Protecting Your Credit Score Through COVID-19
Lisa Manwaring • March 31, 2020
Personal finance is undoubtedly on the minds of most Canadians. For a lot of us, incomes have been reduced, but living expenses remain the same.
The full economic impact of the COVID-19 Pandemic is still uncertain. Unemployment is skyrocketing, people are social distancing, self-isolating, and businesses are struggling to stay afloat. At the writing of this article, over 1 million Canadians have already applied for EI.
However, the federal government has just announced several new programs designed to help those individuals, families, and businesses whose employment has been impacted by COVID-19. If you meet the qualifications for assistance, you should apply.
Now, if you're looking to make sure your credit score isn't hurt during these times, here is some basic advice. The key to managing your credit is to stay on top of your payments. If possible, always make at least the minimum payment on your credit cards and line of credits.
Keep making payments on your instalment loans, car payments and the payments on your mortgage.
If you find yourself getting behind, this isn’t the time to put your head in the sand, instead, make contact with your lenders. Everyone is going through tough times, lenders understand this and have programs in place to help. Chances are, they will be able to reduce your payments, defer your payments, or even consolidate your debts.
Missing payments without communicating with your lender is not an acceptable way to defer payments. This won’t be looked upon favourably and your credit will be damaged as a result.
So, at this very moment, if you’re behind on any of your payments, and you have the means to pay, right now would be a good time to go and make at least the minimum payment. Or to contact your lender and make payment arrangements, communication is everything.
Mortgage lenders have announced their contribution to easing financial stress is to offer mortgage payment deferrals for up to six months. And although this will be an excellent option for some to provide immediate financial relief, it might come with some unforeseen challenges down the line, credit misreporting being one of them.
The truth is, you won’t be penalized for restructuring or deferring your mortgage payments. Still, if your lender’s system isn't correctly adjusted, there’s a good chance something will misreport to the credit agencies and this could lower your credit score. This is true of credit cards, loans, car payments, and mortgage payments.
So, if you do find yourself having to make special arrangements with your lender or you want to defer your mortgage payments, here is a list of things you should consider doing:
- Request written confirmation (email is fine) of the new terms. Get everything in writing. Although it’s probably easiest to call into your bank, things get missed in conversations, having everything in writing is best for you!
- Make sure you record who you have been talking with, along with the date and time of any conversations. Keep minutes for yourself.
- Track your credit score on Equifax and Transunion after the new arrangements are in place.
- If you see any discrepancies, contact your lender immediately, and open a dispute with the credit reporting agencies.
Do your best to keep on top of your payments, make arrangements if you can’t. In time, this will pass. If you’d like to discuss mortgage options, please don’t hesitate to contact me anytime. We’re all in this together!
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If you’re going through or considering a divorce or separation, you might not be aware that there are mortgage products designed to allow you to refinance your property and buy out your ex-spouse. If you’re like most people, your property is your most significant asset and is where most of your equity is tied up. If this is the case, it’s possible to structure a new mortgage that allows you to purchase the property from your ex-spouse for up to 95% of the property’s value. Alternatively, if your ex-spouse wants to keep the property, they can buy you out using the same program. It’s called the spousal buyout program. Here are some of the common questions people have about the program. Is a finalized separation agreement required? Yes. To qualify, you’ll need to provide the lender with a copy of the signed separation agreement, which clearly outlines asset allocation. Can the net proceeds be used for home renovations or pay off loans? No. The net proceeds can only buy out the other owner’s share of equity and/or pay off joint debt as explicitly agreed upon in the finalized separation agreement. What is the maximum amount that you can access through the program? The maximum equity you can withdraw is the amount agreed upon in the separation agreement to buy out the other owner’s share of the property and/or retire joint debts (if any), not exceeding 95% loan to value. What is the maximum permitted loan to value? The maximum loan to value is the lesser of 95% or the remaining mortgage + the equity required to buy out other owner and/or pay off joint debt (which, in some cases, can total < 95% LTV. The property must be the primary owner-occupied residence. Do all parties have to be on title? Yes. All parties to the transaction have to be current registered owners on title. Your solicitor will be required to confirm this with a title search. Do the parties have to be a married or common-law couple? No. Not only will the spousal buyout program support married and common-law couples who are divorcing or separating, but it’s also designed for friends or siblings who need an exit from a mortgage. The lender can consider this on an exception basis with insurer approval. In this case, as there won’t be a separation agreement, a standard clause will need to be included in the purchase contract to outline the buyout. Is a full appraisal required? Yes. When considering this type of mortgage, a physical appraisal of the property is required as part of the necessary documents to finalize the transaction. While this is a good start to answering some of the questions you might have about getting a mortgage to help you through a marital breakdown, it’s certainly not comprehensive. When you work with an independent mortgage professional, not only do you get a choice between lenders and considerably more mortgage options, but you get the unbiased mortgage advice to ensure you understand all your options and get the right mortgage for you. Please connect anytime; it would be a pleasure to discuss your needs directly and provide you with options to help you secure the best mortgage financing available. Also, please be assured that all communication will be held in the strictest of confidence.
One of the benefits of working with an independent mortgage professional is having lots of great financing options! Rather than dealing with a single lender with one set of products, independent mortgage professionals work with multiple lenders who offer a wide selection of mortgage financing options that provide more choice. Increased choice in mortgage products is beneficial when your situation isn’t “normal,” or you don’t quite fit the profile of a standard buyer. Purchasing a new construction home through an assignment contract would be a great example of this. Purchasing a new construction home through an assignment contract can be tricky as not every lender wants the added perceived risk of dealing with this type of transaction. Most of these lenders won’t come out and say it; instead, they add a significant list of qualifying conditions to make the process harder. The good news is, there are lenders available exclusively through the broker channel that have favourable policies for assignment purchases. Here are some of the highlights: All standard purchase qualifications apply, including applicable income verification, established credit, and required downpayment Assignments can be at the original purchase price or current market value Minimum 620 beacon score with no previous bankruptcies or consumer proposals The full downpayment must come from the purchaser and not include any incentives from the seller. As far as documentation goes, the lender will want to see the original purchase agreement signed by all parties, the MLS listing, the assignment agreement signed by the builder, the original purchaser, and the new buyer. The lender will also want to see the side agreement between the original purchaser and the new buyer, including the amended purchase price. The lender will want to substantiate the value through a full appraisal. Now, as every situation is different, this list of conditions is in no way exhaustive but meant to show that assigning a new construction purchase contract is doable while highlighting some of the terms necessary to secure financing. If you’re looking to purchase new construction through an assignment contract, or if you’d like to discuss purchasing a home through traditional means, please connect anytime! It would be a pleasure to outline the mortgage products on the market that won’t limit your financing options!
