Tag Archives: home equity

Home financing options for credit scores

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By Michael Plambeck 

(Sponsored Content)

It’s important to go over all your options in regard to home financing to ensure you know what your options are and what’s available to you. This is especially crucial if you are a first-time buyer. Though this can seem like an overwhelming process, knowing what your options are based on your credit score, what types of help are available, and how you can improve your credit score if it’s poor or bad, is the best way to figure out what to do.

How to check your credit score

There are many ways to check your credit score to figure out where you are currently at. You can use a number of institutions and resources to check what your credit score currently is, such as using FICO,or Equifax.

It’s never a bad idea to regularly check all of your credit reports in order to be completely sure that the information is both complete and as accurate as possible. This will help you to know where you need to make improvements, how you can do it, and what your situation is at that point in time. 

Low credit scores and what your options are

Having a low credit score sends red flags to lenders and deems you a credit risk. In short, this will make it very difficult to get a proper credit loan. 

Here is a quick list detailing the range of credit scores and what they mean:

  • 300 – 499: Bad credit
  • 500 – 579: Poor credit
  • 580 – 619: Low credit
  • 620 – 679: Average credit
  • 680 – 699: Good credit
  • 700 – 850: Excellent credit

Having a high credit score means you should have no problem getting a loan from your bank or your credit union. Having a middle credit score, which is a credit score from average to good, you have a wide variety of options available other than your bank or credit union if they deny your application, such as quick loans or by going online.

If you have bad to poor credit, getting credit is going to be very difficult. The fees and interest rates will more than likely be higher than what you can afford, but that’s only if you can get approved at all.

You can do your best to go through the Federal Housing Administration  in order to get a mortgage loan, but they only grant loans through FHA-approved lenders, which may pose a problem. They have a list of requirements that must be met in order to get an FHA mortgage loan, which are listed below for you:

  • A FICO score between 500 to 579, which equals a 10% down payment
  • A FICO score of 580 at the very least, which equals a 3.5% down payment
  • Debt-to-income ratio of under 43%
  • Mortgage Insurance Premium (MIP)
  • The home in question being the primary residence of the borrower
  • Proof of employment and a steady stream of income

However, there are options you can go through in order to get the approval you need for a home loan if you’ve exhausted all your other options, which include going for an FHA mortgage loan. Homeloansforall.com, for example, will help you get approved even if you have bad credit and find the resources you need based on your city and state.

No matter what your credit score may be, the financing options you have in front of you, and what the future may bring, once you are approved for any type of loan, it’s important to keep up with your payments in order to keep the home. 

To help keep up with your mortgage payments and be clear of the debt, check out how to pay off your mortgage in 10 years.

Michael Plambeck, founder and owner of Home Loans For All, bridges the gap between its content team and industry team by being an expert in both areas. Michael is a home loan expert who has worked closely with loan officers and realtors for over four years, and who is engaged in constant continuing education to make sure he’s up-to-date on all real estate laws and regulations.

The downsizing dilemma: 39% of homeowners skeptical it will save money

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By Joyce Wayne

Special to the Financial Independence Hub

For older Canadians considering selling a home to retire to a smaller living space or a more affordable community, downsizing might sound like a financial bargain, but in a recent Ipsos survey commissioned by HomeEquity Bank, 39 per cent of current homeowners are skeptical that downsizing will actually save them money.

More than a decade ago, I faced the downsizing dilemma and I now wish I’d been as skeptical as these savvy consumers. I put a considerable down payment on a condo in downtown Toronto, purchasing it from builder’s plans. At the time, I wished to retire from my long-time position as a college professor to launch a new career as a writer.  Selling my home, cashing in on the equity I’d accumulated, while moving to smaller digs, made sense to me.

Yet as 27 per cent of downsizers shared with the Ipsos survey, the costs were more than expected. Expenses from downsizing can add up quickly.

Originally I was attracted by the lure of improving my cash flow to support a new career, but downsizing didn’t net out that way after factoring in all the closing costs and moving expenses along with the disruption to my lifestyle.

Moving away felt like starting all over again: this time in my sixties. The weight of condo living took its toll.

After living in my condo for two years, facing unexpected changes to the original building plan, loud nocturnal noise from other condo dwellers, endless fire drills and my terrace furniture burning up with cigarette butts dropped on my balcony from above, I put the unit on the market.  Once again I was faced with real estate and closing costs. When I purchased a home in my former neighbourhood, I was forced to negotiate a mortgage.

According to an earlier Ipsos survey commissioned by HomeEquity Bank in July 2018, half (51 per cent) of those aged 75+ say it’s important to stay in their current home because they want to keep close to family, friends or their community, while four in ten (40 per cent) say emotional attachment and memories are what’s behind the importance of staying put in their current home during retirement.

What I’d do differently if considering downsizing: Continue Reading…

Retiring at home — and how to get the funds to do it

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By Darlene Vilas

Special to the Financial Independence Hub

I’ve spent many years helping a lot of retirees to stay in their home. So, I wasn’t surprised when a survey by HomeEquity Bank and IPSOS revealed that 93% of Canadians aged 65+ are determined to retire at home.

For people with a healthy pension and retirement savings, staying in their home is rarely a problem. However, many Canadians have inadequate retirement savings. According to a report by CIBC, 30% of people have no retirement savings at all, while another 19% have saved less than $50,000. I help people with lower retirement income to understand the financial options available to them, so they can retire comfortably in their home.

Why staying put is so important

According to HomeEquity’s research, maintaining independence is a key reason for retirees wanting to stay in their home, followed by staying close to family, friends and their community.

Many of my older clients find just the idea of moving to be very stressful. They don’t like the thought of downsizing, which means leaving behind loved ones and places they’re familiar with.

I can understand that, so I try to help people stay in their home, whatever their financial situation. Thankfully, for homeowners, there are several options available.

The financial tools that can help you stay at home

Taking out a mortgage or a line of credit can allow you to cash in on some of your home’s equity. However, the mortgage option is becoming increasingly difficult for retirees. With the new mortgage stress test, you have to qualify at a much higher rate than before, which means you can now borrow much less. Plus, taking on mortgage payments for up to 20 years can put a strain on your retirement income. If you miss some payments, you could lose your home.

A home equity line of credit can be a good option if your income qualifies.  They are fully open and can be repaid at any time without penalty. This is a very helpful option for homeowners who would like to access cash easily if they experience unforeseen home expenses such as emergency repairs to the home. Payments are typically interest only, which keeps your monthly obligation at a minimum.   The downside of a home equity line of credit is they are callable at the discretion of the bank.  This means you could be forced to sell your home to repay the line of credit.

With a reverse mortgage, you can borrow up to 55% of your home’s value. You never have to make a mortgage payment and you’ll never be forced to move out. Many of my clients use a reverse mortgage as an efficient way of cashing in some of their home’s equity. Because there are no regular mortgage payments, it can help them to greatly improve their financial situation, boost their disposable income and live the kind of retirement they’d hoped for.

Those people concerned about maintaining their home’s equity can make monthly interest payments, but the nice thing is, they don’t have to. Continue Reading…

The reverse mortgage pitfalls you need to know about

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Canadian seniors may borrow on their home equity in the form of a reverse mortgage — but should they?

Money lenders are always coming up with innovative ways for you to borrow money. One such innovation is the reverse mortgage. Interest in reverse mortgages is rising with an aging population and low interest rates on savings accounts. As a result, we hear from our Inner Circle members periodically asking whether a reverse mortgage would be a good way to tap into the equity they have built up in their homes.

Reverse mortgages in Canada let homeowners who are 55 years of age or older borrow on their home equity—the minimum age was 60 until a year ago. (For married couples, both spouses must be above age 55). Typically, the loan-to-value ratio is up to 40%. But depending on their age and property, some borrowers may qualify for a loan of up to 55% of the value of their home. The loan and accumulated interest are repaid only after the house is sold or from the proceeds of the homeowner’s estate.

Reverse mortgages are best seen as loans of last resort

Continue Reading…

Is a HELOC right for you?

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By Alyssa Furtado, RateHub.ca

Special to the Financial Independence Hub

A home equity line of credit (HELOC) is a convenient way to access the value in your home. You might have seen commercials on TV or been offered one by your mortgage agent. Not only can you get a much lower interest rate than you can with an unsecured line of credit, you can also be approved for a sizeable loan. It’s tempting to have quick access to a lot of money, but is a HELOC right for you?

A HELOC is a secured line of credit that uses your home as security. As with a mortgage, the money you borrow is secured by your home. In Canada, as long as you can show that you can carry the debt, you can borrow up to 65% of the value of your home, provided you keep at least 20% of the value as equity.

For example, if your home is worth $1 million and you owe $400,000 on your mortgage, you can borrow up to $400,000 against your home ($1 million x 80% = $800,000 – $400,000 owing = $400,000).

There are many upsides to getting a HELOC. Depending on the value of your home, you can potentially borrow a large amount of money. Interest rates on HELOCs are significantly lower than on unsecured lines of credit (typically about prime + 0.5%). You can take out money or repay it at any time without penalty. And you can go up to 25 years before you have to pay back what you’ve borrowed.

One of the most appealing HELOC features is that the minimum monthly payment is just the interest that’s accrued. Using a HELOC calculator on that $400,000 line of credit example above, the monthly payment at today’s best HELOC rate of 3.7% is just $1,233. The minimum monthly payment on a traditional line of credit is typically 2% of the outstanding balance: $8,000 on a $400,000 balance. Even a traditional mortgage would require a much higher monthly payment. This feature alone is a big part of why HELOCs are so appealing.

Possible downsides of HELOCs

However, HELOCs also have their downsides.

Because the minimum monthly payment on a HELOC is just the interest, it can feel like it doesn’t cost you much to borrow money. But when you don’t repay the principal, your costs over the long run are actually much higher than with a traditional loan.

Let’s look at an example comparing a regular $50,000 loan with a rate of 4.7% repaid monthly against borrowing $50,000 at 3.7% from your HELOC repaid in a lump sum at the end the loan term.

If you pay the loan over five years, your monthly payment will be $936.83 and you’ll pay $6,209.80 in interest over that time.

Continue Reading…