A mortgage with bad credit introduction.
Looking back on the 2020 year
the coronavirus pandemic has caused so much health and financial devastation
to Canadians. Canadians either losing their jobs or at least their income has
been the main cause of personal financial problems this past year.
To their credit, the federal government quickly came to the aid of people
and businesses by rolling out Canada's COVID-19 Economic Response Plan.
The many programs to lend financial
support implemented by the federal government had been largely successful,
notwithstanding, not all the programs worked well.
Luckily, the major ones did work well
and getting much needed financial support to Canadians and Canadian businesses.
In fact, the government support has worked so well that insolvency statistics
in Canada as of October 31st, 2020, show that consumer and business insolvency
proceedings are down in 2020 by almost 25 percent compared to 2019.
So at a time when there is so much
financial hurt in Canada, formal insolvency proceedings are way down.
I attribute Canada's COVID-19 economic response plan is the main reason why,
but that does not mean that financial problems in Canada are over.
I suspect that as certain government support programs have now ended
and the remaining ones are right now scheduled to end in 2021,
it is the coming year where the insolvency statistics may take a turn for the worse
with the number of insolvency proceedings increasing.
One of the support programs that have ended is the mortgage deferral program.
The purpose of this Brandon's Blog is to look at what are the options for people
who need to either get or renew their mortgage with bad credit mortgages
with the coronavirus. As I previously wrote about,
there were two phenomenons in 2020 with mortgages in Canada.
First, there were roughly $170 billion
in home mortgage deferrals among Canada's six major banks.
The bulk of them were set to expire by September 30th.
The second was that there was a significant rise in Canadian consumer
debt, primarily from an increase in both mortgage loans and vehicle financings.
The major banks reported that increases
in mortgage debt came from both the refinancing of existing home mortgage
debt as well as new home mortgage applications.
We also know from media reporting
that at least in the greater Toronto, Ontario area, the residential real estate
market remained hot. COVID-19 could not slow it down.
We also know that Canadians have taken
advantage of the extremely low home mortgage interest rates to increase their
mortgage debt in order to pay down or off a much higher rate consumer debt.
For those with a good credit rating,
getting new or refinanced mortgage loans has not been a problem.
But what about those needing a mortgage with bad credit?
How your credit score impacts your
mortgage rate to comprehend just how poor credit scores impact home mortgage rates.
It helps to look at it as a mortgage lending institution.
Giving a loan to someone with a poor credit history is high risk as they are
more likely to not make their monthly payments on time where they might default
completely to make up for the additional danger.
Lenders approve this kind of home mortgage
with bad credit using higher interest rates than the posted rates.
In Canada, credit scores range from a low of 300 to a high of 900.
You are rated by Canada's two significant credit bureaus, Equifax and TransUnion.
This number is used to tell lenders just
how you have dealt with available credit in the past.
The greater your credit score, the far better.
Due to the fact that it assists
you get approved for the lowest possible interest rates.
A person with a minimum credit score of 630 should not have a problem getting
a standard mortgage approval from one of the major bank mortgage lenders.
Obviously, the higher your credit score
above 630, the better. If your credit score is below 630
a lot of the financial institutions
in Canada will not authorize you for a mortgage loan.
Rather, you may need to utilize
a B lender institution or even a private lender.
Lenders such as these have bad credit
mortgages available for people with a poor credit history.
What kind of bad credit mortgages are
available to a person applying for a bad credit mortgage? You may have to save
for a larger down payment. Frequently 20%, or more equity in your
house than a person with a good credit score.
If you're applying for a mortgage refinancing, if you are lucky enough
to have a cosigner, that is also a good thing.
Sometimes if the debt problems are small, the best or close to the best mortgage
rate could still be readily available to you.
You would be well advised to hire a knowledgeable mortgage broker.
A mortgage broker's fee is paid for by the lender, not the buyer or homeowner.
They will certainly attempt to get you
the best rate based on your current economic situation.
A mortgage professional has access to many different types of lenders.
Most insurance companies have a portfolio
of residential mortgages as part of their overall financial investments.
Mortgage brokers also know of private lenders.
Even if the lender at one of the major banks turns you down,
a mortgage broker may very well be able
to find you a lender who will say, yes. The mortgage rate might be higher than
those posted in the newspaper or shown online.
But at least you will get the mortgage with bad credit loan that you need.
What are the advantages of bad credit, mortgage loans?
Commonly bad credit borrowers with credit report problems, a bad credit score range
and overall credit issues are rightfully reluctant to handle more debt.
However, a mortgage with bad credit is very different than taking on more debt
just for consumer overspending when you need a mortgage.
It is because you want to buy an asset
that is worth more than the amount of money you will owe on it.
So a mortgage with bad credit can be
a powerful device to enhance credit score ratings.
A few of the methods that credit borrowers who can qualify for a home mortgage
accomplish this are: Consolidate multiple high rate consumer
debts such as credit card debt or unsecured line of credit debt
into a solitary, lower interest mortgage loan, eliminating high rate debt that is
in default through debt consolidation with a lower rate mortgage and making your
monthly payments on time will improve your credit score.
Amortize financial debt over a longer period to lower your monthly payments.
This will certainly help your cash flow.
Even a mortgage with bad credit will
certainly have lower rates than credit cards and unsecured lines of credit.
This conserves money because the lower
interest rate loan will have a lower monthly payment than the total
of the monthly payments of the higher rate loans.
In short, a mortgage product for bad credit scores helps you improve your
credit score over time, especially if you use the new or
refinanced mortgage with bad credit loans to require your credit card balances.
Here is another tip.
Once you retire your old unsecured credit card balances, cancel them,
then get a secured credit card. Just like the mortgage with bad credit product,
every time you pay off your secured credit
card on time, the card issuer reports that to the credit bureaus.
This too will help repair your damaged credit and improve it over time.
What if you can't get approved
for a mortgage with bad credit loan at an A or B lender?
If you have worked to build your credit
and are still incapable to obtain approval on a conventional mortgage,
be sure to ask your broker what else you should do differently.
More than likely,
the broker will recommend canvassing their private mortgage lender contacts.
Private lenders are willing to do mortgages for people.
Borrowing from a private lender will carry
additional fees and a very high interest rate.
Most private mortgages also carry a very
heavy penalty for defaulting or even just late payments.
However, if your budget tells you that you
can afford the monthly mortgage payment, a private lender has much more flexibility.
A private lender is much more willing to look at your stable employment record
and your proof of income rather than just your credit report.
Of course, an appraisal supporting
the value of the home and the loan requested is crucial.
Keep in mind that a private lender may very well be more lenient if you had
previously filed a consumer proposal or for bankruptcy.
Whereas a new lender and many other lenders will be scared off by this,
a private lender may very well not be.
If you have successfully completed your consumer proposal or have received your
bankruptcy discharge, then you have shed the debt that weighed you down.
So it is very possible that you have a relatively small debt load.
Alternatively, if you are refinancing for debt consolidation purposes,
the private lender will want proof that the debts have been paid off
with the portion required from their mortgage with bad credit advance.
As long as the alternate lender is happy
with your income and employment history along with the appraisal,
the lender won't be bothered by the debts that will no longer be outstanding.
So although the private mortgage rate is
expensive, at least the money you need is available.
Let's face it, if you had excellent credit, you would deal with one
of the chartered banks even for insured mortgages.
Mortgage with bad credit summary.
I hope you have enjoyed this mortgage
with bad credit Brandon's Blog. Do you or your company have too much debt?
Are you or your company in need of financial restructuring?
The financial restructuring process is complex.
The Ira Smith Team understands how to do a complex restructuring.
However, more importantly, we understand the needs
of the entrepreneur or the person who has too much personal debt.
Call us now for a free consultation.