This is where your finance takes place

As mentioned in my previous article related to the mortgage, several products have been created throughout the years by financial institutions in order to meet all kinds of clients’ needs. On of them is the home equity line of credit (HELOC). This huge flex line could be a very interesting product if you master its characteristics. In order to do so, we offer an overview of this financial tool.

Definition

An HELOC is a flex line secured by a property. Financial institutions will grant a line of credit that can go up to 75% of the market value of your residence. In some cases, this amount can go even higher than 75%! The HELOC works the same way as a regular line of credit in term of rate and minimum payment. However, the amount granted is much higher.

Once you are approved, an appraiser will visit your property. He will make two kinds of calculations. One is based on the cost of rebuilding and the other is based on recent sales in the area. He will average both of them and provide the bank with a final value. Once this step is completed, the file is sent for registration and you will then sign the final paperwork.

Needs

The most common need for an HELOC is definitely to finance the purchase of a property. However, this mortgage offers more flexibility than any other types of loans. You can use it for renovation, buying a car, traveling and event to invest on the stock market. Since the granted amount is revolving, you have the option to withdraw up to the limit any time you want. Therefore, you can finance a variety of projects without going back to your banker everything.

Another interesting characteristic of this product is that it can be divided into more than one account. Each account has their number and credit limit. Therefore, you can easily separate your HELOC according to your needs and apply different payment on each payment.

Qualification

In order to qualify for an HELOC, several criterions will be looked at. The first one will be the TDSR. As it gives more flexibility than a regular mortgage, the HELOC requires a debt ratio lower than 40%. The credit rating represents an important factor also. Because an individual might end up with a three hundred thousand flex line, bankers are looking to people that are very diligent with their credit. Liquid assets as stocks and mutual fund can compensate for a higher debt ratio. Finally, the net worth will also play a role as it will show the client’s ability to manager his assets and to have them grow overtime.

Negotiation

Unless you are not approved for the full 75% of your property value, there is nothing much to negotiate. Interest rate will be at prime most of the time. In regards to the appraisal value, banks use accredited appraiser in which they have faith. They might increase the value by another 3% as a bigger increase would represent an unethical act for them.

In conclusion, the HELOC could be use for different projects and can also be included in financial strategies. Even if the flex line is secured, a good credit rating and TDSR will be necessary to qualify for. In the end, the HELOC could be an amazing product but will require self control and maturity in its usage.

The Biggest purchase of your life will surely be your house. As most individuals can’t afford the full payment, banks created several financial products to fulfill this need. The most common type is called a mortgage. In this section, we will do a quick overview of this kind of credit before we can go deeper in the characteristics.

Definition

The mortgage is an amount of money granted to an individual purchasing a property. This property can be a house, a condo or even a rental property. In order to secure its loan, the financial institution will take a 1sr rank lien on the property. In other words, the lender is legally binding the property to the mortgage. In the event of default, the creditor will obtain legal possession and right of use of your property. You would therefore loose your asset and the bank will pay itself with the sale of the property.

Since mortgages are contracted for significant amount, they have also bigger amortization. Mortgages have a term and an amortization. The term determined the date of renewal. It usually goes from six months to ten years. As previously mentioned in another article, the amortization represents then length of the loan. As we are dealing with more substantial amount than with the personal loan, the amortization is longer. It was recently increased up to forty years depending of the institution and the type of product.

Needs

The most common need for a mortgage is obviously to buy a property. However there are other needs that can be fulfilled by this product. As an example, an individual could apply for a mortgage to purchase another asset. If he has enough equity in his main residence, he can give it as collateral to purchase a second residence, a rental property or even a car. He would definitely get better lending conditions (amortization, rate, flexibility, etc). Another usage is to consolidate debts. Since de loan will be secured, the individual will get a better rate than with a regular consolidation loan.

Qualification

As mortgages are secured loans, it is easier to qualify for. Most banks will look at your TDSR (Total Debts Servicing Ratio). This ratio should be lower than forty percent. However, if your ratio is higher, financial institutions might approve a lower percentage of financing. Liquid assets like mutual funds, GIC’s or stocks will also be considered to compensate for a high debt ratio. Credit rating and net worth will also be part of the picture. Showing a growing net worth on your balance sheet will demonstrate that you can accumulate assets. Therefore, you are financially mature enough to respect a mortgage contract and all other property expenses. Adding your spouse on the loan will also help out. Banks are more comfortable with more than one individual on the mortgage documents.

Negotiation

The mortgage industry is highly competitive. Therefore, it gives you the opportunity to negotiate several points on you loan. I would suggest you meet with two to three different institutions in addition to meeting a mortgage broker. They will offer different products, rates, terms and one might suits your interest more than the others. The mortgage broker will take your file and shop around for the best rate in town. That requires less effort and you might end up with a better rate than with your negotiation skills. As mentioned in my previous articles, consolidating all financial products with the same institution will give you better lending conditions. A good credit rating could also help to reduce the interest rate. In the end, it is really important that you understand different products offer by banks in order to select the kind of mortgage that suits you best.

The mortgage is probably the biggest loan you will ever sign for. Therefore, it is really important you understand every characteristics of each mortgages. You can negotiate the rate, the term and the amortization in order to get the best deal possible. In the end, you mortgage will bring you to your dream: ownership.

Every month, it’s the same thing. You deposit your pay stub and the next day, nothing’s left. If your monthly payments are too high and you are struggling at the end of each month, the consolidation loan might be an option. In this article, we will explore this financial tool and the idea behind it.

Definition

A consolidation loan is a regular personal loan. The main difference lies within the need. This type of loan is used to pay off other debts such as credit cards, lines of credit or other personal loans. In many cases, the individual accumulated too many debts on his revolving credit account and wants to be brought back to a define monthly payment.

The rate and term of the loan are determined by the regular personal loan’s rules. The bank might charge a higher interest rate as this type of loan is more risky for them. As the main goal is to regroup all debts under one loan and decrease the payments, most loans will be on a five years term.

Needs

As previously mentioned, the consolidation loan was created to pay off other debts. This is the main reason why financial institutions will most likely request to close all revolving credits. This financial product helps to decrease monthly payments but also forces you to respect a budget.

In fact, by cutting off your credit cards, you will decrease significantly your psychological buying power. I use the word “psychological” as many individuals consider their granted limit or their credit cards as a mean to finance goods. Some people literally use them as they were with unlimited funds. The personal can’t be increased unless you apply gain for more money. Therefore, you will be more controlled over you spending habits.

Qualifications

As long as you don’t wait until the last minute, you should be able to qualify for a consolidation loan based on your credit rating and your TDSR. Most institution will consider your TDSR after consolidation. Unfortunately, we often see people applying for this kind of loan when they already missed payments or when they have too many debts to consolidate. My advice to you is to consolidate your debts as soon as you realize that you won’t be able to pay more than the minimum payment required on your credit cards. You should also close any revolving accounts in order to re-establish a well balance budget.

Negotiation

When an individual applies for a consolidation loan, it means that he definitely needs the help from others. This immediate need for credit reduces his negotiation power to nil. Several lenders will make a “take it or leave it” offer. If you really need this loan, you will have to take it as offered.

To conclude on the consolidation loan, I must remind you that the faster you consolidate the better your chances to get rid of your debts are. The consolidation is the action of bringing together more than one debts. That will help to reduce your monthly payment and will put you on a fixed repayment schedule. Be sure to not waste the money saved by consolidating. If you do so, you will be soon in the same bad situation and you might not be able to consolidate your debts again.