How Does Your Credit Score Hold Up?

Matt Chan • Oct 04, 2017

In an article released by the Canadian Mortgage and Housing Corporation (CMHC), it appears that those people who have a mortgage tend to be a little more credit worthy compared to those who don’t. It also points out that credit scores are quite steady across Canada.

If you’ve never seen your credit report, or it’s been a while since you have looked at your credit score, now would be a great time to make sure everything is as it should be. You have a couple options, firstly, you can access your report from Equifax Canada or TransUnion for a nominal fee, or if you have a mortgage renewal coming up or you plan on purchasing a property in the near future, we’d love to meet with you. We can look at your credit history and we can let you know where you stand. Contact us anytime!

For general purposes, credit score ranges can be grouped as follows:

Poor (less than 599);
Fair (600 – 659);
Good (660 – 699);
Very Good (700 – 749);
Excellent (more than 750)

Here are the main points of the CMHC article for you:

“Overall, mortgage holders tend to have better credit scores than other consumers.”

In Canada, the majority of mortgages are held by borrowers with a very good or an excellent credit score, a share that has been trending up since the third quarter of 2015, reaching 80.7% in the first quarter of 2017. The share of mortgage holders with an excellent credit score has increased by almost one percentage point in the first quarter of 2017 compared to the same quarter in 2016. This shows that the current outstanding mortgage debt is largely supported by consumers with healthy credit history.

While consumers with poor or fair credit scores are a small share of the market, they represent a more significant source of risk of default of payment and potential losses for lenders than all consumers with higher credit scores. The share of mortgage holders with a fair or poor credit score has dropped to 10.2%, in the first quarter of 2017, from 11.2% two years earlier.

Overall, mortgage holders tend to have better credit scores than other consumers. In the first quarter of 2017, 76.8% of consumers without a mortgage had a very good or an excellent credit score, a share 3.9 percentage points lower than among mortgage holders. Additionally, we find that this gap between mortgage holders and other consumers has been widening since the end of 2014, when the share of consumers with a very good or an excellent credit score was only 2.9 percentage points higher among mortgage holders than among other consumers. The widening of this gap has largely been driven by the improvement of scores among mortgage holders.

On the lower end of the spectrum, we find that 15.2% of consumers without a mortgage had a poor or fair credit score in the first quarter of 2017, which is 5 percentage points higher than consumers with a mortgage.

There are differences between cities, however;

Among Canada’s six largest metropolitan areas, only Edmonton and Calgary have a share of mortgage holders with a very good or excellent score lower than the Canadian average. Toronto is the area that has had the largest increase in the last 4 years, with a gain of 3.7 percentage points, followed by Vancouver, with a gain of 2.4 percentage points.

The shares of mortgage holders in Canada’s largest cities with a poor or fair credit score has been generally trending down in Montréal, Ottawa-Gatineau, Toronto and Vancouver, with the largest decreases reported in Toronto and Vancouver: decreases of 2.9 and 1.8 percentage points, respectively, from the first quarter of 2013 to the first quarter of 2017.

The share of mortgage holders in the two lowest credit score ranges remains more elevated in the oil-rich markets of Edmonton and Calgary.

In each of Canada’s six largest markets, the proportion of consumers with poor or fair credit scores is smaller among mortgage holders than among consumers without a mortgage.

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Credit and Mortgage Financing

By Matthew Chan • 24 Apr, 2024

Credit. The ability of a customer to obtain goods or services before payment, based on the trust that you will make payments in the future. When you borrow money to buy a property, you’ll be required to prove that you have a good history of managing your credit. That is, making good on all your payments. But what exactly is a “good history of managing credit”? What are lenders looking at when they assess your credit report? If you’re new to managing your credit, an easy way to remember the minimum credit requirements for mortgage financing is the 2/2/2 rule. Two active trade lines established over a minimum period of two years, with a minimum limit of two thousand dollars, is what lenders are looking for. A trade line could be a credit card, an instalment loan, a car loan, or a line of credit; basically, anytime a lender extends credit to you. Your repayment history is kept on your credit report and generates a credit score. For a tradeline to be considered active, you must have used it for at least one month and then once every three months. To build a good credit history, both of your tradelines need to be used for at least two years. This history gives the lender confidence that you’ve established good credit habits over a decent length of time. Two thousand dollars is the bare minimum limit required on your trade lines. So if you have a credit card with a $1000 limit and a line of credit with a $2500 limit, you would be okay as your limit would be $3500. If you’re managing your credit well, chances are you will be offered a limit increase. It’s a good idea to take it. Mortgage Lenders want to know that you can handle borrowing money. Now, don’t confuse the limit with the balance. You don’t have to carry a balance on your trade lines for them to be considered active. To build credit, it’s best to use your tradelines but pay them off in full every month in the case of credit cards and make all your loan payments on time. A great way to use your credit is to pay your bills via direct withdrawal from your credit card, then set up a regular transfer from your bank account to pay off the credit card in full every month. Automation becomes your best friend. Just make sure you keep on top of your banking to ensure everything works as it should. Now, you might be thinking, what about my credit score, isn’t that important when talking about building a credit profile to secure a mortgage? Well, your credit score is important, but if you have two tradelines, reporting for two years, with a minimum limit of two thousand dollars, without missing any payments, your credit score will take care of itself, and you should have no worries. With that said, it never hurts to take a look at your credit every once and a while to ensure no errors are reported on your credit bureau. So, if you’re thinking about buying a property in the next couple of years and want to make sure that you have good enough credit to qualify, let’s talk. Connect anytime; it would be a pleasure to work with you and help you to understand better how your credit impacts mortgage qualification.

Notes on the Federal Budget

By Mortgage Plan • 19 Apr, 2024

Sherry Cooper has done a great analysis of the upcoming Federal Budget. You can see it here: Sherry Cooper Federal Budget 2024 One of the key themes of the budget is to tax the wealthy namely through increase taxes on capital gains. Currently, 50% of capital gains are taxed. Under new proposal, 50% capital gains tax will still apply for the first $250,000 but will rise to 66.6% on income above $250,000. Implications to real estate investors: - the tax is targeted to the wealthiest Canadians BUT there will be impact to the middle class real estate investors and can lead to higher taxes for middle class Canadians. - disincentive for Canadians to buy investment properties - disincentive for Canadians to buy under a corporation as corporations and trusts are taxed for entire capital gains at 66% rather than just the gains over $250,000 for individuals. With these changes, it is important to work with a team of professionals (mortgage broker, realtor, financial advisor and accountant) that can properly advise and help you navigate the intricacies of buying and selling investment properties. Be sure to consult with a great team of knowledgeable professionals when looking to buy and sell real estate. The other changes: - increase amortization to 30 years for new builds Likely minimal effect on affordability as it likely will increase demand - increase in RRSP withdrawal limit to $60,000 from $35,000 In my career, I rarely see a first time buyer with over $25,000 in RRSPs so likely a very minimal impact on actual first time buyers Reach out to me if you have any comments or questions.

Understanding the Recent Housing Affordability Measures in Canada

By Matthew Chan • 18 Apr, 2024

In recent years, housing affordability has become a significant concern for many Canadians, particularly for first-time homebuyers facing soaring prices and strict mortgage qualification criteria. To address these challenges, the Canadian government has introduced several housing affordability measures. In this blog post, we'll examine these measures and their potential implications for homebuyers. Increased Home Buyer's Plan (HBP) Withdrawal Limit Effective April 16, the Home Buyer's Plan (HBP) withdrawal limit will be raised from $35,000 to $60,000. The HBP allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to use towards a down payment on a home. By increasing the withdrawal limit, the government aims to provide young Canadians with more flexibility in saving for their down payments, recognizing the growing challenges of entering the housing market. Extended Repayment Period for HBP Withdrawals In addition to increasing the withdrawal limit, the government has extended the repayment period for HBP withdrawals. Individuals who made withdrawals between January 1, 2022, and December 31, 2025, will now have five years instead of two to begin repayment. This extension provides borrowers with more time to manage their finances and repay the withdrawn amounts, alleviating some of the immediate financial pressures associated with using RRSP funds for a down payment. 30-Year Mortgage Amortizations for Newly Built Homes Starting August 1, 2024, first-time homebuyers purchasing newly built homes will be eligible for 30-year mortgage amortizations. This change extends the maximum mortgage repayment period from 25 years to 30 years, resulting in lower monthly mortgage payments. By offering longer amortization periods, the government aims to increase affordability and assist homebuyers in managing their housing expenses more effectively. Changes to the Canadian Mortgage Charter The government has also introduced changes to the Canadian Mortgage Charter to provide relief to homeowners facing financial challenges. These changes include early mortgage renewal notifications and permanent amortization relief for eligible homeowners. By implementing these measures, the government seeks to support homeowners in maintaining affordable mortgage payments and mitigating the risk of default during times of financial hardship. The recent housing affordability measures announced by the Canadian government are aimed at addressing the challenges faced by homebuyers in today's market. These measures include increasing withdrawal limits, extending repayment periods, and offering longer mortgage amortizations. The goal is to make homeownership more accessible and affordable for Canadians across the country. As these measures come into effect, it's crucial for homebuyers to stay informed about the changes and their implications. Consulting with a mortgage professional can help individuals explore their options and make informed decisions about their housing finances. If you're interested in learning more about these changes and how they may affect you, please don't hesitate to connect with us. We're here to walk you through the process and help you consider all your options and find the one that makes the most sense for you.