The Five Cs of Credit and Why It Matters

What Are the Five Cs of Credit?

The five Cs of credit is a set of criteria used by lenders to gauge the creditworthiness of potential borrowers. This type of approach weighs five different characteristics of potential borrowers and conditions of the loan, to help predict the chance of potential default and overall risk or loss for the lender.  The Five Cs are: Collateral, Credit, Capacity, Capital and Character.

Explains the 5 C's of Credit

 

Ownest’s Software Automatically Calculates the Five Cs

Ownest’s advanced proprietary software automatically calculates a borrower’s credit score using the Five Cs of Credit and summarizes the information in an easy-to-read stoplight snapshot (green, yellow, red rating system). This data  empowers our affiliate and lender partners with key insight and visibility of the borrower’s overall credit profile – faster and more accurately than any other software on the market – so you know where you’ll get the best return for your sales efforts.

5 Cs of Lending in Ownest Software

 

Why is it Important to Use the Five Cs of Credit?

Evaluating a borrower’s creditworthiness based on the Five Cs of Credit is important because it gives the lender a better overall picture of the borrower and their ability to pay off the loan. It also takes into consideration the more “personal” side of financing by considering the borrower’s character, as opposed to simply looking at past credit history and collateral. For example, if the credit check reports a default payment, it could have been due to unique or rare circumstances, such as an illness or divorce. These types of questions will help lenders understand the borrower’s credit – looking back to the credit history and looking forward to the client’s future capacity.

 

New CMHC Lending Criteria

Ownest has in-house mortgage experts

 

 

On June 4, 2020, CMHC announced changes to their underwriting criteria, which will impact sales in some parts of the new home sector. How does this affect home builders, realtors, mortgage brokers – and home buyers?

What are the changes?

  • Credit score requirement increasing from 600 to 680 Beacon;
  • Flex down mortgages are no longer available (no more zero down mortgages);
  • Stricter Debt Servicing Requirements.

When do these changes take effect?

  • July 1st, 2020

Why are they Changing the Criteria?

  • The COVID-19 pandemic, related job losses, business closures and a drop in immigration are adversely impacting Canada’s housing market.
  • CMHC states that these actions will protect home buyers and reduce government and taxpayer risk while stabilizing the housing market.

What do these Changes Mean on a Practical Level?

  • If you have deals in the pipeline, get them to apply for a mortgage NOW. Clients will need to be approved by the lender and insurer (CMHC) prior to July 1st in order to qualify under old rules. After July 2020, there will be more restrictive requirements for credit and debt servicing.
  • For example: For a purchase of a $350,000 house with 5% down the requirement for income is $73,571.13, after the changes the requirement will change to $81,979.26. This will have a significant impact on income requirement.

What can you do to assist your buyers using CMHC?

  • Any clients with lower credit scores, unsure of their direction should firm up purchasing now.
  • Any clients with a little extra debt with the requirement of more flexible guidelines should firm up agreements now.
  • Try to secure new home upgrades as soon as possible to avoid big material changes that require re-approval closer to possession as it may cause an issue.

It is important to note that this is not a directive from the Ministry of Finance, so Canada’s private mortgage insurers such as Genworth and Canada Guaranty are not adopting the new mortgage rules.

Ownest is Here to Help

Ownest’s team of in-house mortgage experts are second-to-none and work with a large network of preferred lenders.

  • We will put in the extra hours necessary to ensure your clients’ needs are met.
  • Any offers submitted where approvals from lenders are obtained, we will ensure CMHC or other insurer approval is obtained;
  • Wherever possible, we will work with lenders that don’t require CMHC or other insurer approval after financing had already been approved, to help ensure your client has approval upon possession (some banks require resubmission closer to possession).

If you need advice or would like us to help you navigate the changing landscape of mortgages, we invite you to contact us and we’ll be happy to help.

Contact Ownest for Mortgage Advice

 

 

 

 

 

 

 

A New Way to Shop For Mortgages

OWNEST FINANCIAL – A NEW WAY TO SHOP FOR A MORTGAGE

Have you been in the market for a home recently and have considered getting a mortgage? Perhaps you’ve thought to contact your bank, or a friend of a friend’s mortgage broker. Both are good options, but what if we told you that there’s a better and easier way to obtain a mortgage? One that puts YOU in the driver’s seat and allows you to pick which mortgage product is best for you; so that you know you’re getting the best deal? Because let’s face it, a home is likely one of the biggest purchases you’ll make in your life. Why not ensure you’re not overpaying? See how we’re different below:

  1. We shop over 120 banks and lenders and have access to over 22,000 mortgage products

What does this mean for you? The banks can only give you their best rate. Mortgage brokers usually only work with select lenders. Both options mean that you’re limiting your mortgage choices. With Ownest, you have access over 120 different lenders, including major banks, with over 22,000 mortgage products. The best part is, YOU get to choose which product is right for you, eliminating someone else making that decision for you. It even shows you how much of a savings you’ll get over the term. Think of us like an Expedia for mortgages. Shop for a mortgage like you would a flight or hotel.

*images above only to be used as examples.

  1. We continually shop for a better rate for you

When is the last time your bank called you to tell you that you are paying too much on your loan? Or your cell provider telling you that there is a way better plan that will save you hundreds of dollars? We’re going to go with never.

That is how Ownest is different. We monitor your mortgage monthly (without any sort of hit on your credit) to check if there is a better deal out there that can save you money. Thanks to our mortgage monitoring, we have saved our clients thousands of dollars. Best part is, only our proprietary software does this for you automatically! No one else in the game can say the same.

  1. We don’t turn you away if you don’t qualify right away

If our software doesn’t approve you right away, our team of mortgage experts reviews your application and will evaluate your unique situation against our mortgage product options. Many times, Ownest Financial has creatively gotten clients approved for mortgages as we truly want to help you in your path to homeownership. If you still do not qualify for a mortgage, our software will continue to run your application monthly against mortgage offerings in our system and will notify you when your mortgage qualification changes.

Your mortgage qualification can change if mortgage rates go down or if lenders change qualifying criteria for their mortgage product. This is all done virtually so there is no credit hit associated with this process!

To learn more about how Ownest saves you time and money, contact us. In the meantime, why not apply for a mortgage today to see how much you pre-qualify for!

No Down Payment? No Problem!

No Down Payment? No Problem!

Have you been wanting to own your own home for a while now, but are struggling to save up a down payment because of increased cost of living, or other financial burdens? We understand that sometimes it’s hard to save up thousands of dollars for a down payment when you already have to pay rent, groceries, child care, etc.  That is why Ownest wants to help! Introducing:

Flex-Down Mortgage!
a borrowed down payment option

Learn more about the program with a brief Q&A (question and answer) below.

Q: How can I purchase a home without a down payment?
A: With the Flex-Down Mortgage, you may be eligible to borrow your down payment. This non-traditional source of down payment may include borrowed sources to the sale such as:

Personal loan
Unsecured/Secured line of credit
Credit card
Gift from a non-immediate family member.

Q: How much can I borrow?
A: You can borrow between 5% – 9.99% of the purchase price of the home. Please note that if you’d like to use the Flex-Down Mortgage Program offered by Ownest, the purchase price of the home must be less than $1,000,000.00.

Q: Do I have to borrow the entire down payment?
A: No. If you already have money saved up on your own, you can combine the two to make up your down payment.

Q: Does a borrowed down payment save me money?
A: It could – and we hope it does! Say you are currently renting a 3-bedroom home for $2,400/month. A mortgage could cost you less!

On a $400,000, you would need to borrow around $22,000 to cover your down payment and possible closing costs. This means that your mortgage payments could be around $2000/month* including your loan payments. This means that YOU could own your own home for less than you’re currently paying in rent.
*Please note this would not including property taxes, insurance, utilities, etc.

Q: Is this option available for a vacation or secondary home?
A: Absolutely! Should you be able to borrow your down payment from one of the sources above, you can absolutely use the borrowed down payment towards a second home.

Q: Am I able to use this program to purchase a home and rent it out?
A: Unfortunately, no. The home must be owner-occupied.

Q: Is there a catch?
A: There is absolutely no catch, however you must be able to qualify for a mortgage as you would with any other home purchase, and you would have to qualify for the borrowed source as well.

Q: I’m interested! How can I find out if I’m eligible?
A: We’d love to discuss your options and see if you’re eligible. Simply apply today, or contact us! It’s that simple!

We like to be transparent, so we listed the pros and cons to this program below:

Pros

  • Achieve home ownership sooner than without the borrowed down payment
  • Take advantage of today’s low housing prices
  • Great rates available currently
  • If you wait and save, rates and house prices could be higher
  • Line of credit allows for a low interest only payment

Cons

  • Additional debt payment
  • Higher Mortgage Default costs
  • Less lender availability banks don’t participate
  • Tougher qualifying guidelines – good credit is required
  • Adding additional debt, may lower the amount you qualify for

4 Easy Tips To Pay Off Your Mortgage Faster

4 EASY TIPS TO PAY OFF YOUR MORTGAGE FASTER

Congratulations! You are officially a homeowner and made a huge investment in your future. Instead of paying your landlord’s mortgage every month, you are now spending your hard-earned money on YOUR mortgage payments while building equity. One way to get the best possible outcome of your investment is to pay off your mortgage as early as you possibly can. If you follow these four simple tips, the interest on the loan may decrease, and your amortization term will also decrease. This means more money in your pocket. Yay!

Below are 4 easy tips to help pay off your mortgage sooner.

  1. Make Bi-Weekly Payments

Do you currently pay your mortgage payments monthly? Consider making them bi-weekly instead! Bi-weekly payments mean payments every two weeks, instead of once a month. Because a normal calendar year is 52 weeks, making payments every 2 weeks will mean that you’d make 26 payments every year, therefore paying more of your principal than if you only made 12 larger payments in a year.

This is because there would be two months that you’d make three mortgage payments in the month, allowing two extra bi-weekly payments to be made in the year.

For example, say you have a $300,000 mortgage with a 3% interest rate. On an accelerated bi-weekly payment schedule, you could save around $16,000 in interest and could cut your amortization schedule down by almost 3 years!

  1. Round Up Your Payments

Did you know that rounding up your mortgage payments could shave years off your amortization schedule? For example, if your bi-weekly mortgage payments are $480, consider rounding up your payments to $500 which is a difference of only $20. If you’re able to do this, your bank account will hardly notice the small additional amount, while shaving years off your amortization schedule.

Just make sure this additional amount is going towards your principal and not your next mortgage payment.

  1. Make Lump-Sum Payments

Do you have some padding in your savings that could be put towards your mortgage? Did you recently get a bonus a work? Or perhaps you just got your tax refund back? Depending on the terms you agreed with your lender, it is common to have a mortgage that allows you to pay one lump-sum payment every year towards the principal of your mortgage. This yearly lump-sum payment is normally allowed based on a fixed percentage of your mortgage. For example, some lenders allow as much as a 20% lump-sum payment towards the principal of your mortgage once a year (normally on the anniversary of your mortgage). This payment would go directly to the principal amount of your mortgage, which could in turn lower your payments and/or amortization schedule, therefore saving you money on interest.

Before doing this though, be aware that mortgage terms vary depending on the lender. If your lender does not allow lump-sum payments, you may end up paying a penalty if you wish to put make one.

  1. Never stop shopping!

When was the last time your bank called you to tell you that you were paying too much on your loan? Or your cell phone and internet provider calling to tell you that there was a better rate available that included everything you currently have? The answer is probably never.

We understand that a home is a huge purchase, and we want to be in your corner. That is why Ownest monitors your mortgage monthly. If a better mortgage product becomes available that will save you money, you will instantly get notified. That means that we are shopping around for better rates and products for you constantly, because we see our relationship as long lasting and will continue to be in your corner after you purchase your home.

To learn more about how Ownest saves you time and money, contact us. In the meantime, why not apply for a mortgage today to see how much you pre-qualify for!

First Time Home Buyers Incentive Program

First Time Home Buyers Incentive Program

The federal government has recently introduced an incentive program for first time home buyers (FTHB) in Canada. This new program is designed to help first time home buyers reduce their monthly mortgage carrying costs without adding to their financial burdens.

What does this mean for you? If you’re a first time home buyer, up to 10% of the purchase price of your home may be paid for by the government. This means that your monthly mortgage payments will decrease, leaving more money in your pocket.

Below is a chart to explain how the savings that that you will have should you purchase a pre-existing home through the program, assuming a purchase price of $400,000:

Below is a chart to explain how the savings that that you will have should you purchase a pre-new build home through the program, assuming a purchase price of $400,000:

Total savings were calculated by using the difference between insurance premium + Payment difference over 60 month term + Interest over the term. If you’d like to check how much you qualify for, click here.

Below are common FAQs associated with the program:

Interested in knowing more?

Contact Us