As Chilliwack, Abbotsford and Mission Mortgage Brokers, changes happen daily in our industry, so we usually just role with the punches. But recently there has been one change that we think will affect clients buying real estate in our local area. Specifically, it will impact their ability to purchase homes.
The problem comes from “MAGIC PAYMENTS”. This Term is officially coined and registered right here and now by Jordi Browne. LOL 😉
Institutions are now making up fictional payments for your Lines of Credits and Credit Cards when you are applying for mortgage. They call it a “financial stress test,” but realistically, it’s a Magic Payment that never existed before and won’t probably exist in the future.
The funny thing is this: not all lenders have implemented this “black magic,” so if you get declined through your lender, don’t worry–it does not mean that another lender won’t be able to help you. (This is where a great mortgage broker can help.)
Below is a list of examples you might come across when applying for a mortgage:
- Lines of Credit Mortgages
- Unsecured Credit Cards
- Traditional Lines of Credit
Most institutions have now implemented a 3% repayment factor on these when qualifying for a mortgage. For example, if you owe $5000 on your Line of Credit, your actual payments would be around $30/mth. With some banks’ new Magic Payment Calculation at a 3% repayment factor, that would mean a payment of $150 that goes straight into their system, which harms your ability to qualify for a mortgage.
Some lenders are also calculating the payment of your total available limit on your credit cards, not the balance owing. So, if you have a $10,000 credit card or line of credit with a balance of zero, the bank will still penalize your mortgage application with a $300 “Magic Payment.”
Lines of Credit that you may have in the form of a Mortgage secured against your home have now become a liability, too–and this one I cannot figure out for the life of me.
A wealthy client of ours, who had a $500,000 free and clear line of credit on his house, received a turn-down notice from a bank for a new mortgage because they applied a huge Magic Payment to his credit application. Traditionally, banks never include a Magic Payment just because a client has a chance he could borrow against it.
They took the $500,000 and put it into their MAGIC PAYMENT calculator and came out with $1916 payment per month. So this client, who had done everything right and owed nothing in the form of debt, had problems qualifying himself through his own bank. As mortgage brokers, we went to a local credit union that did not use this method and qualified him. He was approved quite easily, but the initial turn down from his bank was a real shock for him.
These are just some reasons that if you are a home buyer in Abbotsford (or surrounding areas, such as Mission and Chilliwack), you want to use a mortgage broker. Just because one bank might not approve your mortgage, does not mean that a mortgage broker cannot find you an approval that is the right fit for you.