Mike Toporowsky's Mortgage Blog

Is there hope for a low Beacon score?

Some of us have seen the ugly side of being a tenant. My home is NOT my castle.  I am not able to establish deep roots at this address and I am not in control of how much my cost of residence will be from year to year.  I can’t even fix it up because I would be building the landlord’s property value and that’s not fair to me.

How do we rectify this cycle…move back with Mom and Dad (pass).  We can buy a home for about the same as we are paying for rent.  Sweet, let’s call the realtor.

Now, we found the perfect home and it is really priced right.  The rates are so low that my mortgage and property taxes are actually less than my rent…and it will be MINE!  The location is minutes from work and there is future room to build on.

Let’s go to the bank and fill out the mortgage application.  You are sitting across from your loans officer and you hear the dreaded response... “NO!”.  But why, what’s the matter?  The bank you have been using forever has simply stamped your application with a big ol’ DECLINE.  They say, “Contact the credit bureau, something’s wrong with the credit score”.  What’s that? 

Now the deal crashes, because you don’t know where to start fixing this problem and the house is lost.  Back to renting FOREVER!  Or is there a better way to handle this? 

You can eliminate the stress and embarrassment associated with mortgage declines.  First of all, if you used a mortgage broker, you might have received an approval (pre-approval), because brokers deal with many different types of lenders and some are more forgiving than your bank.  If there is a serious credit bureau issue, mortgage broker’s can help you through the credit bureau jungle.   

Credit bureau problems can be resolved, either over time or immediately.  Problems that you know are legitimate and you realize that it was a problem caused by your own neglect are resolved over time, you simply bring accounts current and build a good payment journal history.

But improperly recorded transactions are sometimes found.  There are also duplications and items that just don’t belong to you.  This is where some quick action could actually save the purchase on your new home.  I cannot tell you just how many times I catch mistakes.  They are usually not caused by the bureau, but computer error and inexperienced keypunch operations can cause you a lot of grief.  The fastest way to resolve these is to contact the lender or collection agency and have them “completely remove” the erred transaction input.  If they won’t and you feel ripped off, I have made arrangements in Spruce Grove for a local lawyer to investigate the problem for you. 

Yes, lawyers cost a couple hundred bucks, but that is a minor amount when you consider the tens of thousands that a good credit score can get you with the sweet deep discounted rate that lenders give for preferred customers.  It is also cheap when you think that your landlord is still waiting for his next chance to boost your rent.

Reference sources Equifax, Trans Union  (Canadian Credit Bureaus.)

What is a Beacon Score?, by Mike Toporowsky 

October 7th 2009

Credit Education in our Schools

Soap box time... I do not recall taking a course in high school or college that prepared me for the realities of credit.

Times have not really changed.  My son, who is in grade 6, came home with a math assignment that closely resembled a mortgage application.  He was given an occupation with a gross income of $38,000 and needed to calculate how much CRA was going to take and all the other expenses. As a last optional item, the cost of housing was thrown in.  I guess the folks that write this stuff expect that junior will be living with us for a long long time.  Point is, this is the closest thing to financial life skills these kids get, until they are affected by a real life poor decision.

I have seen some very interesting credit reports and most of the time, the money was available to pay these bills, but the importance of taking care of it was never really driven home.  How many of us have done the old  "I'll stop paying for the car, because they sold me a lemon" or " I don't work out at the gym anymore so I'll stop paying the installments".  Unless somebody (like our parents) sat us down and drilled it into our heads that credit is not a thing to mess with, we are all guilty of an indifferent approach to it. 

I don't recall any teachers telling me that if you blow your credit, your Beacon score drops like a rock and your interest rates increase mercilessly for 7 years (or more).  The only companies that will look at your business are private equity investors or finance companies.  I should know, I managed a Beneficial Finance office for 20 years. 

Bad things happen to good people...that is a reality and a common sense banker can tell the difference. Beacon scores can be repaired with discipline and patience.  The problem is good people make credit mistakes that make themselves look like a credit risk.  If you allow everybody to regularly look at your credit bureau, the computer program at the credit bureau looks at you as a credit seeker...down goes your score.  See, you did nothing bad and you pay your bills, but your education system did not tell you not to apply willy nilly for credit.

Here's another way to loose Beacon score points, even if you are a disciplined bill payer...

If your limit is $1000 on your credit card, don't leave your balance close to your limit.  You may only have a $950 balance, but in the eyes of the Beacon scoring system's program, your credit use percentage is 95% and that's is very bad.  You are seen as living too close to your limit.  Your buddy might be struggling under $20000 worth of credit card debt, but if his limit is $40000.00 he will get better points than you.  Are you better at paying your bills, probably...Are you in a better position to liquidate debt quickly, definitely...but you didn't know.  All you have to do is either pay your balance down to 50-75% of your card's limit or have the bank increase your limit to $2000.  See with that simple step, you just increased your Beacon score, because you are now using less than 50% of your available credit.

Did the school take time to tell you these 2 simple credit skills?...No.

Time to add some simple math and some common sense credit courses to give these kids a head start.

And now I can step off my soap-box.

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Sept 29th 2009

Question: Who should be more anxious about buying a home? Somebody who bought when the market was at it's peak...or somebody buying when the market is dropping? Yes,there is an answer

The answer is ... nobody should be anxious, because you always make the best decision for yourself, with all the possible known facts, at the time you purchase.

That way if you bought at the peak, yes, it came down, but you were able to afford the purchase...and still should be. If the price did drop, it will eventually cycle back to the positive side..and then some.

If you are buying on the way down (without knowing where the bottom is), once again, you buy what you can afford with all the known facts and should be thankful that you gained the benefit of a market that gave you a break since its' peak.

Sept 29 2009

I don't believe variable rate mortgages are for everybody...

If you asked me what my I think of a variable rate mortgage...it's definitely not for everybody.  The rate is currently close to rock bottom and that gives the Bank of Canada one direction to move. The question is; 'When will the short term rates start to increase?' If you read 4 different economist's reports you will get 4 different answers to that same question.  The truth is, there are no guarantees, only educated guesses.  One thing has certainty, everything cycles in an economy and if you are willing to risk the chance, you might benefit from the current low rates for a while yet. 

If you are living close to the end of your budget and would not be able to weather a large mortgage payment increase, then LOCK IN.  You are not a variable rate mortgage candidate.  If you have trouble sleeping because of financial concerns LOCK IN.

The same thinking actually holds true for low interest rate fixed term mortgages.  If you lock in for only 1 year and the rates jump in that year, can you afford to double your payment on renewal?  Don't set yourself up to fail.  The best investments are boring and believe me when I say you do not want to make your home ownership experience stressful. The goal is to buy and build equity over a long period of time.  Real estate is not a get rich quick plan, even though some would like to convince you of that.

The current deep discount fixed rates are very attractive and very affordable, so set your long term fixed mortgage budget and relax.The longer the term, the less stressful it will be.

If you take a variable rate mortgage thinking you would lock it in when the rates start their climb, you will be locking in at the prevailing fixed rate of that day, which is almost guaranteed to be much higher than the rate you could have negotiated at the time the mortgage originated. I am basing that on the fact that you can't go much lower than a historic low rate that is close to the floor.  Eventually the economy will cycle back to normal conditions and rates will eventually come back to average (about 7.5%).  The question I ask you is WHEN will that happen? 

I will play the devil's advocate to my variable rate rant:

Everybody's circumstances are different and there was one of my customers who insisted that he wanted a variable rate mortgage. This was when the variable rate and the fixed rates were very similar (at the time they were both an incredible 3.5%)  The variable rates at that time were offering an incredible minus.9% off of prime.  He insisted on the variable, but I knew he had some deeper pockets if he needed to use them (it was his mom and dad).  The term of the variable was 5 years and he is currently paying 1.35% on his now rapidly reducing $300,000 mortgage.  Every year, on the anniversary of that mortgage I send him a congratulatory email and ask him how he knew what was going to happen to the economy (remember, it was burning hot during the peak). Timing is everything.  If you chance a variable rate mortgage right now, would it be like buying into a gold producing creek to find the gold all panned out or would you find a vein of gold remaining.

I will still try and talk you into a good fitting long term fixed rate mortgage and let the other guys sweat out the future unknown fluctuations.  Heck, there is only one way these rates can fluctuate and that is up...but when???

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Mike Toporowsky AMP
Real Mortgage Solutions
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