of people work on the weekends to produce extra income. A weekday open house reduces the competition, and the evening time may allow parents to view your home when their kids are at a sports practice or other activity. Open houses cost nothing, so trying it on a weekend will only take some of your time.
Find a Better Agent
The economic downturn that resulted in millions of people losing their jobs produced a class of new real estate agents looking for additional income. If your agent is new to the real estate market, he or she may not have the professional network to get your home in front of large amounts of buyers.
If you're desperate to sell, find a high-volume agent in your area. To ensure the agent gives your home priority over his or her other listings, offer a bonus or higher commission for a quick sale. Make sure he or she adds it to the Multiple Listing Service (MLS) so other agents know that your house comes with a higher payout.
Don't Take a Backseat Role
Even if your realtor is advertising your home and working hard, two people marketing your home is better than one. Put your home on your Facebook page, Craigslist, Twitter and other social media sites. Post flyers on company-approved bulletin boards and talk to local family and friends. Most people would rather buy from somebody they know and respect. You'll still have to pay your realtor a commission, but if you're desperate to sell, take an active role in the marketing process.
If your home isn't producing offers or interest, it's probably time to lower your asking price. Realtors will help you to set your initial price based on comparable homes in your market, but in the end, their analysis is just an educated guess. Always keep the price higher than the lowest price you're willing to accept. This allows for room to haggle.
The Bottom Line
According to the National Association of Realtors, the average number of days to sell a home in July 2012 was 69 - down nearly 30% from July 2011. This is encouraging news for homeowners, but selling a home is still difficult. It will take meticulous attention to detail and a strategy to make it stand out from the many other homes that prospective buyers will see before making their choices.
Read more: http://www.investopedia.com/financial-edge/1012/6-ways-to-make-your-home-more-enticing-to-buyers.aspx#ixzz2E2S93Jnx
There's little doubt that the housing market is finally showing signs of a measurable recovery. The recent Case Schiller Index, a report that tracks the selling prices of homes nationally, showed a 1.2% increase in home prices from July 2011. The authors of the report cited stabilizing home markets and slight increases in household wealth as reasons for the encouraging data
. This is positive news for the real estate market but for homeowners still struggling to sell their homes, this data is of little value. Homeowners face stiff competition from the many other similar properties on the market. How do you make your home stand out among the many other homes prospective buyers will see before making an offer?Make a Video
Before listing your home, switch roles. Make a detailed video that shows the interior and exterior of your home. Include closets, areas behind doors, the fence and all of the other less visible features. Then, view your video and think like a buyer. What do you see that would cause you to lose interest if you weren't the owner of the home? Show the video to friends and family, and ask them to give you candid comments. The smallest details are sometimes the difference between a buyer making an offer or moving on to the next home.
Renovate
If your home isn't catching the eye of buyers, it might need more some work. A high-priced kitchen remodel to entice buyers probably isn't a great idea, but replacing damaged base boards, worn carpet and dead shrubbery are essential renovations in today's real estate market. If the video uncovered some eyesores, fix them. Luckily, these types of renovations don't have to be high-dollar projects.
Weekday Open House
The weekends are full of open houses. Not only are there more weekend open houses than there are prospective buyers, an increasing number of people work on the weekends to produce extra income. A weekday open house reduces the competition, and the evening time may allow parents to view your home when their kids are at a sports
practice or other activity. Open houses cost nothing, so trying it on a weekend will only take some of your time.Find a Better Agent
The economic downturn that resulted in millions of people losing their jobs produced a class of new real estate agents looking for additional income. If your agent is new to the real estate market, he or she may not have the professional network to get your home in front of large amounts of buyers.
If you're desperate to sell, find a high-volume agent in your area. To ensure the agent gives your home priority over his or her other listings, offer a bonus or higher commission for a quick sale. Make sure he or she adds it to the Multiple Listing Service (MLS) so other agents know that your house comes with a higher payout.
Don't Take a Backseat Role
Even if your realtor is advertising your home and working hard, two people marketing your home is better than one. Put your home on your Facebook page, Craigslist, Twitter and other social media sites. Post flyers on company-approved bulletin boards and talk to local family and friends. Most people would rather buy from somebody they know and respect. You'll still have to pay your realtor a commission, but if you're desperate to sell, take an active role in the marketing process.
Lower Your Price
If your home isn't producing offers or interest, it's probably time to lower your asking price. Realtors will help you to set your initial price based on comparable homes in your market, but in the end, their analysis is just an educated guess. Always keep the price higher than the lowest price you're willing to accept. This allows for room to haggle.
The Bottom Line
According to the National Association of Realtors, the average number of days to sell a home in July 2012 was 69 - down nearly 30% from July 2011. This is encouraging news for homeowners, but selling a home is still difficult. It will take meticulous attention to detail and a strategy to make it stand out from the many other homes that prospective buyers will see before making their choices.
Read more: http://www.investopedia.com/financial-edge/1012/6-ways-to-make-your-home-more-enticing-to-buyers.aspx#ixzz2E2S93Jnx
The Pros And Cons Of Home Additions
Investopedia.com
All homeowners have, at least once, been challenged by the question, "Should I add to my home or purchase a new one?" There is no absolute right or wrong answer, and the best choice is always one that fits your situation and strong preferences. Before making this major financial and emotional commitment, weigh these pros and cons of building a home addition.
Pros of Building a Home Addition
Pros of Building a Home Addition
Enjoy a high cost-value ratio
If built correctly, your sparkling new addition may improve your home dollar-for-dollar, resulting in a higher sales price when you finally put it on the market. This, of course, assumes a "normal" real estate market. A depressed home market may or may not warrant building an addition if you plan to sell in the near future. In that case, you might want to concentrate on home shopping to take advantage of depressed prices.
Additions are cheaper
Even in a depressed home value market, building an addition will be a less expensive option than buying a new home with the floor space you want. Should you be strongly attached to your current home, this pro becomes even more significant. You might create your dream home right where you are.
Express creativity
Unlike purchasing an existing home, a new addition can be whatever you want it to be and look however you want it to look. It's like designing your own new home without all the expense of building an entire house from the dirt up.
Cons of Building a Home Addition
You risk "over improving" the home
Every neighborhood or location, regardless of how desirable it may be, has an upper price ceiling. Adding a fabulous addition can come back to bite you. For example, if your home becomes the most expensive home in the neighborhood, you may have trouble attracting buyers when you decide to sell.
Disrupted living quarters
Once you've decided to build your exceptional new addition, you are filled with excitement and enthusiasm. However, the construction noise, worker conversations and disruptions to your living space can destroy your positive emotions. You may just want the dirt, noise and construction to stop.
Extra costs and change orders
If you start with a tight budget, cost overruns and last-minute changes can destroy your carefully constructed financial plan. These events tend to happen whether you're building a medieval castle or simply adding an extra bedroom. Try to closely monitor progress and communicate regularly with your contractor to avoid this fate.
Additions shrink yard space and add utility costs
Homeowners sometimes have an unpleasant "ah-ha" moment when they realize that their prized lawn or yard has mysteriously shrunk because of the new addition. A similar unwelcome surprise is the realization that you're going to need to clean, heat and cool the new room(s). Only then do you realize that you should have given this more thought before the first nail was driven.
The Bottom Line
In most cases, if you like your home and neighborhood, it's wise to build the addition you want to get the space and look you crave. Be careful not to over improve your property and be aware of the other cons. This will help you have a relatively stress-free and enjoyable project. Don't forget, choosing to build an addition in lieu of buying a new home also eliminates the pesky costs that come with moving.
Read more: http://www.investopedia.com/financial-edge/0512/the-pros-and-cons-of-home-additions.aspx#ixzz2E2QznUdh
Five Ways to Make Your Home Renos Pay Off
The Globe and Mail
Remodeling a home can be a very costly venture. Homeowners looking to add value to their homes may try to add upgrades or renovate entire sections of their homes to make them more marketable. Not all home upgrades and renovations are worth spending your hard-earned money on, though. Here is a look at five ways to make your home renovation worth the money and effort you put into it, along with some pitfalls to avoid along the way.
Repair What Needs to be Fixed
The renovations that will yield the most value for your home are repairs. Focus on fixing the areas of your house that are in desperate need of attention from a contractor or handyman. According to an article released by Realtor.com, you will be more likely to get the best value from handling repairs than any other renovation. Whether you are planning to sell or stay in your home, handling repairs is most certainly worth the effort. Examples of repairs that go a long way include fixing a leaking roof, replacing broken kitchen tile and having an electrician rewire a faulty outlet. Even the smallest of repairs can increase your home value.
Plan to Stay a While
If you are going through with your plans to renovate, it is likely that you are either deciding to stick around for a while or you've decided to move. While at one time homeowners could expect to get back what they put into their home renovations, either out of use or when they sell their home, in today's still stabilizing housing market, there is no guarantee. This is called ROI, or return on investment, and the amount you get back all depends on the type of renovation project that you have decided to take on.
Forget the Add-On
When it comes to larger renovations, ditch the add-on plans and instead opt to remodel and upgrade the structure you already have. Additions can be very costly, and the amount that is added to your home value is not likely to come anywhere close to the amount you paid for the remodel in the first place. Rather than shelling out a lot of cash on an addition to your house, work with what you have and upgrade your home where feasible.
Go Green
A smart move to make when remodeling is to include energy efficient appliances, windows, doors and more. Not only will these add-ons help you save money on energy, but there may also be tax breaks that you can take advantage of to make going green a financially and ecologically smart move.
Focus on the Kitchen and Bathroom
Two areas of the house where a remodel would most benefit you is the kitchen and the bathroom. According to an article released by HGTV.com, kitchens and baths are the most expensive rooms to renovate. They are also the most frequently used, however, so the remodel will definitely be well appreciated. Additionally, by renovating these rooms, you typically get a 100% return on investment. Regardless of whether you sell or remain within your home, the upgrades you make in the kitchen and bathroom will be well worth the money and effort you put into them.
The Bottom Line
Home remodels and renovations can definitely pay off if you plan carefully. Repairs, along with upgrades in the bathroom and kitchen, far outweigh other renovations and add-on projects you would undertake. By planning ahead and understanding how your renovation project will affect your bottom line, as well as home value, you are protecting your investments and hard-earned money in the process.
Remodeling a home can be a very costly venture. Homeowners looking to add value to their homes may try to add upgrades or renovate entire sections of their homes to make them more marketable. Not all home upgrades and renovations are worth spending your hard-earned money on, though. Here is a look at five ways to make your home renovation worth the money and effort you put into it, along with some pitfalls to avoid along the way.
Repair What Needs to be Fixed
The renovations that will yield the most value for your home are repairs. Focus on fixing the areas of your house that are in desperate need of attention from a contractor or handyman. According to an article released by Realtor.com, you will be more likely to get the best value from handling repairs than any other renovation. Whether you are planning to sell or stay in your home, handling repairs is most certainly worth the effort. Examples of repairs that go a long way include fixing a leaking roof, replacing broken kitchen tile and having an electrician rewire a faulty outlet. Even the smallest of repairs can increase your home value.
Plan to Stay a While
If you are going through with your plans to renovate, it is likely that you are either deciding to stick around for a while or you've decided to move. While at one time homeowners could expect to get back what they put into their home renovations, either out of use or when they sell their home, in today's still stabilizing housing market, there is no guarantee. This is called ROI, or return on investment, and the amount you get back all depends on the type of renovation project that you have decided to take on.
Forget the Add-On
When it comes to larger renovations, ditch the add-on plans and instead opt to remodel and upgrade the structure you already have. Additions can be very costly, and the amount that is added to your home value is not likely to come anywhere close to the amount you paid for the remodel in the first place. Rather than shelling out a lot of cash on an addition to your house, work with what you have and upgrade your home where feasible.
Go Green
A smart move to make when remodeling is to include energy efficient appliances, windows, doors and more. Not only will these add-ons help you save money on energy, but there may also be tax breaks that you can take advantage of to make going green a financially and ecologically smart move.
Focus on the Kitchen and Bathroom
Two areas of the house where a remodel would most benefit you is the kitchen and the bathroom. According to an article released by HGTV.com, kitchens and baths are the most expensive rooms to renovate. They are also the most frequently used, however, so the remodel will definitely be well appreciated. Additionally, by renovating these rooms, you typically get a 100% return on investment. Regardless of whether you sell or remain within your home, the upgrades you make in the kitchen and bathroom will be well worth the money and effort you put into them.
The Bottom Line
Home remodels and renovations can definitely pay off if you plan carefully. Repairs, along with upgrades in the bathroom and kitchen, far outweigh other renovations and add-on projects you would undertake. By planning ahead and understanding how your renovation project will affect your bottom line, as well as home value, you are protecting your investments and hard-earned money in the process.
Friday, 30 November 2012
Cooling housing market not all bad news, says CIBC
Canadian Press
Recent cooling in Canada’s housing market has many believing we will escape a painful correction, but not all are convinced. Check out this review and decide
TORONTO — One of the country’s big banking groups has issued a report saying that a cooling in Canadian house prices may not be all bad news.
The CIBC World Markets says the slowing of Canadian home sales will “take a bite” out of economic growth, but adds there could be “winners as well as losers across the economy.”
CIBC economist Avery Shenfeld recognizes that a home owner may have to lower retirement spending if the property brings in less money when it’s sold.
On the other hand, Shenfeld says, first-time buyers may welcome a letup in home prices and may have more money available for retail spending.
It’s the latest in a series of CIBC reports that downplay some of the concerns about the potential for a devastating U.S.-style crash in residential real-estate.
More pessimistic analysts have warned some types of Canadian real-estate in some markets are overpriced and at risk of tipping into a rapid decline.
Wednesday, 28 November 2012
Eight Ways to Improve Your Credit Score
Dave Larock, Mortgage Market Update
If you have read our credit report primer called “Credit Reports: Your Financial DNA,” then you understand how your credit score is calculated and how important it is during the mortgage adjudication process. What you may not yet know is that there are ways to improve your credit score that don’t involve guys in trench coats or hacking into databases. Put a different way, you may be inadvertently hurting your score with the decisions you make regarding credit. Here are eight tips for putting your best credit foot forward.
1. First and foremost, check your credit report. You can get a summary report for free, or pay a small amount for the full version, and then you’ll see what the lenders see. If your FICO score is 680 or higher, you’re in good shape. Anything less than that and you should consider the tips I offer below. (Here are links to Equifax and Transunion if you want to order a copy of your report.)
2. Pay your bills on time. Setting up automatic payments using your chequing account or credit card is a good way to make sure you don’t accidentally miss a due date.
3. Keep your credit card balance well below your account limit. Most people don’t realize that spending up to their limit every month will hurt their score, even if they pay in full each month. There are two ways to address this: spend less or get your limit raised. In fact, raising your limit, if you qualify, is one of the easiest ways to help your credit score.
4. Use it. Lenders want to see an active history on your file so try to use your credit a little each month (not a problem for most of us!) and your score will be better for it.
5. If you can’t pay the full amount, especially on credit cards, make very sure you pay at least the minimum. Also, if you’re falling behind, try calling the creditor and explaining your situation. You might be able to work out a deal whereby you can delay some of the payment without their filing a late payment on your credit report. The worst thing you can do is miss your payment date and say nothing.
6. Don’t apply for credit all over town, especially if you have limited and/or newer credit. While the hit to your credit score will vary depending on your overall profile, a flurry of credit application activity will temporarily impact your score (this impact is reduced as time passes, provided that you don’t keep applying).
7. Beware of having too many credit lines. If you have a series of small loans it can hurt your score because a) it looks like your cobbling together any credit you can get your hands on and b) lenders will worry that you could end up in a position where you have borrowed more than you can pay back. The best way to avoid this is to consolidate your debt into one large loan (refinancing an existing mortgage is one way to do this).
8. If you are disputing a charge from a creditor (cell phone companies and gyms come to mind), make sure that you submit a brief statement to Equifax and/or Transunion explaining your side of the story. This submission will be added to your file. Doing this won’t get the charge removed but if your credit is otherwise good, it makes your explanation that the blemish is due to a dispute, and not based on an inability to pay, more believable to lenders.
Follow these tips and your credit score will thank you (if it could talk, that is).
If you have read our credit report primer called “Credit Reports: Your Financial DNA,” then you understand how your credit score is calculated and how important it is during the mortgage adjudication process. What you may not yet know is that there are ways to improve your credit score that don’t involve guys in trench coats or hacking into databases. Put a different way, you may be inadvertently hurting your score with the decisions you make regarding credit. Here are eight tips for putting your best credit foot forward.
1. First and foremost, check your credit report. You can get a summary report for free, or pay a small amount for the full version, and then you’ll see what the lenders see. If your FICO score is 680 or higher, you’re in good shape. Anything less than that and you should consider the tips I offer below. (Here are links to Equifax and Transunion if you want to order a copy of your report.)
2. Pay your bills on time. Setting up automatic payments using your chequing account or credit card is a good way to make sure you don’t accidentally miss a due date.
3. Keep your credit card balance well below your account limit. Most people don’t realize that spending up to their limit every month will hurt their score, even if they pay in full each month. There are two ways to address this: spend less or get your limit raised. In fact, raising your limit, if you qualify, is one of the easiest ways to help your credit score.
4. Use it. Lenders want to see an active history on your file so try to use your credit a little each month (not a problem for most of us!) and your score will be better for it.
5. If you can’t pay the full amount, especially on credit cards, make very sure you pay at least the minimum. Also, if you’re falling behind, try calling the creditor and explaining your situation. You might be able to work out a deal whereby you can delay some of the payment without their filing a late payment on your credit report. The worst thing you can do is miss your payment date and say nothing.
6. Don’t apply for credit all over town, especially if you have limited and/or newer credit. While the hit to your credit score will vary depending on your overall profile, a flurry of credit application activity will temporarily impact your score (this impact is reduced as time passes, provided that you don’t keep applying).
7. Beware of having too many credit lines. If you have a series of small loans it can hurt your score because a) it looks like your cobbling together any credit you can get your hands on and b) lenders will worry that you could end up in a position where you have borrowed more than you can pay back. The best way to avoid this is to consolidate your debt into one large loan (refinancing an existing mortgage is one way to do this).
8. If you are disputing a charge from a creditor (cell phone companies and gyms come to mind), make sure that you submit a brief statement to Equifax and/or Transunion explaining your side of the story. This submission will be added to your file. Doing this won’t get the charge removed but if your credit is otherwise good, it makes your explanation that the blemish is due to a dispute, and not based on an inability to pay, more believable to lenders.
Follow these tips and your credit score will thank you (if it could talk, that is).
David Larock is an independent full-time mortgage planner and industry insider.
Credit Reports: Your Financial DNA
Dave Larock, Mortgage Market Updates
Imagine if your car insurance company knew exactly how you handle your car, how often you exceeded the speed limit, by how much and for how long. Well thankfully they haven’t figured out how to do that yet but when it comes to how you handle your money, your credit report can measure to that precise level of detail. It’s where all of your personal information is gathered, such as income, debt repayment history, total approved credit limits, credit usage levels and more. This personal history, your financial DNA, is crunched using a proprietary scoring system that assigns you a number between 300 and 900, known as your FICO score (the higher the better). Here is a breakdown of how your score is calculated:
Now I will give you a quick overview of how this works but if you want detailed information both myfico.com and the Financial Consumer Agency of Canada do an excellent job of laying it out for you.
“Payment history” tracks how consistently you have paid back money you owe (credit cards, car loans, gym memberships, you name it!) If payments are missed, the length of time taken to get caught up is also measured.
“Amounts owed” is a measure of how much you owe on different types of accounts and of the proportion of your outstanding balance to your maximum limit. Your overall capacity usage is important because it indicates how close you get to running out of credit each month.
“Length of credit history” indicates how long your accounts have been in existence as well as the time since you last used them. Old debt is not as relevant as recent debt.
“New Credit” measures how many credit inquiries have been made, and how many new accounts have been opened by you in the recent past. This section is looking for ‘credit seeking’ activities where people who are running out of money try to borrow as much as possible to keep afloat.
“Types of Credit Used” creates a score based on the kinds of credit you have. Basically, the harder it is to get approved for a loan, the more the scoring system likes it. Retail accounts are easy to get so they are less convincing. Car loans are more thoroughly vetted so they score more favourably.
With credit report data available for millions of Canadians, trends emerge. Using overall FICO score data, lenders can determine each borrower’s likelihood of successful repayment. Here is a summary of delinquency rates by FICO score (“delinquency” is the term for loans that are 90 days or more past due):
This data is also used by lenders when designing products. They set minimum FICO scores for certain product types, especially in cases where the products are attractively priced or where borrowers do not or can not provide traditional documentation during the application process. For example, a product that does not require proof of income would only be offered to borrowers with a very high probability of repayment (a FICO score of 680 or higher is often the cut-off point).
There are two main companies in Canada that provide FICO scores, Equifax and TransUnion. Both base their scoring system on a proprietary software sold by FairIssac and while the reports are not identical (some companies only report customer activity to one company and not the other) they are usually comparable.
Now that you know how a credit report is calculated and used, you may be wondering what your score is. You can receive a free summary report by contacting either Equifax or TransUnion, and both will provide a full report for a small fee. Most importantly, there are a number of ways to improve your credit report.
Imagine if your car insurance company knew exactly how you handle your car, how often you exceeded the speed limit, by how much and for how long. Well thankfully they haven’t figured out how to do that yet but when it comes to how you handle your money, your credit report can measure to that precise level of detail. It’s where all of your personal information is gathered, such as income, debt repayment history, total approved credit limits, credit usage levels and more. This personal history, your financial DNA, is crunched using a proprietary scoring system that assigns you a number between 300 and 900, known as your FICO score (the higher the better). Here is a breakdown of how your score is calculated:
Now I will give you a quick overview of how this works but if you want detailed information both myfico.com and the Financial Consumer Agency of Canada do an excellent job of laying it out for you.
“Payment history” tracks how consistently you have paid back money you owe (credit cards, car loans, gym memberships, you name it!) If payments are missed, the length of time taken to get caught up is also measured.
“Amounts owed” is a measure of how much you owe on different types of accounts and of the proportion of your outstanding balance to your maximum limit. Your overall capacity usage is important because it indicates how close you get to running out of credit each month.
“Length of credit history” indicates how long your accounts have been in existence as well as the time since you last used them. Old debt is not as relevant as recent debt.
“New Credit” measures how many credit inquiries have been made, and how many new accounts have been opened by you in the recent past. This section is looking for ‘credit seeking’ activities where people who are running out of money try to borrow as much as possible to keep afloat.
“Types of Credit Used” creates a score based on the kinds of credit you have. Basically, the harder it is to get approved for a loan, the more the scoring system likes it. Retail accounts are easy to get so they are less convincing. Car loans are more thoroughly vetted so they score more favourably.
With credit report data available for millions of Canadians, trends emerge. Using overall FICO score data, lenders can determine each borrower’s likelihood of successful repayment. Here is a summary of delinquency rates by FICO score (“delinquency” is the term for loans that are 90 days or more past due):
This data is also used by lenders when designing products. They set minimum FICO scores for certain product types, especially in cases where the products are attractively priced or where borrowers do not or can not provide traditional documentation during the application process. For example, a product that does not require proof of income would only be offered to borrowers with a very high probability of repayment (a FICO score of 680 or higher is often the cut-off point).
There are two main companies in Canada that provide FICO scores, Equifax and TransUnion. Both base their scoring system on a proprietary software sold by FairIssac and while the reports are not identical (some companies only report customer activity to one company and not the other) they are usually comparable.
Now that you know how a credit report is calculated and used, you may be wondering what your score is. You can receive a free summary report by contacting either Equifax or TransUnion, and both will provide a full report for a small fee. Most importantly, there are a number of ways to improve your credit report.
Tuesday, 27 November 2012
Vast Majority Now Favour Fixed-Rate Mortgages
Tara Perkins, The Globe and Mail
While it looks like interest rates will remain low for some time, there has been a large swing from variable to fixed-rate mortgages over the past year, says a new report by the Canadian Association of Accredited Mortgage Professionals.
CAAMP’s annual report on the state of the residential mortgage market, released Monday, suggests that 79 per cent of the new mortgages taken out this year have been fixed-rate, 10 per cent have been variable, and 11 per cent are a combination.
That’s a significant shift from prior years, during which fixed-rate mortgages generally accounted for about two-thirds of the total, while variable or adjustable-rate mortgages were about one-quarter.
Canadians are likely locking in because of the very small difference between interest rates for variable-rate mortgages (which are in the neighbourhood of three per cent) and five-year fixed-rate mortgages (which are closer to 3.2 or 3.3 per cent, after discounts that the banks typically offer), the report says.
“The current spread of about one-quarter of a point is negligible compared to the average of 1.7 points during 2010 and 2011,” it says.
Meanwhile, the average mortgage interest rate for homeowners has fallen to 3.55 per cent, from 3.94 per cent a year ago. For homes bought this year, the average rate is 3.26 per cent.
The report, which is based in large part on an online survey of 2,018 Canadians by Maritz, also found that about six per cent of homeowners took equity out of their home in the past year. The average amount is estimated at $49,000, implying that $30-billion of equity has been taken out during the year.
But 87 per cent of Canadians have at least 25 per cent equity in their homes. Sixteen per cent of mortgage holders have increased their payments, 15 per cent have made lump sum payments, and 6 per cent have increased their payment frequency.
While it looks like interest rates will remain low for some time, there has been a large swing from variable to fixed-rate mortgages over the past year, says a new report by the Canadian Association of Accredited Mortgage Professionals.
CAAMP’s annual report on the state of the residential mortgage market, released Monday, suggests that 79 per cent of the new mortgages taken out this year have been fixed-rate, 10 per cent have been variable, and 11 per cent are a combination.
That’s a significant shift from prior years, during which fixed-rate mortgages generally accounted for about two-thirds of the total, while variable or adjustable-rate mortgages were about one-quarter.
Canadians are likely locking in because of the very small difference between interest rates for variable-rate mortgages (which are in the neighbourhood of three per cent) and five-year fixed-rate mortgages (which are closer to 3.2 or 3.3 per cent, after discounts that the banks typically offer), the report says.
“The current spread of about one-quarter of a point is negligible compared to the average of 1.7 points during 2010 and 2011,” it says.
Meanwhile, the average mortgage interest rate for homeowners has fallen to 3.55 per cent, from 3.94 per cent a year ago. For homes bought this year, the average rate is 3.26 per cent.
The report, which is based in large part on an online survey of 2,018 Canadians by Maritz, also found that about six per cent of homeowners took equity out of their home in the past year. The average amount is estimated at $49,000, implying that $30-billion of equity has been taken out during the year.
But 87 per cent of Canadians have at least 25 per cent equity in their homes. Sixteen per cent of mortgage holders have increased their payments, 15 per cent have made lump sum payments, and 6 per cent have increased their payment frequency.
Saturday, 24 November 2012
How to check your credit report
CBC News
Everyone who's ever borrowed money to buy a car or a house or applied for a credit card or any other personal loan has a credit file.
Because we love to borrow money, that means almost every adult Canadian has a credit file. More than 21 million of us have credit reports. And most of us have no idea what's in them.
Are there mistakes? Have you been denied credit and don't know why? Is someone trying to steal your identity? A simple check of your credit report will probably answer all those questions. And it's free for the asking.
Each of the accounts includes a notation that includes a letter and a number. The letter "R" refers to a revolving debt, while the letter "I" stands for an instalment account. The numbers go from 0 (too new to rate) to 9 (bad debt or placed for collection or bankruptcy.) For a revolving account, an R1 rating is the notation to have. That means you pay your bills within 30 days, or "as agreed."
Any company that's thinking of granting you credit or providing you with a service that involves you receiving something before you pay for it (like phone service or a rental apartment) can get a copy of your credit report. Needless to say, they want to see lots of "Paid as agreed" notations in your file. And your credit report has a long history. Credit information (good and bad) remains on file for at least six years.
The numbers go from 300 to 900. The higher the number, the better. For example, a number of 750 to 799 is shared by 27 per cent of the population. Statistics show that only two per cent of the borrowers in this category will default on a loan or go bankrupt in the next two years. That means that anyone with this score is very likely to get that loan or mortgage they've applied for.
What are the cutoff points? TransUnion says someone with a credit score below 650 may have trouble receiving new credit. Some mortgage lenders will want to see a minimum score of 680 to get the best interest rate.
The exact formula bureaus use to calculate credit scores is secret. Paying bills on time is clearly the key factor. But because lenders don't make any money off you if you pay your bills in full each month, people who carry a balance month-to-month (but who pay their minimum monthly balances on time) can be given a higher score than people who pay their amount due in full.
This isn't too surprising when you realize that credit bureaus are primarily funded by banks, lenders, and businesses, not by consumers.
Complete details on how to order credit reports are available online. Basically, you have to send in photocopies of two pieces of identification, along with some basic background information. The reports will come back in two to three weeks.
Credit scores run from 300 to 900. The higher the number, the greater the likelihood a request for credit will be approved. (iStock)
The "free-report-by-mail" links are not prominently displayed — the credit bureaus are anxious to sell you instant access to your report and credit score online.
For TransUnion, the instructions to get a free credit report by mail are available here. For Equifax, the instructions are here.
If you can't wait for a free report by mail, you can always get an instant credit report online. TransUnion charges $14.95. Equifax's rate is $15.50.
To get your all-important credit score, you'll have to spend a bit more. Both Equifax and TransUnion offer consumers real-time online access to their credit score (your credit report is also included). Equifax charges $23.95, while TransUnion's fee is $22.90. There is no free service to access your credit score.
You can always try asking the lender you're trying to do business with, but they're not supposed to give credit score information to you.
Some credit bureau watchers estimate that there are errors in 10 to 33 per cent of credit files. Some of those mistakes can be serious enough to hurt your credit status. That hit to your credit score can result in a denied loan or a higher interest rate. Across Canada, provincial consumer agencies collectively get hundreds of complaints annually about credit bureaus.
If you find something if your file that you dispute, you can write the credit agency in question and tell them you think there's an error. The credit reporting agency usually sends along the form you need when it sends you the credit report. Use it to spell out the details of any information you dispute. The dispute forms are online, too. You can access the Equifax form here. And here's how to dispute something in a TransUnion report.
Be sure to send along any documents that support your version of the matter in dispute. The reporting agency then contacts whoever submitted the information you're disputing.
If the file is changed, you will be sent a copy of your new report and any company that's requested your credit file in the previous two months will also be sent the corrected file.
If the item is not changed to your satisfaction, you have the right to add a brief statement to your credit file with your side of the story. You can also ask to have your credit file, along with your comment on the disputed entry, sent to any company that has requested your credit report in the previous two months.
You can also file a complaint with your provincial consumer agency.
There are companies that will take the effort of checking your credit report off your hands — for a price. The credit reporting bureaus are, not surprisingly, very active in this area. At TransUnion, their credit monitoring service costs $14.95 a month and includes unlimited access to your credit profile and credit score. At Equifax, credit monitoring and identity theft protection starts at $16.95 a month.
There are several other companies offering similar services for similar prices. They usually include features like e-mail alerts when there's a change to your credit report.
It's a personal decision whether you feel these services are worth the money. The bottom line is you can always check your credit report for free by mail. Or, you can pay to get it online whenever you want. People who have been the victims of identity theft or people who are worried that they may be susceptible to ID theft may consider the expense worthwhile.
There's no way a credit repair clinic can change accurate information that doesn't reflect well on you. The only thing they can fix on your behalf is an inaccuracy in your credit file. And you can do that yourself free of charge.
Everyone who's ever borrowed money to buy a car or a house or applied for a credit card or any other personal loan has a credit file.
Because we love to borrow money, that means almost every adult Canadian has a credit file. More than 21 million of us have credit reports. And most of us have no idea what's in them.
Are there mistakes? Have you been denied credit and don't know why? Is someone trying to steal your identity? A simple check of your credit report will probably answer all those questions. And it's free for the asking.
So what's in a credit report?
You may be surprised by the amount of personal financial data in your credit report. It contains information about every loan you've taken out in the last six years — whether you regularly pay on time, how much you owe, what your credit limit is on each account and a list of authorized credit grantors who have accessed your file.Each of the accounts includes a notation that includes a letter and a number. The letter "R" refers to a revolving debt, while the letter "I" stands for an instalment account. The numbers go from 0 (too new to rate) to 9 (bad debt or placed for collection or bankruptcy.) For a revolving account, an R1 rating is the notation to have. That means you pay your bills within 30 days, or "as agreed."
Any company that's thinking of granting you credit or providing you with a service that involves you receiving something before you pay for it (like phone service or a rental apartment) can get a copy of your credit report. Needless to say, they want to see lots of "Paid as agreed" notations in your file. And your credit report has a long history. Credit information (good and bad) remains on file for at least six years.
What's a credit score? And why is it so important?
A credit rating or score (also called a Beacon or a FICO score) is not part of a regular credit report. Basically, it's a mathematical formula that translates the data in the credit report into a three-digit number that lenders use to make credit decisions.The numbers go from 300 to 900. The higher the number, the better. For example, a number of 750 to 799 is shared by 27 per cent of the population. Statistics show that only two per cent of the borrowers in this category will default on a loan or go bankrupt in the next two years. That means that anyone with this score is very likely to get that loan or mortgage they've applied for.
What are the cutoff points? TransUnion says someone with a credit score below 650 may have trouble receiving new credit. Some mortgage lenders will want to see a minimum score of 680 to get the best interest rate.
The exact formula bureaus use to calculate credit scores is secret. Paying bills on time is clearly the key factor. But because lenders don't make any money off you if you pay your bills in full each month, people who carry a balance month-to-month (but who pay their minimum monthly balances on time) can be given a higher score than people who pay their amount due in full.
This isn't too surprising when you realize that credit bureaus are primarily funded by banks, lenders, and businesses, not by consumers.
How can I get a copy of my credit report and credit score?
You can ask for a free copy of your credit file by mail. There are two national credit bureaus in Canada: Equifax Canada and TransUnion Canada. You should check with both bureaus.Complete details on how to order credit reports are available online. Basically, you have to send in photocopies of two pieces of identification, along with some basic background information. The reports will come back in two to three weeks.
Credit scores run from 300 to 900. The higher the number, the greater the likelihood a request for credit will be approved. (iStock)The "free-report-by-mail" links are not prominently displayed — the credit bureaus are anxious to sell you instant access to your report and credit score online.
For TransUnion, the instructions to get a free credit report by mail are available here. For Equifax, the instructions are here.
If you can't wait for a free report by mail, you can always get an instant credit report online. TransUnion charges $14.95. Equifax's rate is $15.50.
To get your all-important credit score, you'll have to spend a bit more. Both Equifax and TransUnion offer consumers real-time online access to their credit score (your credit report is also included). Equifax charges $23.95, while TransUnion's fee is $22.90. There is no free service to access your credit score.
You can always try asking the lender you're trying to do business with, but they're not supposed to give credit score information to you.
What if I find an error in my credit report?
Well, you won't be the first. In millions of files and hundreds of millions of reported entries, there are bound to be mistakes. Some are minor data-entry errors. Others are damaging whoppers. For example, we've heard of instances where negative credit files from one person got posted to the file of someone who had a similar name (the "close enough" school of credit reporting).Some credit bureau watchers estimate that there are errors in 10 to 33 per cent of credit files. Some of those mistakes can be serious enough to hurt your credit status. That hit to your credit score can result in a denied loan or a higher interest rate. Across Canada, provincial consumer agencies collectively get hundreds of complaints annually about credit bureaus.
If you find something if your file that you dispute, you can write the credit agency in question and tell them you think there's an error. The credit reporting agency usually sends along the form you need when it sends you the credit report. Use it to spell out the details of any information you dispute. The dispute forms are online, too. You can access the Equifax form here. And here's how to dispute something in a TransUnion report.
Be sure to send along any documents that support your version of the matter in dispute. The reporting agency then contacts whoever submitted the information you're disputing.
If the file is changed, you will be sent a copy of your new report and any company that's requested your credit file in the previous two months will also be sent the corrected file.
If the item is not changed to your satisfaction, you have the right to add a brief statement to your credit file with your side of the story. You can also ask to have your credit file, along with your comment on the disputed entry, sent to any company that has requested your credit report in the previous two months.
You can also file a complaint with your provincial consumer agency.
What are credit monitoring services?
If you spot entries in your credit report that don't seem to relate to you (such as charge accounts you never opened or bad debt notations you never got), you may be a victim of the rapidly-growing crime of identity theft. You should notify the credit reporting company immediately.There are companies that will take the effort of checking your credit report off your hands — for a price. The credit reporting bureaus are, not surprisingly, very active in this area. At TransUnion, their credit monitoring service costs $14.95 a month and includes unlimited access to your credit profile and credit score. At Equifax, credit monitoring and identity theft protection starts at $16.95 a month.
There are several other companies offering similar services for similar prices. They usually include features like e-mail alerts when there's a change to your credit report.
It's a personal decision whether you feel these services are worth the money. The bottom line is you can always check your credit report for free by mail. Or, you can pay to get it online whenever you want. People who have been the victims of identity theft or people who are worried that they may be susceptible to ID theft may consider the expense worthwhile.
Should I pay to use a credit repair service?
Industry Canada says there's no point in hiring a company that claims it can improve your credit rating. Firms that say they can "fix" a bad credit report are often little more than fly-by-night operations designed to relieve you of hundreds of dollars in return for nothing.There's no way a credit repair clinic can change accurate information that doesn't reflect well on you. The only thing they can fix on your behalf is an inaccuracy in your credit file. And you can do that yourself free of charge.
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