*Update April 23, 2009 Current pricing structure on the HELOC is at Prime + 1.5% = 3.75% on the float portion of the account*
“TORONTO — One of Canada’s biggest mortgage lenders, TD Canada Trust, is increasing the interest rate charged for its home equity line of credit and variable-interest mortgages.
The bank has been charging its prime rate for its Home Equity Lines of Credit — which uses the value of the customer’s home as collateral — but will start charging one percentage point above prime.
TD Canada Trust also is increasing the rates for its open and closed variable-rate mortgages to one percentage point above prime, effective Tuesday.
The prime rate at TD and most major Canadian banks has been 4.75 per cent since April, the last time the Bank of Canada changed its target for its overnight lending rate.
With the change, TD customers who have borrowed under those lines of credits or variable mortgages will be paying an annual rate of 5.75 per cent unless the prime rate changes again.”
Banks around the world, including in Canada, are finding it more expensive to borrow money on wholesale markets, due to the turmoil in the U.S. financial sector.
TD Canada trust has raised the “base” rates for the Varible Rate Mortgage products and the Home Equity Line of Credit. This prime plus pricing is a sharp contrast to what we were offering just a few short months ago. Shortly after the notice we have seen the majority of the other Canadian Banks follow suit.
It is difficult to gauge how long this pricing structure will last, what started out as a mortgage meltdown has blown into a global credit crisis.
Everyone always seems to be quite curious when it comes to the mortgage application, how do the Blue power suits come up with what a ‘good’ application is? and were does my application stack up to this standard? Just think about how you would feel if someone was to ask you for a loan. You would consider how long you have known them, are they punctual, do they move around a lot -good with there obligations, do they live within there means….. What you are doing is creating a picture of how likely you will see your hard earned money again! Lenders call this the Five C’s of credit. Today I would like to talk about what each of these components mean and how it is my job to position your application in the best of light to the lenders.
Character is the general impression you make on the potential lender. Imagine if you were lending money to a friend, how well you think that they will be willing to repay the loan thinks like your educational background and experience in business will be reviewed. The length of time at your current employment and your current residence will be considered. The longer you have been at both, the higher you will score on the character scale. One important thing to note is that with the large percentage of Lower Mainland residents that are now self employed, if you worked in the same business for several years as an employee and now you are business for self, Genworth and CMHC have programs that will look at your previous employment background, as most traditional institutions require 2-3 years as business for self.
Collateral is what the loan is secured upon; Mortgages are a part of the banks Real Estate Secured Lending department. In real estate transactions this generally means the property that you are looking to purchase or a property you are using as collateral (such as a Home Equity Line Of Credit). If for some reason, you cannot repay the mortgage, the bank wants to know that the real estate the mortgage was taken out for is good and marketable real estate. A real estate appraisal will determine the value for the property in today’s market. The appraisal will also indicate to the lender the type of property being financed and any deficiencies that may affect the ability to re-sell, in case of default. A property that is located in a North Vancouver is considered a better risk than a farm in rural parts of the Province. Simply, there are more buyers for the home in the city than for a rural farm and therefore is easier to re-sell. Capital is the money you personally have invested in the purchase, otherwise known as your down payment. The more of your own money you invest as a down payment, the more likely that you will do all you can to maintain your payment obligations. Banks want to see a vested interest in the property that you are acquiring; this is why rates and insurance premiums are generally higher for a rental property as it is not occupied by the purchaser who is comfortably living in another location. Capital is also reflected by your ability and willingness to save money and accumulate assets. The higher your net worth, the more you have as a cushion for repayment in the event you run into a financial set-back. Credit is the evaluation of your habits in performing credit obligations. The information about your credit history is stored at the “credit bureau” and indicates how well you paid your bills over the last 6 years. All major credit cards, auto loans, leases etc. are reported to the credit bureau. A lender will evaluate your ability to maintain your obligations and try and determine how well you live within your means. Some individuals make the mistake of not paying the minimum monthly obligations on loans and credit cards with the expectation of making a larger payment the following month. These missed payments appear on their credit report branding them as chronic “late-payers” for the next 6 years. In Canada we use an empirical system of your score which is called the Beacon score, in the US it is referred to as a FICO score, they are on a scale from 400-900 the higher your score the more favorable your application will be.
Capacity to repay the loan is probably the most critical of the five factors. The lender will want to know exactly how you intend to repay the loan. The lender will consider your income as it relates to the loan that you are applying for. Does the monthly carrying costs of the loan represent less than or equal to 32% of your total monthly income? If it is, the probability of you successfully repaying the loan is fairly high. Prospective lenders will also want to know about any other sources of income you may have to repay the loan, if your steady income stream is interrupted. Some of the institutions such as TD Canada Trust allow you to use rental income to offset this obligation, either directly or as supplemental income, please send me a email if you have any questions regarding this policy, it is a important tool that can make or break a transaction.
