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WHAT HAPPENS TO YOUR MORTGAGE WHEN YOU DIE? OUR AWESOME COMPREHENSIVE GUIDE FOR CANADIANS

what happens to your mortgage when you die
what happens to your mortgage when you die

What happens to your mortgage when you die? Introduction

There comes a time in everyone’s life when we must face the inevitable truth of our very own death. While it may not be the most pleasant topic to discuss, it is vital to consider the financial ramifications that may arise after we die. Specifically, have you ever questioned what occurs to your home mortgage loan when you pass away in Canada? In this Brandon’s Blog, we will explore this important topic, clarifying the function of beneficiaries, mortgage protection insurance, as well as estate preparation in addressing what happens to your mortgage when you die.

When a loved one passes away, the problem of dealing with their assets, liabilities, and all financial issues falls upon the shoulders of one or more of their survivors. One of the most substantial issues among all the types of debts the deceased may have had is the remaining mortgage loan balance and how it will be managed. Will your beneficiaries inherit this financial obligation, or can it be removed through specific processes? Feel confident, we will certainly provide you with valuable information as well as the positive steps to guarantee your legacy continues to be secure.

Comprehending the function of beneficiaries in mortgage affairs is of utmost importance. There is a way during your lifetime that you can shield your loved ones from acquiring the concern of your financial commitments. We will certainly guide you with the details of beneficiary classification, helping you move through the needed paperwork to choose the most ideal option(s) for your particular situation.

In addition, we will explore the essential role of life insurance coverage in the context of mortgages after death. A life insurance policy can function as a financial safety net that not just covers funeral expenditures yet can also be used to settle your mortgage debt. We will review various sorts of life insurance policy plans and their benefits, enabling you to make knowledgeable choices that protect your loved ones from unnecessary financial pressure.

Lastly, we will certainly explore the value of estate preparation in ensuring a smooth transition of your home, your other possessions and your mortgage. Appropriate estate planning allows you to manage just how your assets are dispersed, including your home mortgage. We will walk you through the elements to take into consideration when developing an estate strategy, such as creating a trust or thinking about joint ownership, providing you with the tools to secure your heritage and also supplying financial safety and security to your loved ones. We will discuss all the concepts but what we won’t talk about is how to draft your Will. That is a discussion you need to have with your lawyer.

Now is the time to gain a detailed understanding of what happens to your mortgage when you die in Canada. By taking proactive steps, you can safeguard your loved ones from a prospective financial concern and make sure a smooth changeover for your estate. Join us as we delve into this subject, supplying our thoughts and guidance to assist you in securing your legacy. Read more now!

What happens to your mortgage when you die? Understanding the basics of a mortgage

Defining a mortgage and its key components

A mortgage is a financial contract in which a mortgage lender offers funds to a consumer to acquire a property. It consists of numerous vital parts, such as the funding amount, rates of interest, payment duration, and regular monthly installments. Comprehending these elements is necessary to realize what occurs to a mortgage when you pass away. It is vital to acknowledge that the responsibility for making the monthly mortgage payments lies with the consumer, despite their life conditions. Nonetheless, there are actions you can take to protect your loved ones from the problem of a mortgage obligation after your death, including beneficiary classification, life insurance, and estate planning.

Understanding the Basics of a Mortgage

To grasp the ins and outs of what happens to your mortgage when you die, it is essential to initially understand the basics of a mortgage and your specific mortgage document. This section intends to supply a clear description of regular mortgage conditions. By familiarizing themselves with these terms, individuals can better navigate the complexities of the home mortgage process. People need to fully understand everything about their mortgage, including, the rate of interest and payment schedule, insurance policy requirements and penalties for defaulting, to be able to plan your estate properly. By acquiring a strong understanding of the essentials, readers can have self-confidence when considering their estate options.

The role of a co-borrower or co-signer

When it involves mortgages, understanding the role of a co-borrower or co-signer is critical as there is a difference if there was just a sole owner responsible for the mortgage obligation. A co-borrower is somebody that authorizes the mortgage contract as well as shares equivalent responsibility for the mortgage loan.

They have possession rights over the home and are just as accountable for making the mortgage loan repayments. On the other hand, a co-signer is someone that gives their credit reliability to help secure the loan but does not have any type of ownership legal rights. They are only responsible for the payments if the primary borrower stops making the payments.

Having a co-borrower or co-signer can provide extra security for the lending institution as well as may improve the opportunities for lending approval.

what happens to your mortgage when you die
what happens to your mortgage when you die

What happens to your mortgage when you die? The impact of death on a mortgage

Exploring the implications of death on mortgage payments

When a house owner dies, their home loan doesn’t simply disappear. The lender still has a lawful right to the home until the mortgage is paid off. If the mortgage remained in the property owner’s name alone, the estate will require to repay the balance. This can be done by selling the building or making use of funds from the estate.

If the mortgage was jointly held because there is a joint owner of a property, the surviving co-borrower will take control of the obligation of making the regular monthly payments, assuming they can afford to do so on their own. It is necessary to plan for the effect of death on a home mortgage loan by thinking about life insurance and your will to make sure that loved ones are not strained with mortgage payments after a house owner passes away.

Discussing the lender’s rights and options in such scenarios

When it pertains to what happens to your mortgage when you die, it is essential to recognize the rights and also choices of the loan provider. In such situations, lending institutions have the right to examine the situation and make a choice concerning the mortgage loan. They can choose to accelerate the loan and demand the need for instant payment or they can allow the surviving co-borrower to continue making payments.

In Ontario, lenders have the option to initiate the power of sale proceedings if the mortgage falls into arrears. It is important to be familiar with these options and plan for them when you are alive to protect your estate.

Sale clause in a mortgage agreement

In every standard mortgage, there is a sale clause. This stands as a typical provision included in the majority of mortgage contracts. This provision empowers the lender to demand complete repayment of the mortgage balance in the event of a property sale. The sale clause aims to safeguard the lender’s stake in the property since they have invested a substantial amount in the mortgage.

For borrowers, it becomes crucial to grasp the terms of their mortgage agreement and the possible ramifications of triggering the sale clause. Should a borrower intend to sell their property, seeking consultation with their lender becomes imperative to ascertain the terms and conditions required to steer clear of triggering the sale clause.

What happens to your mortgage when you die? Outlining the options available to settle a mortgage after death

When managing to settle a mortgage debt after death of the borrower, there are 2 choices offered to Canadians:

  1. Pay off the balance of the mortgage utilizing life insurance plan proceeds. Making certain that you have appropriate mortgage loan insurance in place permits you to utilize those funds for home mortgage payments, alleviating the worry of the family members you left behind.
  2. Another choice involves the estate of the deceased person. Depending on the conditions, the estate may have the capability to cover the mortgage loan by making use of other assets.

It’s essential to extensively think about these choices and consult estate planning professionals to make certain you protect your loved ones by adequately covering this financial debt.

Exploring the possibility of paying off the mortgage using life insurance proceeds

When it involves what happens to your mortgage when you die in Canada, one possibility is to explore using a life insurance plan to pay off the home mortgage loan balance. By having a life insurance plan in place, you can make use of the funds to repay the loan, thereby saving your family from that financial stress. This can be either a separate life insurance policy or specific mortgage insurance offered by the lender. You should carefully check out both types, as costs and qualifying for each type could vary significantly.

This enables them to save residential real estate without the obligation of a mortgage loan. Participating in this proactive method demonstrates a degree of financial responsibility and insight, ensuring your family members’ security and also safeguarding your legacy. Consider reviewing this choice with an experienced financial expert to evaluate the possibility of obtaining such insurance policy protection as well as understanding what the insurance premiums will be.

The role of the deceased individual’s estate in mortgage settlement

When considering what takes place on your mortgage loan upon your demise, recognizing the function of the departed person’s estate in mortgage settlement is critical. The estate, encompassing the dead person’s properties as well as obligations, plays an important part in identifying just how the mortgage will be settled. This may require selling off the property or selling off various other assets of the estate to raise funds for clearing the mortgage loan balance.

It is essential to have a well-prepared estate plan to make certain a seamless strategy for your Estate Trustee to follow, benefitting your beneficiaries and family after your passing away. Seeking support from legal and financial experts can assist navigate you with this process.

what happens to your mortgage when you die
what happens to your mortgage when you die

What happens to your mortgage when you die? Transferring the mortgage to another party

The concern surrounding your home mortgage’s destiny after your passing presents a possibility to plan ahead of time for the transfer of ownership to a loved one while at the same time knowing that the house will be protected and transferred according to your wishes. This mortgage transfer requires considering legal and financial elements and preparing the required documentation. This will require experienced guidance to navigate the procedure with the utmost skill.

Experts fluent in this area can assist with preparation, giving detailed guidance on the necessary actions while offering beneficial insights right into possible obstacles that may develop. By planning ahead of time for the transfer of both the mortgage as well as the property, you can protect your loved ones from the burden of needing to deal with this added burden after you are gone, ensuring financial safety and convenience.

The transfer of a mortgage following your death necessitates careful consideration of possible obstacles as well as legal and financial repercussions. You need to account for various elements, such as guaranteeing the prospective borrowers fulfill the loan provider’s requirements for assuming the home mortgage, in addition to fulfilling different obligations, such as making sure that the appropriate registry is updated and all necessary parties are alerted to the change of ownership.

In the context of what happens to your mortgage when you die, looking for specialist guidance for your planning is essential to make sure a smooth transfer of both the property and the mortgage happens after your death. The intricacy and also ins and outs involved in transferring both the mortgage obligation and its connected property can be overwhelming and challenging for the majority of individuals.

By getting in touch with seasoned specialists, you can guarantee a smooth and dependable change. These specialists have the needed expertise to navigate any prospective obstacles, using tailored options to match your special situation and assist in completing a smooth and orderly process easily when the time comes.

What happens to your mortgage when you die? Joint mortgages and death

For your basic estate planning when you are a joint mortgage borrower, understanding the complexities involved in a joint mortgage for the surviving borrower holds paramount relevance. Upon the death of one of the joint mortgagors, the remaining borrower might run into various issues with the mortgagee that were not anticipated. The obvious issue will be the ability of the remaining borrower to make all necessary mortgage payments without the joint borrower being alive to continue contributing. There will also be certain administrative details such as assuming sole possession of the property. If the remaining borrower cannot afford to keep the property, then marketing it to settle the mortgage debt is an obvious solution.

To proactively plan for this situation, both borrowers need to have an agreement and a plan in place as to what will happen upon the death of one of the joint borrowers. Seeking guidance from an estate planning expert is well-advised. By looking for professional recommendations, you can get a clear and detailed understanding of your legal rights and also obligations, thereby allowing you to choose the optimal course of action to safeguard the situation for both your joint borrower and your beneficiaries.

In such scenarios, it comes to be critical to confer with your lawyer to ensure the solution of a well-crafted strategy that meets everyone’s requirements. Thorough estate planning is of the utmost value. Protecting your interest in the property and also making sure the seamless transfer of your mortgage upon your death needs a comprehensive plan, including the relevance of your will.

what happens to your mortgage when you die
what happens to your mortgage when you die

What happens to your mortgage when you die? Importance of estate planning

Discovering the utilization of wills, trusts, and other legal strategies is pivotal in safeguarding your mortgaged property in the event of your passing. These tools allow for proper estate planning. A diligently prepared will certainly makes certain that your mortgaged property is duly resolved, assuring the protection of your loved ones from problems after you are gone.

Additionally, should the family situation be such that added protection is necessary, the use of a trust can offer added security by selecting a trustee to manage the property as well as disperse funds for mortgage payments. This is especially useful either where a minor child is involved or the adult child beneficiary may not be able to properly handle all aspects of property ownership.

Seasoned professionals can focus on these intricacies as well as can adeptly lead you through the procedure, assuring the protection of your legacy. In Canada, proper estate planning holds the utmost significance when a mortgage is also attached to the property, particularly when pondering the fate of the home and the mortgage after death. To navigate the complicated legal terrain, involving the services of a professional estate planner and lawyer becomes crucial.

What happens to your mortgage when you die? Conclusion

Recognizing what happens to your mortgage when you die in Canada holds vital relevance. This knowledge proves important in protecting your loved ones and cementing your legacy. Beneficiaries will be considerably affected by the ongoing mortgage obligations following your death. However, relying only on beneficiaries might prove insufficient or inappropriate.

To make sure extra safety and security and to ease the economic concerns after you are gone, it is advised to invest either in a life insurance policy as well as participating in thoughtful estate planning. By gaining valuable insights and taking aggressive steps, you can make certain that your mortgage won’t end up being an encumbrance rather than an ongoing way that your property will be protected and available for your beneficiaries.

I hope you enjoyed this what happens to your mortgage when you die Brandon’s Blog. In our role as a licensed insolvency trustee, we have had to administer the bankruptcy of many insolvent deceased estates. But what about when the deceased estate is not insolvent but there are other seemingly insurmountable problems?

That is why several years ago, we opened up a division of Ira Smith Trustee & Receiver Inc. called Smith Estate Trustee Ontario. We act as Estate Trustees for solvent estates where various problems arise requiring the appointment of an independent Estate Trustee. Some of the reasons why this service is necessary are:

  1. There is no will so the person died intestate.
  2. There is a will but the Estate Trustee(s) named in the will do not wish to act so they recuse themself(ves).
  3. Ongoing litigation makes it a requirement that an independent Estate Trustee be appointed to safeguard and liquidate the assets while litigation continues or until a settlement is reached.

As the independent Estate Trustee, we provide solutions for complex estate issues to end the pain and frustration the stakeholders are experiencing. We apply our expertise and creative thinking to take care of all details to end your pain and achieve the goals of the beneficiaries and other stakeholders.

We saw there was a need for an Estate Trustee, Executor/Executrix service that was much more than just the impersonal statutory walk-through offered by a large financial institution. We saw that not every person nominated to act as an estate trustee under a will has the desire or the skill set to handle the situation.

We have the skill set to solve the many complex problems in the administration of solvent deceased estates. We also have the compassion and experience to understand, relate to and empathize with the unique issues facing each stakeholder. We use our decades and generations of experience in acting as an Officer of the Court to bring parties together in a meaningful way.

If you have any questions about our independent Estate Trustee or Licensed Insolvency Trustee services, call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.

what happens to your mortgage when you die
what happens to your mortgage when you die
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Brandon Blog Post

THE HOUSEHOLD DEBT-TO-INCOME RATIO: HOW COVID-19 CHANGED THIS 1 SIMPLE EFFECTIVE MEASURE

We hope that you and your family are safe, healthy, and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Household debt-to-income ratio: Understanding the debt-to-income (DTI) ratio

Your household debt-to-income ratio indicates how much of your gross monthly income goes toward paying off your debt. In order to find your DTI ratio of household debt percentage, multiply the result by 100. The debt-to-income (DTI) ratio is a measure of how much income a person or organization generates in order to service household credit market debt.

Based on income, the household debt-to-income ratio, or as it is also called, the household debt service ratio, measures a family’s ability to pay monthly debt obligations. Divide the monthly debt obligations by the gross income to calculate the DTI ratio.

When considering a mortgage or loan, the household debt-to-income ratio is a critical metric. You may find it more difficult to get a mortgage if your household debt-to-income ratio is high, or you may end up getting smaller loan approval. Your household debt-to-income ratio is calculated using your income, debt, and credit (mortgage) accounts.

I wrote a blog almost one year ago on the Canadian household debt-to-income ratio at that time. At the time of the COVID-19 pandemic, I discussed what happened to the household debt of Canadians.

I provide an update one year after discussing a recent report by Statistics Canada about the household debt-to-income ratio in Canada during the fourth quarter of 2021.

Household debt-to-income ratio: Debt-to-income ratio example

Here is an easy-to-understand example. Sally is looking to get a loan and is trying to figure out her household debt-to-income ratio. Sally’s monthly bills and income are as follows:

  • monthly mortgage debt payment (P+I): $1,000
  • monthly auto loan payments: $500
  • credit card debt monthly payment: $500
  • household gross monthly income: $6,000
  • Sally’s total monthly debt payment is $2,000:
  • Sally’s household debt service ratio is 0.33:
  • 0.33 x 100 = In other words, Sally has a 33% household debt-to-income ratio.household debt-to-income ratio

Household debt-to-income ratio: Pre-pandemic debt pressures

Prior to the pandemic, household debt Canadians carried increased steadily. During the last decade, more and more Canadian homes carried debt. Canadian household debt-to-income ratio was 150% in 2012, according to Statistics Canada.

In other words, the increase in debt was rising at a rate of $1.50 for every dollar of income. A DTI ratio of 175.4% was reached in the first quarter of 2020. Before the pandemic, Statistics Canada estimates the household debt-to-income ratio was 181.1 percent.

Debt increases can negatively affect a household’s bottom line, and the larger the debt, the greater the negative impact.

The impact of COVID-19 on the household debt-to-income ratio in 2020: The temporary income boom of 2020 supported Canada’s household debt.

Even if the federal and provincial government financial income support payments given to Canadians through the COVID-19 Economic Response Plan aren’t considered an income surge, it is an income rise.

Fndings released by Canada Mortgage and Housing Corporation (CMHC) in November 2020 showed that the government assistance did help Canadians cope with their household debt.

In the CMHC report, the following were the key findings in Canada:

  • By the end of Q2 2020, Canada’s household debt ratio is 17% lower than Q1’s 158%.
  • Likewise, the home mortgage DTI ratio fell from 115% to 105%.
  • A rise in household disposable income caused these declines.
  • The amount of outstanding household debt in Canada did not change.

Canada’s household disposable income increased by almost 11% between Q1 and Q2 of 2020 and by 15% year over year. The extra cash doled out by governments caused this. This new cash in bank accounts was not from greater household savings.

After the government temporarily transferred money to Canadian families, the household debt-to-income ratio declined to the lowest level since 2010.

Household debt-to-income ratio: Uncertainty in household debt during the second wave of COVID-19

During the second wave of the COVID-19 pandemic, the financial situation of Canadians had changed significantly. Especially in the financial real estate industry, the DTI ratio is an indication of financial obligations as a vulnerability.

The Canadian financial institutions stopped deferring mortgage payments at the same time. Even with the then extremely low-interest mortgage rates on mortgage loans, this obviously led to concerns about Canadians’ ability to make their mortgage payments. Other government assistance programs ended.

With the end of government support programs that temporarily boosted monthly household income, Canadians faced uncertainty about how they will be able to carry and pay down their household debt.

In the second quarter of 2021, the household debt-to-income ratio of Canadians decreased in all significant Canadian cities. Normally, such a decline would indicate a general improvement in families’ monthly income, their ability to afford monthly payments and pay off financial debt, be it mortgage debt service or consumer debt such as auto loans and credit card debt service.

Subsidies from the federal government effectively helped households to pay off debt. Canadians were more than likely able to lower their non-mortgage debt during those months. However, the mortgage component of Canadian household debt has increased in the majority of metropolitan areas while employment has decreased.

household debt-to-income ratio

Canada household debt-to-income ratio: What my predictions of financial challenges for 2021 were

I predicted that as the economy recovers from the economic effects of the Coronavirus, Canadians will be facing a great financial challenge. As a result of the COVID19 pandemic crisis, Canada’s economy pretty much stopped.

Many Canadian families have experienced extensive income losses as a result of this. For those who are heavily indebted, this is particularly true. A key concern with regard to financial stability is whether homes can keep up with their financial obligations. A financial crisis may very well befall highly indebted Canadians.

Bank of Canada was concerned about the financial challenges that Canadians will face in 2021. Can Canadian homes withstand the storm? The answer lies with:

  • household financial health as of February 2020;
  • the effectiveness of the Canadian Government’s recovery support measures and policy activities; and
  • the pace of the labour market’s recovery.

As the economy recovers, the Bank of Canada looks at a variety of household debt factors. Those with greater financial vulnerability are of particular concern. Some factors that will cause concern among the Bank of Canada are:

  • The homeowners with few financial safeguards.
  • Although it does provide a financial reserve, home equity lines of credit are also associated with increased borrowing.
  • Will the government’s fiscal policy help support Canadians until incomes recover to pre-pandemic levels or exceed them?
  • In some cases, unemployment rates may not be a reliable indicator of household revenue losses.

We have entered the first quarter of 2022, so let’s see how the economy and Canadians fared in 2021.

Statistics Canada says household debt-to-income ratio hit a record high in Q4

In the fourth quarter of 2021, household disposable income declined as housing prices, housing costs, and mortgage borrowing rose, according to Statistics Canada. As a percentage of disposable income, financial markets saw that household credit market debt rose to 186.2 percent in the fourth quarter, up from 180.4 percent in the third quarter. Credit market debt accounted for $1.86 of household disposable income for every dollar of disposable income.

Consumer credit market debt rose by 1.9 percent in the fourth quarter, while consumer disposable income decreased by 1.3 percent. Household debt increased by $50.0 billion seasonally adjusted in the fourth quarter. A total of $46.3 billion was attributed to mortgages, while $3.7 billion was attributed to non-mortgage loans.

Household debt service ratios increased in the 2021 4th quarter, measured as total obligated payments of principal and interest on credit market debt as a percentage of disposable income. The ratio stood at 184.7 percent in the third quarter of 2018, and the previous record high was 181.1 percent in the fourth quarter of 2019.

Canada household-debt-to-income ratio summary

I hope you enjoyed this household debt-to-income ratio Brandon Blog post. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? Call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today Call us now for a no-cost consultation We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are remaining safe, healthy and secure during this current pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

household debt-to-income ratio

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LOWEST CREDIT SCORES RATING: THESE CANAD1ANS LED GIGANTIC CREDIT CARD DEBT REPAYMENT

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Canadians with the lowest credit scores rating led a wave of pandemic credit card debt repayment

Statistics Canada reported on August 23, 2021, that Canadians with the lowest credit scores rating repaid the most credit card debt in the first year of the pandemic. Over the period of the pandemic to January 2021, the mortgage debt of Canadian households increased by a record amount of $99.6 billion, driven by rising home prices, especially for single-family houses. Over the same period, non-mortgage debt fell by a record $20.6 billion, mainly due to a $16.6 billion decline in credit card debt.

In this Brandon Blog, I look at the area of people with credit scores rating and discuss how and why these lowest credit scores rating Canadians were able to pay down their high-interest debt.

Credit scores rating: Credit report and score basics

Credit scores are three-digit numbers derived from your credit report. An individual’s credit report summarizes their Canadian credit history. The Canadian credit reporting bureaus are Equifax Canada and TransUnion Canada. These private companies are credit reporting agencies that collect, store, and share information about how you use credit. As your credit report changes over time, your credit score will change as well. The more responsibly you manage your credit, the more points you get. According to a review of Borrowell Canada members, even a single missed payment can lower credit scores by 150 points.

Your credit score calculation is based on information in your credit report. A credit score between 660 and 900 is generally considered good, very good, or excellent credit scores.

The credit score model has credit score ranges from 300 to 900 that is used to determine creditworthiness. People always ask if there is a “magic number” to obtain better loan rates. This is an age-old question. Different lenders may focus on different aspects of your credit history. So, I cannot give you one number that unlocks the door to the best loan rates.

credit scores rating
credit scores rating

Credit scores rating: How to check your credit report

Getting a credit card, getting a car loan, or applying for any loan will result in a credit file being opened up on you. The report keeps getting updated over time. Your borrowing history and borrowing experience are all taken into account.

The report contains information about every loan you have taken out in the last six years and whether you pay on time or not, how much you owe, what your credit limit is on each, as well as a list of creditors who are authorized to access your record.

You can get a free credit report on yourself yearly from each credit bureau. You need to submit your ID and background details to prove you are the person entitled to make the request. You can make sure that your credit history report is error-free. Any errors will be corrected by each credit bureau based on the evidence you provide.

A credit rating of R1 is the best. That means you pay within 30 days of receiving your bill, or “as agreed.”

Anyone who wants to grant you credit or provide you with a service that involves you receiving something before you pay for it (such as a rental apartment or phone service) can get a copy of your credit report so they can make a credit decision about you.

R9 is the lowest credit rating.

Average Canadian credit scores rating improved during the pandemic, Borrowell study finds

With Borrowell, a fintech company, you can get your credit score every week for free. From Q1 2020 to Q1 2021, they analyzed credit scores and credit reports of 1,015,369 Canadians, including those in 20 of Canada’s largest cities, to investigate changes in credit scores and missed payment trends across the country.

The Borrowell study came up with several very interesting findings:

  • Government relief measures, lifestyle changes, and financial shifts have impacted credit scores and bill payments over the past year – sometimes revealing the divergence in how COVID-19 affected different segments of society’s financial future.
  • In spite of the coronavirus pandemic, credit scores for Canadians actually improved.
  • The average number of people with missed payments decreased from 3 out of every 10 consumers to 2 out of every 10 people between the first quarter of 2020 and the first quarter of 2021.
  • From Q1 2020 to Q1 2021, Borrowell members’ average credit scores increased by 18 points, rising from 649 (under the average) in Q1 2020 to 667 (fair).
  • The risk of missing paying bills on time is 432 times higher for consumers with low credit scores rating.

    credit scores rating
    credit scores rating

The Statistics Canada study: Canadians with the lowest credit scores rating led the wave of pandemic credit card debt repayment

The new StatsCan study, “Trends in household non-mortgage loans: The evolution of Canadian household debt before and during COVID-19“, examines how Canadians reduced non-mortgage debt and debt levels during the pandemic.

During the pandemic, households began to see their disposable income rise, partly due to the limited spending opportunities during lockdowns, as well as the government’s monetary assistance, such as CERB or enhanced Employment Insurance. This was an opportunity for many households to pay down their expensive non-mortgage debt, with unsecured credit lines and credit card balances being paid down at record levels.

Prior to the pandemic, the outstanding balance on credit cards was $90.6 billion in February 2020, compared with $74 billion just a year later. During the two decades prior to the pandemic, the outstanding balance carried on credit cards had increased on average by 20.7% per year.

Debt reductions were greatest among Canadians with the lowest credit ratings, suggesting that those most vulnerable to financial hardship used savings prudently during the pandemic. Home prices increased, especially for single-family houses, as I indicated at the outset, driving a record increase in mortgage debt for Canadian households of $99.6 billion.

For me, this is a mixed blessing. You may be pleased to hear that many Canadians with low credit scores have been able to save money and reduce their household debt. In my opinion, mortgage debt is highly unlikely to have been accumulated by the same people.

People with low credit scores were not the ones filling out mortgage applications. It was rather people with good and excellent credit who either moved up and/or refinanced in order to do renovations, improvements and/or to pay off debt with a high-interest rate. Furthermore, it shows that people with low credit scores can earn more money staying home and receiving government COVID-19 assistance than they could make at their normal job. That is a very sad comment.

Minimum credit scores rating for mortgages in Canada

You can either be approved or declined for a mortgage based on your credit score. It can affect your mortgage interest rate, the type of mortgage available, as well as the mortgage lenders that you can choose from.

A mortgage requires a minimum credit score of:

  • in the case of major banks, 600;
  • for B lenders, 550;
  • private lenders have no minimum requirements; and
  • for CMHC mortgage default insurance mortgages, 600 points are required.

For a mortgage with bad credit, your only options are B lenders and private lenders, and they may require a large down payment or equity in your home. A lower credit score is generally associated with a higher mortgage interest rate. Low mortgage rates require a credit score of at least 680.

Having a credit score above 600 is good for getting a mortgage in Canada, as it opens up more options. In most cases, CMHC mortgage default insurance is not available to people with credit scores below 600. When you have a low credit score, your mortgage loan application may be denied, your mortgage rate may be higher, or you may be limited in the amount of money you can borrow.

A credit scores rating must be 680+ to qualify for the low-interest rates advertised in the media. CMHC mortgage default insurance is another issue some borrowers need to be concerned about. As long as you have sufficient income and property value to service the mortgage, a low score may suffice, however, the private lender will charge you higher fees and interest rates.

credit scores rating
credit scores rating

Credit scores rating summary

I hope that you found this credit scores rating Brandon Blog. Credit scores do not always properly reflect people who have problems because they are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt. You may not need to file for bankruptcy.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as an alternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

credit scores rating
credit scores rating
Categories
Brandon Blog Post

CREDIT CARDS MAXED OUT: THAT SCARY CRUSHING FEELING WHEN CANADIAN INSOLVENCY AT HIGHEST LEVEL

credit cards maxed out

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

How do credit cards maxed out affect your credit score?

Your credit score is one of the most important things you have to offer anyone who is seeking to lend you money, whether it’s from a bank, a different credit card issuer, or even a landlord. Your credit score is a sort of credit health report that measures how much you owe, how much you owe on different kinds of credit, and how likely you are to default on payments.

Credit cards can be a convenient and effective way to manage your finances. However, the best use of a credit card may not be the best use when it comes to your credit score. Lenders consider one or more credit cards maxed out as a reason for your credit score to decline.

Right now we have a very unique situation when it comes to consumer debt. The average Canadian’s monthly credit card balance is lower today than it was 2 years ago. People’s credit card balance for months has declined. So it is not the case right now that credit cards maxed out. Yet, a recent poll shows that Canadians’ stress levels about their potential insolvency are the highest ever.

In this Brandon Blog, I look at the issues and provide some tips as to what positive things you can do if you are concerned about insolvency. Let’s look at the issues.

Changing habits as pandemic adds to debt load

There has actually been a surge in total Canadian consumer debt. It came mainly from financial debt growth in home mortgage debt and also automobile loans. Home mortgage balance increases originated from both refinancings of existing home loan debt and brand-new mortgage applications.

The thinking with vehicle financings is that it arose from Canadians acquiring vehicles that they had actually intended to purchase earlier. Concerning home loans, the refinancings were to consolidate higher interest rate non-mortgage debt, for credit products such as credit cards, into a brand-new higher home mortgage amount, at greatly reduced rates of interest.

Throughout the last 18 months approximately of the COVID-19 pandemic, Canadians have actually partially paid for or totally repaid their high-interest-rate consumer debt by turning it into low-rate debt from bigger home mortgages along with residence equity credit lines. They have used their real estate to obtain a debt consolidation loan.

Now that the Canadians have in fact done that, the Ipsos survey discovered that 50% of Canadians are now more worried about not having the capability to repay their financial obligations than they used to. Yet one-third of respondents say they will spend more as the economy resumes.

As the economy slowly resumes, many Canadians are looking at a great amount of debt incurred during the pandemic and are stressed over making ends meet without taking on even more financial obligations. They have maxed out the possibility of getting even more cash from their homes.

The reasons are that either there is no more asset value to borrow from and/or their income cannot sustain any more financial obligations. So where is one of the most likely areas this brand-new financial debt is most likely to come from? Paid down credit cards are going to increase once more and many will sooner rather than later have credit cards maxed out from additional credit card debt.

credit cards maxed out
credit cards maxed out

Canada on verge of widespread insolvency and restructuring surge in COVID-19 new normal

Statistics Canada recently reported that overall household debt increased by 0.8% for the 2nd straight month to over $2.5 trillion. Mortgage debt and also home equity credit lines made up $1.98 trillion of that total amount. Over the initial 5 months of 2021, households had $57.5 billion in home mortgage financial obligations, compared to $34.3 billion over the exact same time period in 2020.

At the same time, non-mortgage debt climbed by 0.4% in May to $786.2 billion. Growth in credit card debt as well as other personal loans was the main driver. While charge card debt rose for the third month straight, it was still down by 3.3% from May 2020.

These statistics seem to bear out my thoughts that Canadian consumers now have no more room to borrow against their homes, so now, they will need to turn back to their credit cards and increase their credit card debt in order to fund their expenses. This will not turn out well in the long run. I foresee people having maxed out the amount they can borrow against their homes and then once again having their credit cards maxed out.

Lots of people do not understand how financial problems are created pushing individuals to seek out a remedy such as bankruptcy or a consumer proposal to restructure. The majority think that people get into financial trouble because they can’t properly handle their money. However, in most cases, it is because of an unforeseen trigger. Divorce, job loss, illness and the present pandemic are examples of triggers.

People in financial trouble feel shame and unfortunately, stop them from connecting with us early. Reaching out to a licensed insolvency trustee early is so important.

Credit cards maxed out Is a bad idea

By maxing out your credit cards you’re boosting your credit utilization ratio. This accounts for 30% of your credit score. As such, a maxed-out credit card can adversely impact your credit rating.

Theoretically, yes, you can pay off your credit card by just making the minimum payment. However, it can take you years to pay it off if you are only making the minimum payment. Your interest charges will be higher than your minimum monthly payments.

Your credit utilization ratio and therefore your credit score will suffer. Many people try to solve this problem by just applying to the credit card issuer for an increased credit limit. This may work once, but it does not make any sense. You cannot eliminate debt by increasing it!

Furthermore, you’ll be carrying that debt and paying for it at a very high rate of interest. On the other hand, if you make your repayment by the due date, or make big routine payments to pay it off, you will certainly pay no or extremely little in interest.

credit cards maxed out
credit cards maxed out

Are your credit cards maxed out? Here’s some personalized tips for paying off credit card debt

What can you do trying to be credit card debt-free? My 4 step strategy can help you get there.

1. Credit cards maxed out: Take control

It isn’t simple or comfortable to take a hard look at your finances, but it is essential. Analyze your household expenses, as well as the interest rates linked to every resulting financial obligation. Track your monthly expenses to really understand what your credit card purchases get you on a monthly basis.

This is the first step in understanding your expenditures and cutting down on the ones that are not needed. To recognize where you are going, you need to recognize where you have in fact been.

2. Credit cards maxed out: Minimize interest rates

The normal rate of interest on a bank card is about 19 percent. That’s rather high, so you may wish to think of doing a balance transfer by moving your credit card debt to a card with a minimized or zero-interest offer to assist in paying it off a lot faster.

A word of care: you’ll probably require to pay a transfer fee in doing so. Likewise, you will need to repay the debt in full before that promotion price finishes. Otherwise, the remaining balance on your new balance transfer card will again attract a greater rate of interest, possibly the very same or higher than the card you moved the debt from.

Although I do not hold out a lot of hope, you can ask your credit card firms if they will lower your rate of interest.

3. Credit cards maxed out: Credit counselling as well as debt paydown approaches

If you merely cannot make sufficient earnings to fund your debt repayments, consider a non-profit credit counselling service. At no charge to you, they can get you into a Debt Settlement Plan. Bear in mind that as soon as you are in such a strategy, your charge cards will certainly be cut off.

Do not go to any one of the financial debt settlement services that market often on television or social media. All they do is charge you a fee to take down basic information that a certified non-profit credit counselling agency or a licensed insolvency trustee would certainly do for no cost. After that, they run you through their “program” charging you a lot more fees until you can pay no more. After that, they send you to a qualified bankruptcy trustee.

There are 2 regular financial debt settlement strategies– avalanche method and also snowball method. The avalanche technique of getting out of the credit card financial debt is you initially put all your available cash to pay down your highest interest rate debt. As soon as that’s cleaned up, you start settling the following most costly debt. You keep repeating this up until all your consumer debts are gone.

Sometimes, the snowball technique offers a great deal of extra motivation. With this method, you settle the tiniest financial debt initially, to improve your mood. You use that power to resolve what is the next tiniest debt and so on. You are grabbing steam like a snowball rolling downhill.

It does not matter which strategy you utilize. The vital thing is that you start now and stick with it.

4. Credit cards maxed out: Adhere to it.

Remember your single focus should be reducing debt, not new non-essential spending. So do not prepare any kind of sort of travel getaways or big purchases in the meantime. You could backslide or strike some road bumps yet do not let that distract you or depress you.

Now for the challenging part. When possible, save some money to assist with unpredicted expenses that you would typically place on your credit card. This will certainly minimize the amount you would have to borrow by paying with real cash.

It’s an incredibly lengthy as well as agonizing trip to fully pay off your credit cards maxed out. It also can be an extremely lonely one. People don’t get into the bank card debt trap overnight, so you can’t leave it without some effort.

Credit cards maxed out summary

I hope that you found this credit cards maxed out Brandon Blog interesting. I wrote this now because I fear the trend I see from both the Ipsos survey and the Statscan report shows that now that Canadians have done their debt consolidation and credit card balances are low, the credit cards are now being run up again. The end result will be higher debt than the average Canadian started with.

Problems will arise when you are cash-starved and in debt, especially with a maxed-out credit card. There are several insolvency processes available to a person or company with too much debt.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as alternatives to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost bankruptcy consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

credit cards maxed out
credit cards maxed out
Categories
Brandon Blog Post

EXPENSIVE REAL ESTATE MARKET IN TORONTO MAY SLOW DOWN SAFELY DUE TO HOMEBUYER’S GRIDLOCK

real estate market in toronto
real estate market in Toronto

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom and click play on the podcast.

Real estate market in Toronto introduction

Over the last few years, a lot has been written about the red hot real estate market in Toronto and Vancouver. Not even the COVID-19 pandemic has been able to slow them down. Many have predicted that the real estate market in Toronto is a dangerous bubble about to burst.

There is always a need for housing in Toronto. COVID-19 with the Ontario lockdowns and stay-at-home orders has created much change but has not slowed down the real estate market in Toronto. Many people are moving to the suburbs to get more space now that they have been working and living in their homes 24/7. As a result of travel bans, immigration into Canada has temporarily slowed down immigrants still moving to Toronto.

I recently read two articles that are about totally different aspects affecting the real estate market in Toronto. However, when I put these two very different ideas together, it leads me to the conclusion that natural economic forces may be enough to slow down the market for now without any government intervention.

Real estate market in Toronto: Canadians piled on mortgage debt during COVID-19

In my June 9, 2021, Brandon Blog, IS MORTGAGE DEBT NOW THE OBSESSION FOR MANY CANADIANS? I wrote about the mortgage debt surge and its effect on the overall rise in Canadian consumer debt according to Equifax Canada.

An article published in the Toronto Star on June 30, 2021, looked at Canadians who piled on mortgage debt during COVID-19 and how some economists fear a significant correction in the market. The thrust of the article is about:

  • the upward pressure on the average price of a home because of bidding wars;
  • how first-time buyers are being squeezed out of the real estate market in Toronto given the rise in the average home price/average selling price of a home in the GTA;
  • both first-time homebuyers and homeowners in urban centres looking to move farther out and even into the country both for affordability and to get more space since they plan to make working from home a permanent feature in their life;
  • how people have maxed themselves out on mortgage debt and how an increase in interest rates may cause financial problems for those homeowners and ultimately a significant correction in the housing markets and a drastic drop in housing prices.

    real estate market in toronto
    real estate market in Toronto

US interest rates

The US Federal Reserve recently announced that based on its expectations for rising inflation this year, it has advanced the timeline for interest rate hikes. However, the Fed offered no indication as to when it will begin reducing its aggressive bond-buying program. Fed Chairman Jerome Powell acknowledged that the topic was reviewed at a recent Fed meeting.

Advancing the time frame for raising the rate of interest is all relative. The policymaking Federal Open Market Committee left its benchmark short-term borrowing rate at near zero. Yet officials indicated that rate increases won’t come until 2023, after saying last March, it saw no increases until at the very least 2024. So interest rates in the US are anticipated to stay very low for the foreseeable future. So if the US Fed is not increasing interest rates any time soon, mortgage rates should not be either.

Canadian interest rates

At its June 9, 2021 conference, the Bank of Canada held its target for the overnight rate of 1/4 percent, with the Bank Rate at 1/2 percent and the deposit rate at 1/4 percent. The Bank is maintaining its present expectations for the overnight rate. This is strengthened and also supplemented by the Bank’s quantitative easing program, which continues at a target pace of $3 billion each week.

With vaccinations proceeding at a quicker pace and provincial constraints easing over the summertime, the Canadian economy is anticipated to rebound strongly, led by consumer spending. Real estate market activity is expected to moderate yet stay very active. Solid developments in global demand and higher prices for commodities ought to bring about a strong recovery in exports and business investment.

real estate market in toronto
real estate market in Toronto

The real estate market in Toronto and interest rates

Therefore, it seems that there will not be upward pressure on interest rates, and therefore probably not on mortgage rates either, soon. Both the US Fed and the Bank of Canada do not seem to be in any hurry to increase interest rates.

Another factor in Canada is the newer mortgage stress test. This newer stress test was created to ensure that borrowers can meet a more stringent economic test to qualify for a home mortgage. Effective June 1 of this year, the newer test requires borrowers to qualify at the higher of an annual rate of interest of either 5.25 percent or 2 percent over the current published home mortgage market rate they can get.

This makes it harder for some to qualify for a home mortgage. The federal government hopes this will lead to lowering the pool of qualified borrowers and therefore at some point, decreasing house prices.

Both the US and Canadian governments seem happy to not try to battle inflation through increased interest rates. Coming out of the pandemic, both countries will welcome their economies bouncing back and growing. Inflation will be a natural by-product of the resurgent economies. Higher prices will mean that employers will have to increase minimum wages if they wish to attract employees to handle business growth. A higher minimum wage without any government intervention of new legislation because of inflationary pressures will be a dream come true, especially in the United States. In Canada, it is always good to head into an election while there is good economic growth.

Given all of the above, I don’t see that the real estate market in Toronto being affected by increased mortgage rates, because, there won’t be an increase in 2021 and possibly not even in 2022. So I don’t see higher interest rates being a factor at all in causing downward pressure on house prices, especially in Canada’s largest city.

Real estate market in Toronto: Homebuyer’s gridlock

The second article deals with homebuyer’s gridlock. How does this relate to the real estate market in Toronto? We have seen that people staying in their homes 24/7 during the coronavirus pandemic has allowed them to reevaluate their long-term housing needs and lifestyle choices. This has kept the Canadian real estate market strong as people see what they like and what they don’t like in their current homes. They want to get more of what they like and want, put their home up for sale and buy that home they feel will suit their needs better.

Other than for perhaps empty-nesters, those making the move are generally buying larger homes. The normal progression is that immigrants coming into Canada, which has been reduced during the pandemic, generally start as renters in Canada’s biggest cities. The dream of all renters is to become first-time homebuyers.

Prospective homebuyers start looking for their starter home. It could be a condominium, a townhouse or semi-detached or detached house. They end up buying from someone who is selling their first home. That person now looks for a larger purchase in the mid-tier. They buy from someone looking to go up into a much larger and perhaps their dream luxury home. Ultimately, the empty-nester luxury home dweller looks to downsize and more than likely will be looking to buy in the condo market. All this market activity fuels the Canadian housing market activity keeping real estate prices strong and strong demand for all types of housing.

Zillow Canada commissioned a new study from Ipsos Reid. Buried among the usual analyses on things like affordability was an unusual item. Home prices across Canada have increased so much, lots of property owners can’t afford to sell. A quarter of house owners all set to sell have not listed, since they can’t afford their next move. This is what a homebuyer’s gridlock is. People are “locked” into their circumstances. It only happens throughout the frothiest of markets, which we are apparently in.

But what happens to market activity if one or more of these different buyer types cannot afford that next move? It means that there will not be as many sellers at different levels of homes. If the number of buyers does not decrease in ratio to the decrease in sellers, this will cause bidding wars and upward pressure on prices.

To determine if there is going to be downward or upward pressure, we have to know the supply and demand statistics for each level of housing. One thing for sure though, if the number of buyers decreases, this means less demand. Less demand means that prices would not increase. They may not drop dramatically, but they certainly will not increase either.

real estate market in toronto
real estate market in Toronto

Real estate market in Toronto summary

With borrowing costs remaining low, the mortgage stress test making sure that borrowers can afford their mortgage at higher interest rates and now many would-be sellers not able to afford that next move up, I don’t agree with those market watchers who are predicting a huge real estate market in Toronto bubble about to burst.

Rather, I see market conditions remaining relatively stable, with perhaps less volume of activity than we have seen over the last couple of years. Average house prices may go down, but I don’t believe it is going to be a huge drop. Rather, I think the real estate market in Toronto may take a bit of a rest, until the next round of price appreciation. Ultimately, population growth in and around the GTA should fuel a new cycle of pent-up demand that will create new demand for ownership housing in Canada’s major cities.

I hope that you found this real estate market in Toronto Brandon Blog interesting. Problems can arise when there are increases in the prices of the goods and services that you need when you already have too much consumer debt.

If you are concerned because you or your business are dealing with substantial debt challenges, whether you need gambling debt help or just plain old debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as alternatives to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost bankruptcy consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Categories
Brandon Blog Post

MORTGAGE WITH BAD CREDIT: MY BEST TIPS ON HOW TO GET THE MORTGAGE YOU NEED

mortgage with bad credit
mortgage with bad credit

We hope that you and your family are safe and healthy.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this mortgage with bad credit Brandon’s Blog, please scroll to the very bottom and click play on the podcast.

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 have been largely successful, notwithstanding not all the programs worked well. Luckily, the major ones did work well in 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 31, 2020, show that consumer and business insolvency proceedings are down in 2020 by almost 25% 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 as 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 and 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 6 major banks. The bulk of them was set to expire by September 30.

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 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 or 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 2 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 to 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 to get that mortgage with bad credit. Lenders such as these have bad credit mortgages available for people with a poor credit history.

mortgage with bad credit
mortgage with bad credit

What kind of bad credit mortgages are available?

A person applying for a bad credit mortgage may have to save for a larger down payment (frequently 20% or more), or more equity in your house than a person with a good credit score if you are applying for a mortgage refinancing. If you are lucky enough to have a co-signer, 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. Using an experienced broker is essential if you are looking for a mortgage with bad credit.

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 a 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 bad 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 retire 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 I 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 for a mortgage with bad credit 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 an A 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 route is expensive, at least the money you need is available. Let’s face it, if you had a good credit score, you would deal with one of the chartered banks, even for insured mortgages. You would not need someone who can provide you with a mortgage with bad credit product.

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.

You are worried because you are facing significant financial challenges and you think the only thing you can do is file bankruptcy in Canada. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. We help many people and companies avoid bankruptcy.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.

We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

We hope that you and your family are safe and healthy.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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CANADIAN CONSUMER DEBT: NEW REPORT SHOWS COVID-19 INSPIRES INCREASE IN CANADIAN MORTGAGE DEBT

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

Canadian consumer debt introduction

On November 30, 2020, Equifax Canada reported that total Canadian consumer debt climbed 3.8% to $2.041 trillion in the third quarter of 2020 compared to the third quarter in 2019. Canadian household average debt is extremely high.

The purpose of this Brandon’s Blog is to discuss what Canadian consumer debt is, what Canadian households have been doing with credit use during the pandemic and what the Equifax Canada reporting means for household debt.

The pandemic can’t stop Canadian consumer debt increase

The reporting indicates that the rise in Canadian consumer debt came mainly from debt growth in mortgage debt and auto loans. Mortgage balance increases came from both refinancings of existing mortgage debt and new mortgage applications.

The thinking with auto loans is that it resulted from Canadians purchasing vehicles that they had intended to purchase earlier in the year. Concerning mortgages, the refinancings were to consolidate higher interest rate non-mortgage debt, for credit products such as credit cards, into a new higher mortgage amount at much lower interest rates.

This obviously brings down the overall average debt interest rate. The new mortgages are tied directly into Canada’s housing market that the pandemic, so far, could not stop either.

All this has taken place with the backdrop of businesses closing and jobs being lost because of the pandemic. As well, millions of Canadians took advantage of payment deferrals on loan payments, especially mortgage deferrals on home mortgages. Finally, Equifax points out that the largest growth in mortgages came from those 35 years of age and under.

So you although you would think that the pandemic, business closures and job losses would result in an overall Canadian consumer debt increase due to hardship, that is not the case. The rise in Canadian consumer debt has been very focussed and is more about an opportunity for those that have maintained a good income.

While mortgage and auto loans increased, other non-mortgage debt products, such as credit cards and unsecured lines of credit, showed net decreases in outstanding balances. The reason for this is that with Canadians working from home and otherwise staying home while receiving government subsidies, they are spending less. On average, on a net basis, that means Canadians used some of their money to pay down non-mortgage Canadian consumer debt.

The debt-to-income ratio and Canadian consumer debt

On June 12, 2020, Statistics Canada reported that the debt-to-income ratio hit an all-time high of 178% in late 2017. The Statistics Canada report in June 2020 said it was at 177%.

The debt-to-income ratio is the degree of just how much financial obligations a household has, compared to its disposable income. That is, the money you have readily available to spend or invest, on an after-tax basis.

A ratio of 177% means that, throughout all Canadian families, we jointly owe $1.77 for every single dollar of disposable income we have. So that means on average, household debt as compared to household disposable income is very close to the all-time high.

What are the consequences of the debt-to-income ratio and Canadian consumer debt?

The general agreement is that too much Canadian consumer debt makes households financially susceptible. If you’re a financial policymaker, such as the Bank of Canada, you worry that too much debt makes the Canadian economic climate much less resistant to future economic shocks. One of the things worrying the Bank of Canada was expressed recently by Deputy governor Toni Gravelle “that fear hasn’t played out during the pandemic, despite it being the worst downturn since the Great Depression.”

At the personal level, we are likely concerned not with macroeconomic principles, but rather, can we afford to make our monthly payments and delinquency rates. Canadians generally, and unfortunately, do not consider what would happen to their ability to pay if something unexpected occurs such as increases in the rate of interest, or the loss of your job.

Using debt is also correlated with optimism regarding our financial futures. Individuals that expect their financial situation to improve are far more likely to be willing to take on more financial debt. Statistics Canada research reveals that individuals’ assumptions concerning their financial circumstances are strongly correlated with both their amount of total Canadian household debt and their debt-to-income ratio.

Even the most optimistic households, however, are still subject to borrowing rules set by financial institutions. The increase in mortgages, be it a refinancing or a new mortgage, is obviously by people who can meet the borrowing rules. Lenders look at the household’s debt service ratio. This calculation suggests to lenders what the household’s capability to make its debt payments according to the repayment schedule is.

So what this tells me is that the housing market, especially the hot expensive cities of Vancouver and Toronto, is being fuelled by those who have good jobs and who can work from home. Probably white-collar jobs and professionals who see the combination of super-low interest rates, their household debt and debt-to-income ratio as an opportunity. They are not as worried about their debt levels or average debt. They are optimistic about taking on more consumer credit.

canadian consumer debt
canadian consumer debt

Are there dangers with the current level of Canadian consumer debt?

Those who have lost their jobs or business are not buying more expensive homes. Those whose hours are constrained by the pandemic also are not the ones buying. So this highlights a divide in the Canadian economy. Those who can afford to view this pandemic as a financial opportunity vs those who are barely hanging on not knowing how they are going to make next month’s rent payment.

The statistics show that 12% of brand-new loans were by Canadians already taking advantage of payment deferral programs. So presumably, those who took advantage of mortgage deferrals in particular also took advantage of credit use for the opportunity I would guess to refinance other household debt.

They rolled higher rate non-mortgage Canadian consumer debt into much lower rate mortgage debt. Another financial opportunity for those with enough income to meet the lender’s borrowing requirements. This produced growth in mortgage debt but a decline in mortgage delinquency rates.

But there is also the other end of the economic scale. Recently, Prosper Canada, a national charity dedicated to expanding economic possibilities for Canadians living in poverty with program and policy innovation, released its report titled “Roadblock to Recovery: Consumer debt of low- and moderate-income Canadians in the time of COVID-19″.

This report shows the effect of household debt on low-income families. The reports main findings are:

  • Many, but not all, low and moderate household income families carry debt.
  • Low household income families spend an average of 31% of their incomes repaying debt, while moderate household income families spend an average of 18%.
  • Fewer low household income families have debt loads backed by assets than their higher-income counterparts. Only 20% of indebted low-income households and 39% of indebted moderate-income households carry mortgage debt.
  • Fifty-nine percent of indebted low household income families and 56 percent of indebted moderate-income households carry some amount of credit card, unsecured lines of credit and/or installment loan debt, making this the most common type of debt among these households.
  • Twenty-four percent of indebted low household income families carry student loan debt compared to just 15% to 17% of households at other income levels.
  • For many households, especially those outside urban centres, automobiles are a necessity of life. However, auto loans pose several risks to low- and moderate household income borrowers with low credit scores.
  • Financial counselling support for insolvent borrowers is of uneven quality and there are few sources of free, quality financial debt counselling available to Canadians struggling to avoid insolvency. These groups also have no financial plan.

Canadian consumer debt patterns show there are two economic Canadas

The COVID-19 pandemic has actually highlighted in plain terms exactly how unprepared most Canadians are to weather a major economic shock. The above-noted studies show in stark terms that there are at least two economic Canadas.

The first are those who can afford to refinance their mortgage or buy a home to get a new mortgage. The other Canada has lost jobs, businesses and are low to middle income. The low to middle-income groups are in financial trouble and their Canada consumer debt is generally not backed by assets.

However, those who might experience financial problems are not limited to one of the groups. Those who do the refinancings and new mortgages are buoyed by their own optimism for the future. They may tend to just keep taking on more debt. They are not prepared for an unforeseen shock. They will not realize that they are in trouble until they hit the wall.

How do you know if your Canadian consumer debt is a problem?

There are several warning signs that your Canadian consumer debt is a problem. Major indicators are:

  • Your bank account is overdrawn every month.
  • You are using credit cards for daily expenses.
  • You have already taken on payday loans and have started to receive collection telephone calls.
  • Your debt levels are rising are about to hit the maximum of all of your credit lines.
  • You are behind on your loan payments.

If you see your debt levels will soon be out of control, the time to act is now. Contact me and I will review your situation and provide you with a financial counselling session at no cost to you.

Canadian consumer debt summary

I hope you have enjoyed this Canadian consumer debt 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.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.

We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

canadian consumer debt
canadian consumer debt
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CMHC INSURANCE: ENGAGING NEW RULES FOR COVID-19 MORTGAGE APPROVAL

chmc insurance
chmc insurance

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

The Ira Smith Trustee Team wishes all of our Canadian readers a healthy, happy and safe Canada Day.

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cmhc insurance

If you would prefer to listen to the audio version of this Brandon’s Blog, please scroll to the bottom and click on the podcast.

CMHC Insurance introduction

CMHC insurance is helping to stabilize Canada’s economic system as well as sustain the financial health of families during the COVID-19 pandemic. Effective July 1, 2020, CMHC insurance rules are changing. It will affect the cost of real estate in Canada. It is also designed to minimize risks to CMHC and therefore the Canadian economy.

I describe what those changes are and why they are being made in this Brandon’s Blog.

What is CMHC Insurance?

In simple terms, CMHC insurance is insurance provided to mortgage lenders to protect them in case of mortgage defaults. If the lender needs to sell the home and suffers a loss, CMHC insurance pays off the lender to cover that loss.

CMHC insurance allows lenders to continue making mortgage loans at reasonable interest rates to those people who would not otherwise qualify. At the present time, the down payment required to get CMHC insurance is only 5 percent of the purchase price. One of the changes that I describe below, is that it will rise to 10 percent.

How Much Is CMHC Insurance

Like any other insurance product, there are CMHC insurance premiums. The mortgage lender pays the insurance costs. It is determined by taking into account the size of your mortgage and the amount of your down payment. The lending institution passes this cost on to the borrower. It can be paid as a lump sum or included in the mortgage which obviously affects the mortgage payments.

Here is a link to the CMHC insurance page where you can use the CMHC insurance premium calculator. This will allow you to calculate your potential mortgage insurance premium rates.

CMHC And The COVID-19 Pandemic Response

Early on, in coordinated action with the Bank of Canada and with Finance, CMHC relaunched a program to make certain that financial institutions have access to term financing. The reason is so mortgage lenders can have the necessary liquidity to continue to offer mortgage financing. This ensures that the mortgage market and therefore the real estate markets remain functional.

Under the program, the Canadian government can buy up to $150 billion of insured home mortgages. They are also prepared to increase the issuance of traditional securitization programs, as needed.

On top of that, CMHC acted quickly to assist Canadians who are having difficulty paying their home mortgage as a result of the coronavirus pandemic. Acting with Genworth Financial Canada and Canada Guaranty, CMHC is using short-term deferral of mortgage payments for up to 6 months to help Canadian homeowners. CMHC believes that about 12 percent of homeowners have elected to postpone repayments until now. This number may in fact grow depending on what happens with job recalls and government support programs this Fall.

The same mortgage deferral is offered to multi-unit real estate owners in order to accommodate the loss of rental income. As well CMHC has taken actions to guarantee that charitable, as well as co-operative housing service providers, remain able to get government rent subsidies. CMHC is urging recipients of federal assistance to refrain from evictions during the COVID-19 pandemic.

Almost everything CMHC insurance has done in response to the COVID-19 situation talks about allowing Canadians to borrow. The federal government is taking on more financial debt to fund COVID-19 support programs. Mortgage deferments are adding to already historically high household debt.

CMHC Insurance guidelines

Canadians are amongst the global leaders in household financial debt. Pre-COVID-19, the proportion of gross financial debt to GDP for Canada went to 99 percent. This is due to not only more borrowing, but also declining GDP. CMHC estimates that it could go to over 115 percent in Q2 2020 and get to 130 percent in Q3, before decreasing. At those levels, GDP growth is choked off.

CMHC is now forecasting a decline in average real estate prices between 9 to 18 percent in the coming 12 months. The resulting mix of greater mortgage debt, declining home prices as well as increased unemployment is the reason CMHC takes issue for Canada’s longer-term financial security.

CMHC is trying to figure out how to handle expanding mortgage debt “deferral high cliff” that looms in the autumn when some jobless people will need to start paying their home mortgages once more. As long as one-fifth of all home mortgages could be delinquent if Canada’s economic situation has not adequately recuperated.

CMHC insurance feels a responsibility to prevent enhanced losses that arise from dropping real estate prices. CMHC believes that if it does not act, a first-time buyer looking to buy a $600,000 house with a 5 percent down payment stands to lose over $90,000 of value on their $30,000 financial investment if rates fall by 10 percent. In contrast, a 10 percent down payment provides more of a cushion.

CMHC insurance will be expected to cover losses if properties need to be sold. For these reasons, CMHC is evaluating whether it needs to alter its underwriting because of its assessment of future market conditions.

CMHC Insurance rules are changing

CMHC says that its support for homeownership cannot be endless. Canadians believe that owning a home is crucial for retirement savings. Over the past 20 years, the typical Canadian homeowner has had a tax-free gain of $340,000 from their house. CMHC believes that house prices and the resulting mortgage debt levels are significantly unreachable for first-time buyers.

Effective July 1, 2020, CMHC insurance is changing its insurance underwriting for all new applications. The changes are:

  • limiting the Gross/Total Debt Servicing (GDS/TDS) proportions. The test will allow for 35% of gross income to be spent on housing. It will also only allow total borrowing costs to be 42% of gross income.
  • requiring a credit rating a minimum of 680 for at least one borrower; and
  • non-traditional sources for a down payment that is from borrowed funds will no longer be counted as equity for insurance purposes.

CMHC has also taken another action to further handle the risk to the CMHC insurance business, as well as inevitably Canadian taxpayers. During this uncertain time, CMHC has put on hold mortgage insurance coverage for refinancing, unless the funds are used for repair work or reinvestment in the real estate. While making this decision on multi-unit properties requiring CMCH insurance, they have not yet figured out what is going to happen when these mortgages cannot be renewed without CMHC insurance.

CMHC insurance says that COVID-19 has subjected enduring vulnerabilities in Canadian financial markets. It believes that its actions will safeguard home purchasers, minimize government and taxpayer risk as well as sustain the stability of real estate markets.

These new requirements will certainly curtail demand amongst the general Canadian population. The new CMHC insurance rules will also lower the number of people qualifying. One thing CMHC barely mentions, other than for language about saving Canadian taxpayers from losses, is that it will slow down the growth in the portfolio of CMHC insurance provided mortgages. This is what it really is all about.

CMHC Insurance rules summary

I hope you have found the CMHC insurance Brandon’s Blog interesting and helpful. The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID-19, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

The Ira Smith Trustee Team wishes all of our Canadian readers a healthy, happy and safe Canada Day.

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CLAIM BANKRUPTCY IN ONTARIO CASE STUDY: SHE REALLY WANTED TO BUT WE STOPPED HER AND SOLVED HER PROBLEMS

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Claim bankruptcy in Ontario: Case study introduction

For today, and the next few weeks, I want to give you some interesting case studies direct from our files. I will not mention any real names of course. Hopefully from these case studies, you will see that we do a lot more than just allow people or companies to claim bankruptcy in Ontario.

Claim bankruptcy in Ontario: A variety of problems

Today’s case study deals with our client who is a specialist medical doctor and surgeon. We will call her Dr. X. She had an ongoing successful career and then opened up a specialty high-end clinic to offer services not paid for by OHIP, the provincial medical plan. Unfortunately, Dr. X did not get the best advice from her professional advisers when she established the new business venture.

She set up her clinic in a separate building that she purchased. Dr. X then had it renovated extensively to meet the business’ needs, leased or purchased equipment and hired staff.

This new venture was financed entirely by debt:

  • personal debt such as mortgage financing against the matrimonial home;

  • equipment loans or leases in her personal name; and

  • Equipment and mortgage debt in the new business venture corporation for which Dr. X personally guaranteed it.

Therefore one way or the other, her personal responsibility was for 100% of the debt to get the business started. Her husband was responsible jointly with her for the mortgage raised against the matrimonial home.

The cash flow of the business was insufficient to pay the operating costs and debt financing. She had to keep borrowing money personally to keep the new business alive. The stress this caused affected her previously stellar activities as a surgeon and hurt her marriage. By the time Dr. X was came to us, she and her husband were separated and divorce proceedings were underway.

Claim bankruptcy in Ontario: And then it got even worse

To make matters worse, she could not attempt to liquidate assets to pay down debt and ease the burden. Like most equipment, the clinic’s equipment was not worth more than its original cost. There was no excess equipment either.

The building could not be sold and leased back for a very bad reason. There was a large environmental problem associated with the building which was not discovered through due diligence prior to purchasing it. The issue arose when she tried to refinance.

The potential lender performed a Phase 1 Environmental Study, which indicated that a earlier use in the building produced contaminants which were buried in the ground. The contaminants were leaching into the neighbours’ respective properties. So now there was further personal liability exposure as the sole Director of the company that owned the real estate!

Claim bankruptcy in Ontario: Filing bankruptcy in Canada would give Dr. X more headaches

Dr. X came to us convinced that she had to go bankrupt. The stress of her failing business was taking a huge toll on her normal duties as a surgeon and her marriage was over. She had previously seen a different licensed insolvency trustee and was convinced from that meeting that bankruptcy was her only answer.

Dr. X considered herself a total failure, in spite of she was still a sought after as a brilliant medical doctor and surgeon. We considered her assets and liabilities, income and expenses and her overall situation.

Claim bankruptcy in Ontario: More complications

To further complicate matters:

  1. The matrimonial home was listed at the amount required to clear all mortgages which was well above market value.

  2. Once Dr. X inevitably stopped making the first mortgage payments on the matrimonial home, the Bank holding the mortgage would begin power of sale proceedings. The first mortgagee would probably suffer a shortfall on the sale and Dr. X and her estranged spouse would be responsible for the shortfall on the first mortgage and the entire balance of the second mortgage.

  3. Dr. X had a life insurance policy with a cash surrender value (“CSV”). The CSV was not exempt from seizure by a bankruptcy trustee because the beneficiary was her Estate. In a bankruptcy, the CSV would go to the Trustee for the benefit of her creditors.

  4. Dr. X did not know if she could get replacement insurance coverage at all and if so, at a reasonable cost.

  5. There were many creditors who currently had a contingent claim against Dr. X with a very high dollar volume. These claims would ultimately be crystallized. In a bankruptcy, we anticipated that a lot of angry ordinary unsecured creditors, many of whom were sophisticated, such as banks and equipment lenders/lessors, would oppose her discharge from bankruptcy.

  6. In a bankruptcy, Dr. X would have to pay about $82,000 in surplus income payments to us as her bankruptcy trustee over a 21 month period for a monthly payment of $3,905. Dr. X could not afford to pay that much each month and keep her normal medical practice afloat.

Bankruptcy was not a good answer for Dr. X. Notwithstanding she earned a high income, the irony was that she could not afford to claim bankruptcy in Ontario!

Claim bankruptcy in Ontario: Our assessment

We had to deal with two problems; one financial and one emotional. Dr. X was an emotional wreck as a result of the failed business venture with all of its problems. We actually had to deal with that first. It is normal for a licensed insolvency trustee to take a holistic approach. The debtor facing financial problems always needs two outcomes: (i) a solution that will allow them to shed their debts and get piece of mind; and (ii) become rehabilitated.

We advised Dr. X that a personal bankruptcy was not the answer for her. We told her that she first had to shut down her clinic. She had to deal with the employees to make sure that they were paid up to the last date work their normal wages and vacation pay. They also needed to get their Record of Employment and T4 Statements as quickly as possible. Unfortunately there was no money for pay in lieu of notice.

Claim bankruptcy in Ontario: How to deal with the failed business venture

We then advised Dr. X that she should not bankrupt the corporation carrying on this new business. Rather, she should call up the first mortgagee and tell that she is abandoning the business premises and is sending the keys over. Then call up the equipment lessors and the lender that did some equipment financing to tell them the business has shut down and they should contact the first mortgagee to gain access to retrieve their property.

Next we advised Dr. X to safeguard the business books and records, so that she could have her accountant file final tax returns. She would also have the records for when Canada Revenue Agency wished to do an audit on the business activities.

The final piece of advice for Dr. X with respect to her new business venture was this. After performing the above steps, walk away. This would end the stress of operating a failing business.

Claim bankruptcy in Ontario: Our assessment and his personal financial fix

All of the contingent debts from the failed business venture had not yet crystallized. They were still contingent. We worked out a cash flow plan with Dr. X that she could keep current with, now that she had abandoned and stopped funding the debt incurred because of the failed business. She also stopped paying the first mortgage on the matrimonial home as the value of the home was now less than the total of the mortgage debt against it.. We worked with Dr. X on a plan to avoid bankruptcy, by filing a formal restructuring proposal under the Bankruptcy and Insolvency Act (Canada) (“BIA”).

Claim bankruptcy in Ontario: The advantages of our strategy

The advantages of this strategy, if the restructuring proposal could be fully performed, are:

  • Dr. X would not give up her assets to a bankruptcy trustee;

  • She would not lose her life insurance coverage or CSV;

  • All of her debts could be eliminated through the restructuring proposal;

  • Although the total of her restructuring proposal payments had to be more than her creditors would get in her bankruptcy, we could term those payments out to a maximum of 5 years;

  • Her estimated monthly payment would be less than the monthly surplus income payment in a bankruptcy; and

  • Dr. X would avoid bankruptcy and an opposed discharge process entirely.

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    claim bankruptcy in ontario

Claim bankruptcy in Ontario: The result

Dr. X followed our advice. Her restructuring proposal was accepted by her creditors qualified to vote at the meeting of creditors held 21 days after the filing of the restructuring proposal. The contingent claims had not yet crystallized. Although eventually those creditors were allowed to file their proper respective claims and take part in the dividends paid out to the unsecured creditors, we made it successfully through the voting process. The proposal was then approved by the Court.

Dr. X not only maintained her regular monthly proposal payments to us, she was able to pay off the proposal early. The reason for this was that now that she had a clear head and no longer felt she was a failure, she could focus on her medical practice and surgery, which once again flourished. Her income and savings rose. These are some of the benefits that financial rehabilitation brings. Dr. X also avoided going bankrupt.

Claim bankruptcy in Ontario: Does Dr. X’s financial problems sound familiar to you?

I present this case study to show how, as a licensed insolvency trustee in the GTA, we look at the entire story of each person or company that comes to us for help. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we stopped Dr. X from going bankrupt and devised an alternate plan for her, allowed her to solve her financial problems and get her life back.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Team today.

Call us now for a free consultation. We will get you back on the road to a healthy stress free life and your recovery will be as pain-free as possible. We may be able to stop you to claim bankruptcy in Ontario!

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claim bankruptcy in ontario

 

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MANULIFE BANK HOMEOWNER DEBT SURVEY SHOCKING SECRETS REVEALED FINALLY

Manulife Bank homeowner debt survey: Introduction

Nearly 75% of Canadian property owners would certainly have problem paying their home mortgage each month states a Manulife Bank homeowner debt survey. This is the case if their monthly payment boosted by just 10%,

ALSO READ: CANADIANS CASHING IN RRSPs BEFORE RETIREMENT IS NOT A SOLUTION

Manulife Bank homeowner debt survey: The survey

The financial institution surveyed 2,098 home owners. They were between the ages of 20 to 69. They had family incomes of $50,000 or greater. It was an online survey conducted in February 2017.

Since these kinds of surveys typically aren’t randomized, experts claim the internet surveys do not have a margin of error. They state that the study however highlights simply exactly how limited the spending plans are for lots of Canadians.

Manulife Bank homeowner debt survey: The results

Manulife’s study claimed:

  1. 14% of participants would not stand up to any type of rise in their regular monthly payments;
  2. 38% of those surveyed claimed they might endure a repayment increase of between 1% to 5% before having a problem; and
  3. 20% stated they might tolerate an increase of between 6% to 10% before feeling the pinch.

Manulife Bank homeowner debt survey: Almost 75% could not handle a small rate increase

This poll indicates 72% of house owners surveyed could not endure an increase of 10% from their existing record low rates. Let me be clear. We are only talking about a 10% increase; not an increase to 10%. So, if you have a mortgage with a 3% rate of interest, 72% of those surveyed could not make ends meet with an increase in their mortgage interest rate to 3.3%!

That’s an unsafe area to be, with rate of interest readied to increase eventually.

“What these people don’t realize is that we’re at record low-interest rates today,” said Rick Lunny, president and CEO of Manulife.

Manulife Bank homeowner debt survey: Many homeowners have less than $5,000 in savings for an emergency

Overall, almost one-quarter (24%) of Canadian house owners surveyed claimed they have not been able to generate enough funds to pay an unforeseen expense in the past year. And, most are not healthy to weather any kind of economic tornado. About 50% of those questioned had $5,000 or less in reserve to manage an economic emergency. One fifth of them have absolutely nothing saved for a rainy day.

One quarter of millennials questioned had no savings. The same was true for 1 in 6 boomers.3bestaward

ALSO READ: MANULIFE DEBT SURVEY: ARE YOU PART OF THE MAJORITY OF CANADIANS SCARED ABOUT RETIREMENT?

Manulife Bank homeowner debt survey: If the main income earner lost his/her job, it would take no more than 3 months to be in mortgage default

The study discovered that 45% of millennial house owners– those aged between 20 to 35– would certainly have one of the most problems making their mortgage payments within 3 months, if the main income-earner in their family were to suddenly end up being out of work.

Millennials were additionally the ones that typically had the highest amount of per head home related financial debt, at $223,000. Gen X-ers (those aged 36 to 52) had about $202,000 owing. The boomers (ages 53 to 70) had $180,000.

ALSO READ: AVERAGE HOUSEHOLD DEBT IN CANADA: CANADIANS LOVE TO MAKE IT CONTINUALLY RISE!

Manulife Bank homeowner debt survey: Manulife CEO states millennials not ready for a financial emergency

Lunny claimed many millennials are not ready to manage an economic emergency because of a poor or no financial education and rising debt. They have seen their home loan related financial debt increase greater than any other generation, per the study.

The study revealed a couple of various other distinctions between the generations. Practically half, (45%), of millennial home owners stated they got funding from their family when acquiring their very first residence. This compares to 37% of Generation X’ers and 31% of baby boomers.

Manulife Bank homeowner debt survey: What should you do if you have too much debt?

Could you handle all your debt obligations if on your next mortgage renewal, you had a mortgage rate increase of only 1%? Do you not have any money put away for a financial emergency? Do you worry how you are going to pay your other bills on time?

The Ira Smith Team is here to get you back on track to debt free living Starting Over, Starting Now. We can solve your problems with immediate action and the right plan for moving forward. All it takes is one phone call to book your free, no obligation consultation. Call us now.manulife bank homeowner debt survey 7

 

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