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Top 10 Mistakes to Avoid after a Mortgage Approval or Pre-Approval

February 8, 2019 By camilo.rodriguez

No. 1:  Applying for new credit

Mortgage lenders are required to do a second credit check before a final loan approval in most cases.

“If it’s just an inquiry, that usually doesn’t cause a problem, but if you’ve opened a new account then it will have to be verified and that could delay your final approval.  It may also reduce your mortgage amount if you are taking on credit after the approval and before funding.

Your credit score could change because of the new credit, which may mean that your interest rate may be adjusted accordingly.

No. 2:  Making major purchases

If you buy furniture or appliances with credit, your lender will need to factor in the payments to your debt-to-income ratio, which could result in a canceled or delayed in your final approval. 

If you pay cash, you’ll have fewer assets to use for a down payment and cash reserves, which could have a similar impact.

Do not purchase any other property until you have funded this mortgage.

No. 3:  Paying off all your debt and Closing Accounts

Every move you make with your money will have an impact, so you should consult with your Mortgage Broker/Professional before you do anything. 

 Closing out accounts can reduce your beacon or credit score.   Reducing your cash reserves may also affect your overall application.   

Please do not skip any visa, line of credit or any credit payment.

No. 4:  Co-signing loans

Borrowers sometimes assume that cosigning a student loan or car loan won’t impact their credit, but it’s considered a debt for both signers and it will reduce your mortgage approval significantly.

No. 5:  Changing jobs

Do not change jobs after a preapproval or approval, even if it seems like a good move.   This may void your approval altogether. 

Consult with your mortgage professional or delay the move after your mortgage has funded.

No. 6:  Ignoring lender requests

If your lender recommends or requests something specific, you should follow directions and provide it right away. 

Providing all documents as soon as they are requested help avoid delays.

No. 7:  Falling behind on your bills

You must pay all bills on time and avoid overdrafts on any account.  Do not skip any payments and pay all bills on time.

No. 8:  Losing track of deposits

Be organized with your down payment and cash reserves.  Do not move money around.  If possible keep in in only 1 account until funding. 

Make sure you can track all your money for the last 3 months.

No. 9:  Forgetting to inform your lender of changes

Any changes to the Purchase Agreement needs to be disclosed to the lender.  Please keep your mortgage professional up to date if your contract changes or anything on your financial situation.

No. 10: Take a Vacation or leave your city

Going away before funding your file is a risky proposition.  Please be available at all times. 

Sometimes lenders need last minute confirmations or documentation and not being available will cause you problems.

Filed Under: Mortgages FAQ, Uncategorized

Mortgage Penalty Calculator

October 27, 2012 By camilo.rodriguez

Banks use two main formulas to calculate the penalties. First, they use the 3-month interest formula and second, the interest rate differential, or IRD.

Mortgage Penalty Calculations

Let me explain to you how bank calculates your Mortgage Break Penalty…
So let’s assume that you have a $400,000 mortgage and you took a 5-year term.

Let’s also assume that you have three years left on your mortgage when you break your mortgage. So, how do I calculate the penalties on closed mortgages? First, if you have a variable rate mortgage at 2.5% the calculation is only the three months interest penalty.

“If you have a variable rate mortgage, the penalty is only three months interest”

So, you take your balance, you multiply it by your current rate and then you multiply it again by 3 months divided by 12 in a year. That’ll give you a penalty of $2500. If you have a fixed rate penalty, let’s assume at a rate of 3.1%, it will be the higher of the two calculations.

“If you have a fixed rate mortgage, the penalty is the higher of three months interest and the Interest Rate Differential Calculation”

So, on the interest rate side, you take your current rate of 3.1% less the three-year rate of the bank that you chose, 2.6%, you create a difference of 0.5%. Now you take your balance times the months remaining, in this case, it’s 36 months, times the IRD, divided by 12, and that will create a penalty of $6,000.

Some other banks use a different calculation method. They take the three-year rate, the 2.6%, and then subtract the discount received of 1.5%. Now they take this calculation of 1.1 and they subtract it from your current 3.1% rate, creating a higher IRD or higher differential of 2%.

“Be very careful when the bank uses posted rates to calculate your Interest Rate Differential or IRD.  This is the factor that multiplies a penalty, this is how $6,000 becomes $24,000”

Now, you take your mortgage balance of $400,000 times your months remaining of 36 months, times the higher IRD of 2%, divided by 12 creating a $24,000 penalty. Be very careful with the penalty break structure of your bank.

Brought to you, again, by MortgagesLab.

Mortgage Penalty Calculator Menu

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Tags: Mortgage Penalty Calculator RBC, Mortgage Penalty Calculator TD, Mortgage Penalty Calculator Scotiabank, Mortgage Penalty Calculator HSBC, Mortgage Penalty Calculator BMO, Mortgage Penalty Calculator CIBC.

Filed Under: Mortgages FAQ Tagged With: Mortgage Penalties, Mortgage Penalty, Mortgage Penalty Calculator

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