What can affect your mortgage application?
Before you begin the mortgage application process, you should think about how your finances look on paper. As a result of the crisis, lenders have toughened their affordability requirements, making it more challenging to get a mortgage. How can I increase my chances of getting a mortgage?
You can increase your chances of getting a loan by keeping a watch on the following typical spending habits:
Using Joke Payment Descriptions When Sending Money
Adding a 'funny' description to a bank transfer with a friend may seem amusing at the moment, but not when a mortgage lender discovers it in your bank statements. To avoid any queries from your mortgage lender, it's better to avoid using any comical payment descriptions at all.
Betting Apps
Although sports betting apps have made gambling even more straightforward, you must keep track of your spending to ensure it does not become a source of concern. If a bank or building society discovers that you are an active gambler when applying for a mortgage, they may reject your application. This is only true if the transactions consume a large portion of your monthly income or cause you to incur an overdraft; the odd wager is perfectly OK.
Using Buy Now, Pay Later Schemes
It's becoming more challenging to find an online fashion shop that doesn't offer a buy now, pay later option that allows buyers to spread the cost of an item over many weeks interest-free. While using systems like Klarna or Clearpay may be appealing, it may influence your odds of getting a mortgage. Lenders can view this as a lack of money to pay for low-cost items upfront.
Payday Loans
Although if you paid off your payday loan entirely and on schedule, it might still work against you when applying for a mortgage. Payday loans reveal to the lender that you have lived beyond your means at times.
Monthly Subscriptions
Netflix, Spotify, gym memberships, and app subscriptions are all monthly expenses to be careful of. Although being relatively cheap in contrast to your other monthly expenditures, subscription services can be used to reduce your capacity to repay mortgage payments. Examine your living expenses and make sure you have the money to continue with your existing subscriptions - you may be paying for something you no longer need.
How can I increase my chances of getting a mortgage?
Are you searching for ways to increase your chances of getting a mortgage? Do you want to get a mortgage and wish to have a hassle-free process? Read the tips below to find out how you can get a mortgage more easily.
Review Your Credit Report
Your credit report is crucial to getting a mortgage because lenders will review your report to determine your suitability for a loan. You must check your credit report personally and make efforts to fix it if your credit score is not where you need it to be.
Having obtained your credit report, do not assume that everything is accurate. Check and verify every detail and fix any mistakes you may find. Some mistakes can negatively affect your credit. Look out for information that is inaccurate such as debts that you have settled but still appear as unpaid, outdated information, and mistakes with personal information, such as addresses, Social Security Number, etc. Be sure to fix any issues in your report before applying for a mortgage.
Boost Your Credit Score
If you have a higher credit score, your chances of getting a mortgage increases. However, if your credit report reflects unpaid debts, lenders may feel reluctant to grant your request, doubting your ability to repay the loan when it's due. Check if your credit score matches the FICO score. If your score is lower, try and improve your score by paying off outstanding debts and paying your bills on time.
Reduce Debts
Another way to increase your chances of getting a mortgage is to reduce your debt profile. Your debt-to-income ratio should be 36% or lower and not more than 43%. Reduce your monthly recurring debts, settle outstanding debts, and increase your monthly income. Explore all possibilities to boost your income to reduce your debt ratio.
Prepare Large Down Payments
One way to make your application more attractive is to show the lender that you have a substantial down payment ready, which can help you avoid common mortgage mistakes tied to overborrowing. A larger down payment increases your chances of mortgage approval while reducing your loan-to-value ratio and overall debt load. If you have a 20% or greater down payment, you’ll be in a stronger position with lenders and may not need mortgage insurance.
Takeaway
Follow the tips above to increase your chances of getting a mortgage. Check your credit report, reduce your debt profile, and increase your monthly income to make your credit score look good for lenders to approve your application.
5 tips for mortgage renewal time
Knowing the date your mortgage term comes up is important as it gives you the opportunity to prepare for the best renewal rate possible and not get unexpectedly trapped by your current lender. You would hope after years of loyalty, your current lender will offer you a lower rate on your mortgage renewal, but this is not always the case. Because of this, keep a tab on your mortgage maturity or renewal date and start planning far ahead. Below we highlight 5 tips for mortgage renewal time to help you make an informed decision on your renewal.
1. Evaluate your Financial Goals
Before you decide whether to sign a mortgage renewal, take the time to examine your current financial situation and goals. Your finances have undoubtedly changed since you last applied for a mortgage. Consider your current financial status, as well as if there are plans to move in the near future, is it beneficial to access some of the equity in your home? Are there other reputable lenders offering lower rates? You should consider all these before affixing your signature to mortgage renewal papers.
2. Search for Better Providers Early
Several months prior to your mortgage maturity or renewal, you should start shopping for better rates especially if your current lender is not committing to a lower rate off the bat. Although you cannot change your provider until the mortgage matures, you can still find a better product or provider that will give you a better rate and have it locked in. There is no harm in contacting a mortgage broker for advice and assistance in finding the best product to switch to. Finding a better lender early will allow you to have the paperwork ready for a hassle-free switch.
3. Negotiate a Better Mortgage Rate
Negotiating a better rate when renewing your mortgage is not always fun, but is necessary when trying to secure the best rate for your renewal. A slight reduction in your mortgage rate has a significant impact on the amount payable per year, which directly affects your financial status. Your lender may present diverse rates and figures to make you renew the mortgage with them; these might not be the lowest rates they offer, negotiate. So, if you start negotiating early, you can decide to switch your lender, if you are not offered a favourable rate.
4. Use a Mortgage Broker
The best way to get the best product at the best rate is to work with a broker. Mortgage brokers are privy to information about lenders and rates they offer. They can examine your credit report and present you with a list of lenders that can work with your credit score and still provide the best rates possible. This will also help make switching lenders easy.
5. Understand the Terms
Before you sign any papers, you should make sure you fully understand the terms of your mortgage. Look at how much your payments re and how much of your payment will go toward principal versus interest. Do you have the ability to pay your mortgage off early without any fees?
When it comes to a mortgage renewal you need to be prepared. Do not renew your mortgage without asking for lower rates or searching for better offers from other lenders. Although it may be faster and more convenient to renew your mortgage with your current lender, not exploring the possibility of getting a better rate elsewhere can end up costing you thousands of dollars.
How do I prepare for a mortgage approval?
Applying for a mortgage can be an exciting, but yet daunting task. The excitement of finding a new home or an investment property that you want to purchase and the fear of not meeting the requirements to qualify can definitely keep you up at night. With the rate of many mortgages at an all-time low, you may be thinking of upgrading your home or investing your savings into property. The best way to ensure that your mortgage application is approved, is by being well prepared for it.
The tips below will help you get prepared for your mortgage applications.
1. Favorable Credit Report
The first thing that lenders look out for before considering approving mortgages is your credit report. It is crucial that you have a favorable credit report that is accurate and shows your credit worthiness. Without a good credit report, it will be difficult to get approved. In view of this, start preparing to put your credit scores in order before applying for a mortgage.
2. Monitor Your Credit Report
Keep an eye on your credit report. If there are discrepancies in the report across the three relevant credit bureaus, dispute the inaccuracies and ensure that the records are put in order. Monitor your debt-to-credit ratio to keep it as low as possible. If you notice transactions or accounts that are not yours in the report, investigate them immediately and ensure that they are expunged from the report.
3. Research Mortgages and Lenders
The next step that is crucial to your mortgage approval is to find out about the best rates available. Research mortgages, rates, lenders, and brokers around you before you commit to anything. Find the best rates and read up the relevant terms. Based on your findings, you will discover what you can afford in terms of down payment and rates.
4. Find the Best Way to Finance the Mortgage
With different brokers and lenders available, it will be best to decide how you will finance the mortgage before committing to it. You must evaluate your financial condition when buying a home and decide how best to finance it without aggravating your condition. You may choose between a 15-year mortgage and 30-years mortgage, as well as choose between fixed and variable rates.
You should know the pros and cons of both fixed rate mortgages and variable rate mortgages before you choose which of best suits your situation.
5. Down Payment Amount
One significant way to prepare for mortgage approval is to be realistic with how which you can afford as a down payment. If you have a large down payment, you will find that you have more options to choose from and chances are you will be approved by more lenders. The down payment amount is considered by every mortgage lender. It would definitely assist the approval process if you were able to save a larger sum for your down payment.
The tips addressed above are meant to help you prepare for your mortgage approval. However, every lender has different criteria which the review every application against, if you are not approved by the first lender you applied with, do not get discourage as there are plenty of lenders that can provide you with a great rate for your mortgage.
Partner with an experienced mortgage broker, as they have the industry knowledge and the understanding of multiple lenders approval process to get you the best rate possible and ensure your new home or investment property is properly financed.
5 steps to a financially secure retirement
You may have heard a financial advisor say that “it’s never too early to think about retirement”. There are many ways to prepare financially for retirement, but they all begging with planning well before your retirement years approach. Planning for your retirement early ensures that you have the financial freedom to not only cover your expenses but to enjoy yourself. A well-thought-out plan will reduce the stress and anxiety that can come with dealing with finances after retirement.
Below we share 5 ways that can help you prepare financially for your retirement today!
1. Save a Portion of Every Pay Cheque
Ideally, you should be trying to save anywhere from 10% to 15% of your gross pay. There are numerous approaches to savings and retirement contributions depending on your employer. We recommend you discuss your options with a financial advisor, as they will be better able to provide you with a deeper understanding of how to save money for your retirement.
2. Manage Expenses
One of the best ways to prepare financially for retirement is by managing your expenses. Keeping track of how you spend your money and building a monthly budget can help you prevent unnecessary expenses. Don’t overlook budgeting for unexpected emergencies as well.
3. Investment
Investing part of your money can contribute to a financially secure retirement. We encourage you to discuss this with a financial advisor before making any decisions on this topic. Investments aren’t risk-free, so you need to know both the strengths and weaknesses of this activity. Stocks, bonds, mutual funds, or real estate can turn out to be an excellent opportunity to boost your savings.
4. Set a Tentative Retirement Date
To help you prepare financially for retirement, choose an estimated retirement date. This date is not set in stone and can be delayed or moved up depending on your situation at the time. Having a retirement date in mind will help with your calculations and understanding how much money you will need to put aside annually to be able to live an enjoyable retirement.
5. Have a Plan to Pay Off Your Debts
Paying off all your debts, including your mortgage before you reach the age of retirement means that you will be able to spend your savings on your day-to-day activities versus paying off loans. The additional expense associated with debt repayment can take a toll on your retirement savings. A financial advisor can help you put a plan together to ensure that your mortgage and other loans are all clear by the time you retire, while still being able to save for retirement.
These are some of the ways you can prepare financially for retirement. Keep in mind that a personalized retirement plan is good to have as it will ensure you can live the retirement life you envisioned and will help make your retirement transition stress-free. If you have any questions about your retirement plan or if you are looking to start planning for your retirement, AWealth Management can help, call us today to schedule a risk-free consultation, 416-666-7264.
What are the Benefits of Having an RRSP?
If you have looked into any form of retirement plans, you more than likely have come across RRSP offerings before. RRSP stands for Registered Retirement Savings Plan and is a special retirement account that you can register with the federal government. With this type of registered account, you can easily save for your retirement and access your funds when it comes time to retire.
Having an RRSP comes with certain advantages such as:
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You enjoy tax-deductible contributions
Your contributions to an RRSP can be claimed as a deduction on your tax return. These tax-deductive contributions work for people of all tax brackets. For instance, if you fall into Ontario’s top tax bracket, each $1000 you put in your RRSP account will lower your tax by about $535. However, if you fall in the lower tax bracket, you are allowed to transfer the deduction to a future date when you may be earning more. With this, you can enjoy better tax savings with proper tax planning.
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You can grow your savings without paying tax
Normally, you need to pay some tax on your investment earnings. However, if you have an RRSP contribution, you don’t have to pay tax on anything you earn from your investment. As a result of this, your savings will grow without a dip caused by paying tax on your earnings.
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It reduces your combined tax burden through a spousal RRSP
If your income is significantly higher than that of your spouse, you should consider opening a spousal RRSP to save without tax. With the aid of a spousal RRSP, you can divide your retirement income into two equal parts. As such, the total payable tax on the money will be significantly reduced.
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You can convert your RRSP into regular payments after retirement
Once you have retired, this exceptional plan allows you to convert your RRSP savings into an annuity or RRIF. It is worthwhile to note that this conversion doesn’t require any tax. Afterward, you will be getting regular payments during your retirement while paying only the regular tax on the amount you get annually. Furthermore, you can pay less tax if you belong to a lower tax bracket.
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You can borrow money from it for education or for your first-home purchase
Are you planning to return to school? Would you like to purchase your first home? If the answer is yes, an RRSP can make life easier for you. Using the Home Buyers’ Plan (HBP), you are allowed to withdraw as much as $25,000 to use as a down payment for buying your first home. Also, you can take advantage of the Lifelong Learning Plan (LLP) to get as much as $20,000 to pay for your education or your spouse’s education. If you return the money within the agreed timeframe, the withdrawals will not require any tax.
With these benefits of an RRSP, you will agree that it is a plan that everyone should consider. If you have any doubt about this plan, don’t hesitate to get in touch with a financial advisor. Apart from explaining the plan, a seasoned financial advisor can help you set up your RRSP account as well as provide direction on where to invest your savings.
What is RRSP and How Does it Work?
Are you searching for the perfect way to secure your future? Are you looking for a great investment you can rely on when you retire? An RRSP may be the right solution for you. If you already have a financial advisor, chances are you have heard them mention it before. If you haven’t, no matter as we will be introducing you to RRSPs below:
What is RRSP?
RRSP is the acronym for Registered Retirement Savings Plan. It is an account specially designed to help Canadians save for their retirement. Contributions are made to the account every year to build up long-term savings, to be used for retirement.
RRSPs have been around in Canada since 1957. The account benefits from tax deferment until retirement. RRSP was created by the government to give tax breaks to individuals that invest money in RRSP, as motivation to save for their retirement.
How Do RRSPs Work?
The most significant feature of RRSP is how it is taxed. Contributions made into your RRSP are tax-deductible. As long the money remains in the account, it grows tax-free. But when the money is withdrawn, taxes will be paid as if it is income. The benefit of this is when it comes time for retirement, your annual income will most certainly be lower than it is currently.
For instance, if you earn $78,000 per year and you decide to save $14,000 to the RRSP. When it comes to taxation, the CRA will tax you as if you earned $64,000. Although the tax deferment does not mean tax-free, you will pay the tax eventually when you withdraw the money from your RRSP. However, the tax payable on these funds will surely be lower compared to paying income tax at the time when earned.
What Is the RRSP Contribution Limit?
As a registered account, RRSPs are regulated by certain rules. One of the rules guiding running an RRSP account is the amount of money you can contribute in any given year. The maximum amount you can save is either 18% of the previous year’s income or a maximum amount, whichever is smaller.
The Canada Revenue Agency usually regulates and specifies the maximum RRSP deduction limit allowable for each year. For 2020, the limit allowed was $27,230 while $27,830 is allowed for 2021. The limit is set to avoid excess contributions.
If you want to minimize the effect of taxes on your income and save for retirement, an RRSP may be a good option. Speak with your financial advisor for guidance on how to open an RRSP account and how to make contributions to the account without hassles.
Why Should I Get an RRSP?
A Registered Retirement Savings Plan (RRSP) is a savings account that you register with the federal government intended to assist you in saving for your retirement. Since this form of savings is not the only retirement plan available, you may be wondering why you should invest your hard-earned money into an RRSP.
To help highlight the reasons to open an RRSP, we asked a few of our financial advisors to share their top reasons below:
Your Contributions are Tax-Deductible
One of the most popular reasons shared as to why open an RRSP is that your contributions to the plan are tax-deductible. In other words, your RRSP contribution can be claimed as a deduction from your income on your tax return. As well, if you experience a reduction in your income, the tax deduction for your contribution can be held until your income increases once again. Consequently, once you have moved into a higher tax bracket, you will enjoy greater tax savings on your contributions.
Your RRSP Can Be Converted to Regular Payments After Retirement
Your RRSP savings can be easily converted into an annuity or an RRIF after you have retired without paying any tax. However, once converted, you cannot avoid paying tax on the regular payments that will be sent to you annually. Nonetheless, if you fall into a lower tax bracket after retiring, your tax will be lower.
Your Savings Increase Over Time
If you continue keeping your investment earnings in an RRSP, you will not be required to pay any tax on them or any income earned. As a result of this, you can rest assured that your savings will keep growing over time.
You Can Borrow from an RRSP to Finance Your Home or Education
Are you planning to buy your first home? Would you like to pay for your education? RRSPs allow you to borrow from your contribution to take care of these key items. For your first home, you can get as much as $25,000 from your RRSP contribution through the Home Buyers’ Plan (HBP). If you want to finance your education or that of your spouse, you can borrow as much as $20,000 from RRSP via the Lifelong Learning Plan (LLP). As long as you ensure the money is repaid within the agreed timeframe, you don’t need to pay any tax on the loans.
A Spousal RRSP is Capable of Lowering Your Combined Tax Load
If your income is higher than that of your spouse and you want to assist them to improve their tax-free savings, you can take advantage of a spousal RRSP. The spousal RRSP will allow you to divide the retirement income into two equal parts. As a result of this, the total amount of tax on each part may be lowered.
An RRSP may not be right for everyone, but with the above information and the expert advice of a financial advisor you will be better prepared to make that decision for your future.
5 Ways to Save a Down Payment for a Home or Any Other Big Purchase
Saving money for down payments on a home or another large purchase can oftentimes be challenging. The financial requirements of everyday life can interfere with saving money, especially those unexpected requirements such as car repairs or medical emergencies. It can leave you feeling as though there is no way you can achieve your savings target. However, there is always a way to achieve your financial goals, and with some smart financial decisions you can save up for that down payment quicker than you think.
Here are 5 ways to save money and achieve your financial goals.
Partner With A Financial Advisor
A financial advisor is invested in helping you achieve your financial goals. They will answer any questions regarding finances you may have and help you improve your financial literacy. They will also help you invest your money wisely so you can achieve your goals sooner.
Prioritize
Understanding what expenses are considered a need versus a want versus a nice to have is important when looking to save money. Needs should be prioritized above wants, and nice to have should be pretty much eliminated. Prioritization also comes in with your wants, as you should cut back on unnecessary expenses while still enjoying life. Achieving your long-term financial goal of saving for your large purchase or for a deposit on a home, should be a priority as well.
RRSP Contributions
If you’re intending to purchase your first home, you can withdraw up to $25,000 from your RRSP. This is an excellent approach to help save for a down payment, and it can help avoid financial distress. Not only will investing in an RRSP help to lower the total taxes you will need to pay at the end of the year, but you can also pay back the money to your RRSP in annual installments. You should discuss with your financial advisor for additional information on how withdrawing money from your RRSP for purchasing your first home will benefit you.
Tax-Free Savings Account
A tax-free savings account is a great solution for saving for a down payment. Your invested money can grow and accrue interest, tax-free. You won’t be responsible to pay any taxes on the growth of the money in this account. Your financial advisor can cover the nuances of this method of saving for your home’s down payment.
Pay Off High-Interest Debts
With today’s low-interest rates, you may be tempted to continue paying off the minimum payments on what you owe. It is important that you compare the amount your interest paid on your debts versus the amount of interest earned on your savings. Begin by paying off the higher interest debts first, this will allow you to pay down the principle quicker, and save on interest fees. Another benefit of paying off your debt is when the time comes to apply for a mortgage, you wouldn’t want past purchases to interfere with your approval.
When saving for a down payment for a home or saving for any other large purchase becomes a priority, you need to formulate a plan to achieve this goal. It is a good idea to have a professional on your side, start by partnering with a reliable financial advisor who can help you achieve your financial goals. Together put a plan in place, follow the plan, and achieve your targets.
How To Save For Retirement?
Planning for retirement is something that you can never start doing too early, but in reality is something many of us put off, and do not prioritize until later in life. When you are younger and working to pay off monthly expenses and to have some expendable cash for outing and frivolous spending, saving for your retirement may not even be a thought. But, at a certain point, you must ask yourself, how much longer do I intend to work? And, what type of lifestyle do I plan on living when the steady paycheques stop coming in? These are universal questions that almost everyone will ask themselves and perhaps even worry about. The earlier you begin saving for your retirement, the more comfortable you will be taking on these questions, and the more certain you will be about the type of lifestyle you can lead after retirement.
To assist you with preparing for retirement, we have put together these tips on how to save for your retirement.
Start retirement planning as early as possible
You may think it is too early to start planning for my retirement in my 20s or even 30s, but this is not true. Even though there is plenty of time before you begin to contemplate retirement, with every day that passes there is less time to prepare for it. The earlier you begin saving, the better off you will be. Every month try to save something for your retirement and put it in a separate saving account or RRSP. Even if it is only $25 a month, it is a starting point for your retirement fund. And by the time you are ready to retire, you will find that you were able to accumulate a nice sum of funds to help you enjoy your retirement.
Make a budget and stick to it
A budget helps you control your expenses, by building a budget you set the amount of money you have to spend on different areas of your life on a monthly basis. For many, building a budget is not difficult, all you need to know is how much money is coming in and where to allocate the funds. Sticking to a budget is the hard part because you can always find a reason to justify buying something or spending money on a night out. Even though there will always be some unexpected expenses that will fall outside your fixed expenses, you are still able to account for these by budgeting some funds monthly for unexpected expenses. In your budget, you can help increase the amount you are saving by reviewing and reducing your non-essential spending.
Seek a professional
Saving is not the only way to prepare for your retirement, when selecting your career path, you can find a position with an organization that has great retirement benefits. However, this is not always an option. Another way to increase your funds for retirement is to have your money work for you. Having your saving just sitting in a low-interest account may be safe and comfortable, but your money is not growing at an optimum rate or even the rate of inflation.
Seeking the assistance of a professional financial advisor can help accelerate the rate of return on your savings. Once you sit down with a financial advisor, you will be introduced to all of the different options available for you to plan out your retirement. Your financial planner will guide you through the different options and the risks associated with each, they will also help you with your monthly budgeting to ensure you still have enough money to continue to enjoy your current lifestyle.