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Commercial Mortgage Intelligence
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Commercial Mortgage Prepayment Privileges

Mortgage Prepayment Privileges

For many years mortgages in Canada have been structured to be partially amortizing. This was a result of lenders being permitted to reduce the terms of their mortgage loans. Rates no longer had to be fixed for the duration (often 25 years) of the loan. Not surprisingly this lead to a rapid increase in the availability of residential mortgages. Lender debt could be re-priced upon loan maturity.

Residential mortgagors have further rights, pursuant to Section 10(1) of the Interest Act, namely to prepay their loan, after 5 years, upon payment of an additional 3 month interest penalty. This enabled consumers to negotiate longer term mortgages, without the risk of incurring excessive lender penalties. The reality however, is that the overwhelming majority of residential mortgages in Canada are structured for 5 years or less, thus do not fall under Section 10.

Commercial Mortgages are typically closed

Overwhelmingly, commercial mortgages are granted to borrowers who tend not to be individuals, but rather tend to be commercial enterprises of some description. Section 10 Interest Act privileges do not apply to a corporation, or joint stock company, nor since 2012 do they apply to Partnerships. These loans are typically referred to as being closed for the duration of the term. Repayment must be made upon the contractual terms of the mortgage, until its maturity date.

What Prepayment Rights do Commercial Mortgagors have?

On the presumption that mortgages to commercial enterprises are consequently “closed” for the duration of the term of the loan, what right or ability does a borrower have to prepay a loan? For the most part, no such prepayment privilege exists.

Why? In simple terms, the lender, in granting the mortgage, is relying on the receipt of a predictable stream of cash flows over the duration of the loan term. This cash flow is providing a rate of interest, or spread, over that rate paid to the lender’s depositors, on a savings product with a similar term. In lender terminology, the oversight of these cash inflows and outflows is known as ALM, or Asset Liability Management. Any unforeseen disruption to a regular and predictable cash flow immediately impacts the lender’s interest income, often to their detriment. No surprise, as borrowers tend to repay higher rate loans, not below market rate debt!

What Alternative might a Mortgagor Have?

Is there an alternative available to a commercial mortgage borrower in these circumstances? Yes, there typically is. Many lenders will negotiate a prepayment privilege in favour of a borrower. Prepayment will be determined differently from lender to lender, however the basic premise remains common. The lender will seek to maintain their anticipated yield, hence the common usage of the term Yield Maintenance Penalty.

Yield Maintenance

What is the basis of the penalty determination? It is rooted in the logic that the lender wishes to earn an amount of interest which would have been earned had the request for borrower prepayment not been made. Some lenders may simply indicate that prepayment will be accepted on a “yield maintenance” basis. Others lenders may stipulate a formula. This is often the sum of the present value of the anticipated remaining payments and maturity balance, had the prepayment not been requested. This is discounted at a rate comparable to that rate which would be charged today for a mortgage investment of comparable quality, for the remaining term.

The Challenge for the Borrower

A lender cannot be sure that a comparable quality mortgage is available for them to put those prepaid mortgage funds back to work. The position of the lender may be to use a discount rate lower than current mortgage rates. This results in a higher prepayment penalty. The rationale for such a decision is straightforward. If a comparable quality mortgage is not available, in theory a Government of Canada bond most certainly is. The use of a bond yield rate will undoubtedly add to the prepayment costs. Knowing how your lender will treat a possible prepayment request is an important consideration in your initial mortgage negotiations. Be informed!

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Commercial Mortgage Prepayment Privileges


Mortgage Prepayment Privileges

For many years mortgages in Canada have been structured to be partially amortizing. This was a result of lenders being permitted to reduce the terms of their mortgage loans. Rates no longer had to be fixed for the duration (often 25 years) of the loan. Not surprisingly this lead to a rapid increase in the availability of residential mortgages. Lender debt could be re-priced upon loan maturity.

Residential mortgagors have further rights, pursuant to Section 10(1) of the Interest Act, namely to prepay their loan, after 5 years, upon payment of an additional 3 month interest penalty. This enabled consumers to negotiate longer term mortgages, without the risk of incurring excessive lender penalties. The reality however, is that the overwhelming majority of residential mortgages in Canada are structured for 5 years or less, thus do not fall under Section 10.

Commercial Mortgages are typically closed

Overwhelmingly, commercial mortgages are granted to borrowers who tend not to be individuals, but rather tend to be commercial enterprises of some description. Section 10 Interest Act privileges do not apply to a corporation, or joint stock company, nor since 2012 do they apply to Partnerships. These loans are typically referred to as being closed for the duration of the term. Repayment must be made upon the contractual terms of the mortgage, until its maturity date.

What Prepayment Rights do Commercial Mortgagors have?

On the presumption that mortgages to commercial enterprises are consequently “closed” for the duration of the term of the loan, what right or ability does a borrower have to prepay a loan? For the most part, no such prepayment privilege exists.

Why? In simple terms, the lender, in granting the mortgage, is relying on the receipt of a predictable stream of cash flows over the duration of the loan term. This cash flow is providing a rate of interest, or spread, over that rate paid to the lender’s depositors, on a savings product with a similar term. In lender terminology, the oversight of these cash inflows and outflows is known as ALM, or Asset Liability Management. Any unforeseen disruption to a regular and predictable cash flow immediately impacts the lender’s interest income, often to their detriment. No surprise, as borrowers tend to repay higher rate loans, not below market rate debt!

What Alternative might a Mortgagor Have?

Is there an alternative available to a commercial mortgage borrower in these circumstances? Yes, there typically is. Many lenders will negotiate a prepayment privilege in favour of a borrower. Prepayment will be determined differently from lender to lender, however the basic premise remains common. The lender will seek to maintain their anticipated yield, hence the common usage of the term Yield Maintenance Penalty.

Yield Maintenance

What is the basis of the penalty determination? It is rooted in the logic that the lender wishes to earn an amount of interest which would have been earned had the request for borrower prepayment not been made. Some lenders may simply indicate that prepayment will be accepted on a “yield maintenance” basis. Others lenders may stipulate a formula. This is often the sum of the present value of the anticipated remaining payments and maturity balance, had the prepayment not been requested. This is discounted at a rate comparable to that rate which would be charged today for a mortgage investment of comparable quality, for the remaining term.

The Challenge for the Borrower

A lender cannot be sure that a comparable quality mortgage is available for them to put those prepaid mortgage funds back to work. The position of the lender may be to use a discount rate lower than current mortgage rates. This results in a higher prepayment penalty. The rationale for such a decision is straightforward. If a comparable quality mortgage is not available, in theory a Government of Canada bond most certainly is. The use of a bond yield rate will undoubtedly add to the prepayment costs. Knowing how your lender will treat a possible prepayment request is an important consideration in your initial mortgage negotiations. Be informed!

http://www.yourpropertyloanpro.com
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Your credit score is an important component of your lender's assessment of your loan application. Why? Because the basis upon which a lender will provide your property financing, is two-fold:

i) the property generates sufficient cash flow, which repays the debt, and

ii) you’ve got the financial strength, capacity and expertise to effectively own and manage the property.

If you are investing as an individual, or sole proprietor, your lender will have recourse to you directly. Perhaps you are borrowing funds in a corporate capacity, or joint-venture arrangement. If so, your lender will typically seek to additionally secure repayment through obtaining your personal covenant or guarantee. Though the lending decision will rarely be based solely on the personal financial picture, be aware that the lender will look carefully at your credit score. Typically this involves obtaining a credit report. A credit report provides your lender with a numeric score. The score is a number which is based on a mathematical algorithm, which determines your likelihood of defaulting on a payment. Learn how to influence your score and get great financing!

What is a Credit Score?

A credit score is a numeric expression of your credit worthiness. The score compares you to the credit worthiness of millions of other consumers across the Country. Credit Scores are compiled by two major credit reporting agencies, Equifax Canada, and TransUnion Canada. Your credit file is established the first time you apply for credit or borrow money. Generally scores range from 300 to 900. The higher score indicating a lesser risk for the lender. The scores are based on a system known as Fair Isaac Corporation ("FICO") which was developed in the 1950's and is still in use today. For that reason, credit ratings are also known as FICO scores.

How is your Credit Score Determined?

Credit Scores are determined by 5 basic factors:

Payment History- How quickly you pay your bills. Pay within 30 days of the due date and you will maintain a high score.
Amount Owed- The amount owed versus your available credit. Interestingly it is advisable not to use the full amount of your available credit. Using a third of available credit is fine. Using more than 50% of available credit is detrimental to your score.
Length of Credit History- Old credit is good credit. The rating agencies consider your most recent activity, as well as the date you established the credit. A 20 year old credit card, always paid in full each month, is a strong contributor to a good score.
Type of Credit- Credit rating agencies consider the type of credit. A mix of credit is good.
New Credit- Open new credit facilities only when required, and avoid multiple new credit facilities at the same time.
Your FICO score is:

Exceptional if it is 800+. Credit will be easy to obtain, on favourable terms. Approximately 20% of the population fall into this category.

Very Good if it is 740 - 799. Credit at competitive rates will be available to you. Approximately 18% of the population falls into this range.

Good if it is 670 - 739. Approximately 22% of the population falls into this middle category. You should be able to obtain fairly competitive credit rates.

Fair if it is 580 - 669. Credit will be harder to obtain, and premium rates will be charged. Approximately 20% of the population falls into this category.

Poor if it is 300 - 579. Approximately 17% of the population falls into this lower category, and credit will generally not be available, or if it is, a significant rate premium will be required.

Credit Ratings

Within the credit report, credit history items are often assigned a rating. Known as North American Standard Account Ratings, a scale of 1 to 9 is used. A score of 1 indicates that you always pay your bills within 30 days of the due date. A score of 9, not surprisingly, indicates that you never pay your bills at all. Likely you will or have made a consumer debt repayment proposal to your lender.

Refer to The Government of Canada's Office of Consumer Affairs for additional helpful information on Credit Scores and Ratings.

How to influence your score and get great financing.

Maintaining your credit score and profile is important. It assists in ensuring that you qualify for the most competitive and advantageous loan terms available.

If your score is high, do not alter your credit behaviour!

On the other hand, if your score is lower than you imagined it would be, you might be doing some or all of the following:

1. You mistakenly close out old accounts. Better to keep them open even if unused.

2. You are a co-signer on credit. That line of credit you co-signed for shows up on your report as well!

3. You don't use credit. As a result, there is nothing to report.

4. You max out your credit. Best to keep utilization rates under 50%. Even lower if possible.

5. You are opening new credit facilities regularly. Don't fall into the trap of opening new retailer credit cards to take advantage of one time savings.

6. You never check your credit score. Mistakes and fraud are not unheard of. The major credit reporting agencies typically allow consumers one free report annually. Take advantage of this.

Personal guarantees are increasingly the norm with lenders providing commercial mortgage financing. Standard loan applications often include language authorizing the lender to obtain credit reports. Take the time to obtain your credit report, and understand the score and rating you see. Seek to correct any mistakes, and get in the habit of paying your bills on time! The availability of credit at competitive rates, depends on it!
Photo

Post has attachment
Your credit score is an important component of your lender's assessment of your loan application. Why? Because the basis upon which a lender will provide your property financing, is two-fold:

i) the property generates sufficient cash flow, which repays the debt, and

ii) you’ve got the financial strength, capacity and expertise to effectively own and manage the property.

If you are investing as an individual, or sole proprietor, your lender will have recourse to you directly. Perhaps you are borrowing funds in a corporate capacity, or joint-venture arrangement. If so, your lender will typically seek to additionally secure repayment through obtaining your personal covenant or guarantee. Though the lending decision will rarely be based solely on the personal financial picture, be aware that the lender will look carefully at your credit score. Typically this involves obtaining a credit report. A credit report provides your lender with a numeric score. The score is a number which is based on a mathematical algorithm, which determines your likelihood of defaulting on a payment. Learn how to influence your score and get great financing!

What is a Credit Score?

A credit score is a numeric expression of your credit worthiness. The score compares you to the credit worthiness of millions of other consumers across the Country. Credit Scores are compiled by two major credit reporting agencies, Equifax Canada, and TransUnion Canada. Your credit file is established the first time you apply for credit or borrow money. Generally scores range from 300 to 900. The higher score indicating a lesser risk for the lender. The scores are based on a system known as Fair Isaac Corporation ("FICO") which was developed in the 1950's and is still in use today. For that reason, credit ratings are also known as FICO scores.

How is your Credit Score Determined?

Credit Scores are determined by 5 basic factors:

Payment History- How quickly you pay your bills. Pay within 30 days of the due date and you will maintain a high score.
Amount Owed- The amount owed versus your available credit. Interestingly it is advisable not to use the full amount of your available credit. Using a third of available credit is fine. Using more than 50% of available credit is detrimental to your score.
Length of Credit History- Old credit is good credit. The rating agencies consider your most recent activity, as well as the date you established the credit. A 20 year old credit card, always paid in full each month, is a strong contributor to a good score.
Type of Credit- Credit rating agencies consider the type of credit. A mix of credit is good.
New Credit- Open new credit facilities only when required, and avoid multiple new credit facilities at the same time.
Your FICO score is:

Exceptional if it is 800+. Credit will be easy to obtain, on favourable terms. Approximately 20% of the population fall into this category.

Very Good if it is 740 - 799. Credit at competitive rates will be available to you. Approximately 18% of the population falls into this range.

Good if it is 670 - 739. Approximately 22% of the population falls into this middle category. You should be able to obtain fairly competitive credit rates.

Fair if it is 580 - 669. Credit will be harder to obtain, and premium rates will be charged. Approximately 20% of the population falls into this category.

Poor if it is 300 - 579. Approximately 17% of the population falls into this lower category, and credit will generally not be available, or if it is, a significant rate premium will be required.

Credit Ratings

Within the credit report, credit history items are often assigned a rating. Known as North American Standard Account Ratings, a scale of 1 to 9 is used. A score of 1 indicates that you always pay your bills within 30 days of the due date. A score of 9, not surprisingly, indicates that you never pay your bills at all. Likely you will or have made a consumer debt repayment proposal to your lender.

Refer to The Government of Canada's Office of Consumer Affairs for additional helpful information on Credit Scores and Ratings.

How to influence your score and get great financing.

Maintaining your credit score and profile is important. It assists in ensuring that you qualify for the most competitive and advantageous loan terms available.

If your score is high, do not alter your credit behaviour!

On the other hand, if your score is lower than you imagined it would be, you might be doing some or all of the following:

1. You mistakenly close out old accounts. Better to keep them open even if unused.

2. You are a co-signer on credit. That line of credit you co-signed for shows up on your report as well!

3. You don't use credit. As a result, there is nothing to report.

4. You max out your credit. Best to keep utilization rates under 50%. Even lower if possible.

5. You are opening new credit facilities regularly. Don't fall into the trap of opening new retailer credit cards to take advantage of one time savings.

6. You never check your credit score. Mistakes and fraud are not unheard of. The major credit reporting agencies typically allow consumers one free report annually. Take advantage of this.

Personal guarantees are increasingly the norm with lenders providing commercial mortgage financing. Standard loan applications often include language authorizing the lender to obtain credit reports. Take the time to obtain your credit report, and understand the score and rating you see. Seek to correct any mistakes, and get in the habit of paying your bills on time! The availability of credit at competitive rates, depends on it!
Photo

Post has attachment
Your credit score is an important component of your lender's assessment of your loan application. Why? Because the basis upon which a lender will provide your property financing, is two-fold:

i) the property generates sufficient cash flow, which repays the debt, and

ii) you’ve got the financial strength, capacity and expertise to effectively own and manage the property.

If you are investing as an individual, or sole proprietor, your lender will have recourse to you directly. Perhaps you are borrowing funds in a corporate capacity, or joint-venture arrangement. If so, your lender will typically seek to additionally secure repayment through obtaining your personal covenant or guarantee. Though the lending decision will rarely be based solely on the personal financial picture, be aware that the lender will look carefully at your credit score. Typically this involves obtaining a credit report. A credit report provides your lender with a numeric score. The score is a number which is based on a mathematical algorithm, which determines your likelihood of defaulting on a payment. Learn how to influence your score and get great financing!

What is a Credit Score?

A credit score is a numeric expression of your credit worthiness. The score compares you to the credit worthiness of millions of other consumers across the Country. Credit Scores are compiled by two major credit reporting agencies, Equifax Canada, and TransUnion Canada. Your credit file is established the first time you apply for credit or borrow money. Generally scores range from 300 to 900. The higher score indicating a lesser risk for the lender. The scores are based on a system known as Fair Isaac Corporation ("FICO") which was developed in the 1950's and is still in use today. For that reason, credit ratings are also known as FICO scores.

How is your Credit Score Determined?

Credit Scores are determined by 5 basic factors:

Payment History- How quickly you pay your bills. Pay within 30 days of the due date and you will maintain a high score.
Amount Owed- The amount owed versus your available credit. Interestingly it is advisable not to use the full amount of your available credit. Using a third of available credit is fine. Using more than 50% of available credit is detrimental to your score.
Length of Credit History- Old credit is good credit. The rating agencies consider your most recent activity, as well as the date you established the credit. A 20 year old credit card, always paid in full each month, is a strong contributor to a good score.
Type of Credit- Credit rating agencies consider the type of credit. A mix of credit is good.
New Credit- Open new credit facilities only when required, and avoid multiple new credit facilities at the same time.
Your FICO score is:

Exceptional if it is 800+. Credit will be easy to obtain, on favourable terms. Approximately 20% of the population fall into this category.

Very Good if it is 740 - 799. Credit at competitive rates will be available to you. Approximately 18% of the population falls into this range.

Good if it is 670 - 739. Approximately 22% of the population falls into this middle category. You should be able to obtain fairly competitive credit rates.

Fair if it is 580 - 669. Credit will be harder to obtain, and premium rates will be charged. Approximately 20% of the population falls into this category.

Poor if it is 300 - 579. Approximately 17% of the population falls into this lower category, and credit will generally not be available, or if it is, a significant rate premium will be required.

Credit Ratings

Within the credit report, credit history items are often assigned a rating. Known as North American Standard Account Ratings, a scale of 1 to 9 is used. A score of 1 indicates that you always pay your bills within 30 days of the due date. A score of 9, not surprisingly, indicates that you never pay your bills at all. Likely you will or have made a consumer debt repayment proposal to your lender.

Refer to The Government of Canada's Office of Consumer Affairs for additional helpful information on Credit Scores and Ratings.

How to influence your score and get great financing.

Maintaining your credit score and profile is important. It assists in ensuring that you qualify for the most competitive and advantageous loan terms available.

If your score is high, do not alter your credit behaviour!

On the other hand, if your score is lower than you imagined it would be, you might be doing some or all of the following:

1. You mistakenly close out old accounts. Better to keep them open even if unused.

2. You are a co-signer on credit. That line of credit you co-signed for shows up on your report as well!

3. You don't use credit. As a result, there is nothing to report.

4. You max out your credit. Best to keep utilization rates under 50%. Even lower if possible.

5. You are opening new credit facilities regularly. Don't fall into the trap of opening new retailer credit cards to take advantage of one time savings.

6. You never check your credit score. Mistakes and fraud are not unheard of. The major credit reporting agencies typically allow consumers one free report annually. Take advantage of this.

Personal guarantees are increasingly the norm with lenders providing commercial mortgage financing. Standard loan applications often include language authorizing the lender to obtain credit reports. Take the time to obtain your credit report, and understand the score and rating you see. Seek to correct any mistakes, and get in the habit of paying your bills on time! The availability of credit at competitive rates, depends on it!
Photo

Post has attachment
Your credit score is an important component of your lender's assessment of your loan application. Why? Because the basis upon which a lender will provide your property financing, is two-fold:

i) the property generates sufficient cash flow, which repays the debt, and

ii) you’ve got the financial strength, capacity and expertise to effectively own and manage the property.

If you are investing as an individual, or sole proprietor, your lender will have recourse to you directly. Perhaps you are borrowing funds in a corporate capacity, or joint-venture arrangement. If so, your lender will typically seek to additionally secure repayment through obtaining your personal covenant or guarantee. Though the lending decision will rarely be based solely on the personal financial picture, be aware that the lender will look carefully at your credit score. Typically this involves obtaining a credit report. A credit report provides your lender with a numeric score. The score is a number which is based on a mathematical algorithm, which determines your likelihood of defaulting on a payment. Learn how to influence your score and get great financing!

What is a Credit Score?

A credit score is a numeric expression of your credit worthiness. The score compares you to the credit worthiness of millions of other consumers across the Country. Credit Scores are compiled by two major credit reporting agencies, Equifax Canada, and TransUnion Canada. Your credit file is established the first time you apply for credit or borrow money. Generally scores range from 300 to 900. The higher score indicating a lesser risk for the lender. The scores are based on a system known as Fair Isaac Corporation ("FICO") which was developed in the 1950's and is still in use today. For that reason, credit ratings are also known as FICO scores.

How is your Credit Score Determined?

Credit Scores are determined by 5 basic factors:

Payment History- How quickly you pay your bills. Pay within 30 days of the due date and you will maintain a high score.
Amount Owed- The amount owed versus your available credit. Interestingly it is advisable not to use the full amount of your available credit. Using a third of available credit is fine. Using more than 50% of available credit is detrimental to your score.
Length of Credit History- Old credit is good credit. The rating agencies consider your most recent activity, as well as the date you established the credit. A 20 year old credit card, always paid in full each month, is a strong contributor to a good score.
Type of Credit- Credit rating agencies consider the type of credit. A mix of credit is good.
New Credit- Open new credit facilities only when required, and avoid multiple new credit facilities at the same time.
Your FICO score is:

Exceptional if it is 800+. Credit will be easy to obtain, on favourable terms. Approximately 20% of the population fall into this category.

Very Good if it is 740 - 799. Credit at competitive rates will be available to you. Approximately 18% of the population falls into this range.

Good if it is 670 - 739. Approximately 22% of the population falls into this middle category. You should be able to obtain fairly competitive credit rates.

Fair if it is 580 - 669. Credit will be harder to obtain, and premium rates will be charged. Approximately 20% of the population falls into this category.

Poor if it is 300 - 579. Approximately 17% of the population falls into this lower category, and credit will generally not be available, or if it is, a significant rate premium will be required.

Credit Ratings

Within the credit report, credit history items are often assigned a rating. Known as North American Standard Account Ratings, a scale of 1 to 9 is used. A score of 1 indicates that you always pay your bills within 30 days of the due date. A score of 9, not surprisingly, indicates that you never pay your bills at all. Likely you will or have made a consumer debt repayment proposal to your lender.

Refer to The Government of Canada's Office of Consumer Affairs for additional helpful information on Credit Scores and Ratings.

How to influence your score and get great financing.

Maintaining your credit score and profile is important. It assists in ensuring that you qualify for the most competitive and advantageous loan terms available.

If your score is high, do not alter your credit behaviour!

On the other hand, if your score is lower than you imagined it would be, you might be doing some or all of the following:

1. You mistakenly close out old accounts. Better to keep them open even if unused.

2. You are a co-signer on credit. That line of credit you co-signed for shows up on your report as well!

3. You don't use credit. As a result, there is nothing to report.

4. You max out your credit. Best to keep utilization rates under 50%. Even lower if possible.

5. You are opening new credit facilities regularly. Don't fall into the trap of opening new retailer credit cards to take advantage of one time savings.

6. You never check your credit score. Mistakes and fraud are not unheard of. The major credit reporting agencies typically allow consumers one free report annually. Take advantage of this.

Personal guarantees are increasingly the norm with lenders providing commercial mortgage financing. Standard loan applications often include language authorizing the lender to obtain credit reports. Take the time to obtain your credit report, and understand the score and rating you see. Seek to correct any mistakes, and get in the habit of paying your bills on time! The availability of credit at competitive rates, depends on it!
Photo

Post has attachment
Your credit score is an important component of your lender's assessment of your loan application. Why? Because the basis upon which a lender will provide your property financing, is two-fold:

i) the property generates sufficient cash flow, which repays the debt, and

ii) you’ve got the financial strength, capacity and expertise to effectively own and manage the property.

If you are investing as an individual, or sole proprietor, your lender will have recourse to you directly. Perhaps you are borrowing funds in a corporate capacity, or joint-venture arrangement. If so, your lender will typically seek to additionally secure repayment through obtaining your personal covenant or guarantee. Though the lending decision will rarely be based solely on the personal financial picture, be aware that the lender will look carefully at your credit score. Typically this involves obtaining a credit report. A credit report provides your lender with a numeric score. The score is a number which is based on a mathematical algorithm, which determines your likelihood of defaulting on a payment. Learn how to influence your score and get great financing!

What is a Credit Score?

A credit score is a numeric expression of your credit worthiness. The score compares you to the credit worthiness of millions of other consumers across the Country. Credit Scores are compiled by two major credit reporting agencies, Equifax Canada, and TransUnion Canada. Your credit file is established the first time you apply for credit or borrow money. Generally scores range from 300 to 900. The higher score indicating a lesser risk for the lender. The scores are based on a system known as Fair Isaac Corporation ("FICO") which was developed in the 1950's and is still in use today. For that reason, credit ratings are also known as FICO scores.

How is your Credit Score Determined?

Credit Scores are determined by 5 basic factors:

Payment History- How quickly you pay your bills. Pay within 30 days of the due date and you will maintain a high score.
Amount Owed- The amount owed versus your available credit. Interestingly it is advisable not to use the full amount of your available credit. Using a third of available credit is fine. Using more than 50% of available credit is detrimental to your score.
Length of Credit History- Old credit is good credit. The rating agencies consider your most recent activity, as well as the date you established the credit. A 20 year old credit card, always paid in full each month, is a strong contributor to a good score.
Type of Credit- Credit rating agencies consider the type of credit. A mix of credit is good.
New Credit- Open new credit facilities only when required, and avoid multiple new credit facilities at the same time.
Your FICO score is:

Exceptional if it is 800+. Credit will be easy to obtain, on favourable terms. Approximately 20% of the population fall into this category.

Very Good if it is 740 - 799. Credit at competitive rates will be available to you. Approximately 18% of the population falls into this range.

Good if it is 670 - 739. Approximately 22% of the population falls into this middle category. You should be able to obtain fairly competitive credit rates.

Fair if it is 580 - 669. Credit will be harder to obtain, and premium rates will be charged. Approximately 20% of the population falls into this category.

Poor if it is 300 - 579. Approximately 17% of the population falls into this lower category, and credit will generally not be available, or if it is, a significant rate premium will be required.

Credit Ratings

Within the credit report, credit history items are often assigned a rating. Known as North American Standard Account Ratings, a scale of 1 to 9 is used. A score of 1 indicates that you always pay your bills within 30 days of the due date. A score of 9, not surprisingly, indicates that you never pay your bills at all. Likely you will or have made a consumer debt repayment proposal to your lender.

Refer to The Government of Canada's Office of Consumer Affairs for additional helpful information on Credit Scores and Ratings.

How to influence your score and get great financing.

Maintaining your credit score and profile is important. It assists in ensuring that you qualify for the most competitive and advantageous loan terms available.

If your score is high, do not alter your credit behaviour!

On the other hand, if your score is lower than you imagined it would be, you might be doing some or all of the following:

1. You mistakenly close out old accounts. Better to keep them open even if unused.

2. You are a co-signer on credit. That line of credit you co-signed for shows up on your report as well!

3. You don't use credit. As a result, there is nothing to report.

4. You max out your credit. Best to keep utilization rates under 50%. Even lower if possible.

5. You are opening new credit facilities regularly. Don't fall into the trap of opening new retailer credit cards to take advantage of one time savings.

6. You never check your credit score. Mistakes and fraud are not unheard of. The major credit reporting agencies typically allow consumers one free report annually. Take advantage of this.

Personal guarantees are increasingly the norm with lenders providing commercial mortgage financing. Standard loan applications often include language authorizing the lender to obtain credit reports. Take the time to obtain your credit report, and understand the score and rating you see. Seek to correct any mistakes, and get in the habit of paying your bills on time! The availability of credit at competitive rates, depends on it!
Photo

Post has attachment
Get the Right Financing! 5 Tips to Remember.

Securing the right financing is key to real estate investment success. What do we mean by the right financing? It's financing that is not only competitive in terms of costs and repayment (interest) rates. It also means that it is the right financing for your particular circumstance.



At the end of the day, the color of one lender's money is the same as the color of any other lender's money. The difference lies with the lender themselves. Finding the right financing is all about finding the right lender.

5 Tips to Remember:

1) Finance with a lender active in your community. The lender knows the local real estate market dynamics. They understand the micro economic factors that drives local demand. Your lender is familiar with the attractiveness of certain locations, as well as the existing and prospective development pressures.

2) Finance with a lender with whom you can build a relationship. Are you comfortable with your lending officer? Does he or she "get" you? Do you feel that they are a 'partner', or do you feel like they are an obstacle in your journey? A positive working relationship is key.

3) Ensure they are experienced with your asset type. They need to know and understand the particulars of your asset class. What drives demand, and what forces affect asset performance.

4) Make sure they offer flexible terms and conditions. They offer terms suitable to your particular needs. Length of term, amortization period, fixed vs. float, covenant requirements, and funding timing and conditions are but a few. Consider also the ability to lock-in your rate prior to advance, and the manner in which you can prepay some or all of your loan, if at all.

5) Finance with a lender offering competitive rates. Though not your only consideration, interest rates need to be competitive. Various lenders will price their money over some benchmark, whether it be residential rates, government bond yields, or internal cost of funds. Know and understand how the rate is established, and ensure that it is competitive with the marketplace. A knowledgeable mortgage broker can be of considerable assistance.
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Get the Right Financing!

Securing the right financing is key to real estate investment success. What do we mean by the right financing? It's financing that is not only competitive in terms of costs and repayment (interest) rates. It also means that it is the right financing for your particular circumstance.



At the end of the day, the color of one lender's money is the same as the color of any other lender's money. The difference lies with the lender themselves. Finding the right financing is all about finding the right lender.

5 Tips to Remember:

1) Finance with a lender active in your community. The lender knows the local real estate market dynamics. They understand the micro economic factors that drives local demand. Your lender is familiar with the attractiveness of certain locations, as well as the existing and prospective development pressures.

2) Finance with a lender with whom you can build a relationship. Are you comfortable with your lending officer? Does he or she "get" you? Do you feel that they are a 'partner', or do you feel like they are an obstacle in your journey? A positive working relationship is key.

3) Ensure they are experienced with your asset type. They need to know and understand the particulars of your asset class. What drives demand, and what forces affect asset performance.

4) Make sure they offer flexible terms and conditions. They offer terms suitable to your particular needs. Length of term, amortization period, fixed vs. float, covenant requirements, and funding timing and conditions are but a few. Consider also the ability to lock-in your rate prior to advance, and the manner in which you can prepay some or all of your loan, if at all.

5) Finance with a lender offering competitive rates. Though not your only consideration, interest rates need to be competitive. Various lenders will price their money over some benchmark, whether it be residential rates, government bond yields, or internal cost of funds. Know and understand how the rate is established, and ensure that it is competitive with the marketplace. A knowledgeable mortgage broker can be of considerable assistance.
Photo

Post has attachment
Get the Right Financing! 5 Tips to Remember.

Securing the right financing is key to real estate investment success. What do we mean by the right financing? It's financing that is not only competitive in terms of costs and repayment (interest) rates. It also means that it is the right financing for your particular circumstance.

At the end of the day, the color of one lender's money is the same as the color of any other lender's money. The difference lies with the lender themselves. Finding the right financing is all about finding the right lender.

5 Tips to Remember:

1) Finance with a lender active in your community. The lender knows the local real estate market dynamics. They understand the micro economic factors that drives local demand. Your lender is familiar with the attractiveness of certain locations, as well as the existing and prospective development pressures.

2) Finance with a lender with whom you can build a relationship. Are you comfortable with your lending officer? Does he or she "get" you? Do you feel that they are a 'partner', or do you feel like they are an obstacle in your journey? A positive working relationship is key.

3) Ensure they are experienced with your asset type. They need to know and understand the particulars of your asset class. What drives demand, and what forces affect asset performance.

4) Make sure they offer flexible terms and conditions. They offer terms suitable to your particular needs. Length of term, amortization period, fixed vs. float, covenant requirements, and funding timing and conditions are but a few. Consider also the ability to lock-in your rate prior to advance, and the manner in which you can prepay some or all of your loan, if at all.

5) Finance with a lender offering competitive rates. Though not your only consideration, interest rates need to be competitive. Various lenders will price their money over some benchmark, whether it be residential rates, government bond yields, or internal cost of funds. Know and understand how the rate is established, and ensure that it is competitive with the marketplace. A knowledgeable mortgage broker can be of considerable assistance.
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