Protecting Your Credit Score Through COVID-19
Zach Silverman | 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 us anytime. We’re all in this together!
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Buying a home is one of the biggest financial commitments you’ll ever make. That’s why lenders want to be sure you can handle your mortgage payments—not just today, but also if interest rates rise in the future. This is where the mortgage stress test comes in. Many Canadians hear the term but aren’t entirely sure what it means or how it affects them. Let’s break it down in plain language. What Is the Mortgage Stress Test? The stress test is a rule introduced by the federal government that requires all mortgage applicants to qualify at a higher rate than the one they’ll actually pay. Currently, you must qualify at the greater of your contract rate + 2% or the benchmark qualifying rate (set by the Office of the Superintendent of Financial Institutions). For example: If your lender offers you a 5-year fixed mortgage at 5.25%, you must show you could still afford the payments at 7.25% . Even if rates don’t rise that high, the stress test ensures you won’t be overextended if they do. Why Does It Matter? The stress test protects both borrowers and lenders by: Preventing over-borrowing : It ensures you don’t take on more debt than you can realistically handle. Preparing for rate hikes : With interest rates fluctuating, it’s a safeguard against sudden increases. Strengthening financial stability : It lowers the risk of defaults, protecting the housing market as a whole. While it can sometimes feel like a barrier—reducing the amount you qualify for—it’s ultimately designed to keep you from becoming “house poor.” How Does It Impact Buyers? The stress test can significantly affect your homebuying budget. For example, without it, you might qualify for a $600,000 mortgage, but with the stress test applied, you may only qualify for $500,000. That doesn’t mean your dream of homeownership is out of reach—it just means you may need to adjust expectations or explore other strategies, such as: Increasing your down payment Paying down existing debts Considering alternative lenders who may have different qualification standards Why Work With a Mortgage Professional? Every lender applies the stress test, but not every lender views your application the same way. An independent mortgage professional can: Shop multiple lenders to find the best fit Run affordability scenarios at different rates Help you understand how much house you can truly afford—without stretching your finances too thin The Bottom Line The mortgage stress test isn’t meant to stop you from buying a home—it’s there to protect you from financial strain down the road. By understanding how it works and planning ahead, you can make smarter choices and buy with confidence. If you’re thinking about purchasing a home, refinancing, or simply want to know how the stress test affects your options, connect with us today. We’ll help you stress-test your budget and find the mortgage solution that works best for you.
You’ve found the right home, your offer’s been accepted, and your financing is approved—congratulations! But before you can pick up the keys and celebrate, there’s one more important stage: the closing process. Closing is the final step in your homebuying journey, where all the paperwork, legal details, and financial transactions come together. It can feel overwhelming if you don’t know what to expect, but with the right preparation, closing can be smooth and stress-free. Here’s a step-by-step guide to help you understand the process. Step 1: Hire a Lawyer or Notary A real estate lawyer (or notary, depending on your province) handles the legal side of closing. They will: Review the purchase agreement and mortgage documents Conduct a title search to confirm the seller has the legal right to sell the property Ensure the mortgage lender is properly registered on the title Handle the transfer of funds between you, the lender, and the seller Your lawyer or notary will be your main point of contact during closing, so choose one you trust and who communicates clearly. Step 2: Finalize Your Mortgage Your lender will send the mortgage instructions directly to your lawyer or notary. At this stage: You’ll provide proof of property insurance (lenders require this before releasing funds) You’ll confirm your down payment and closing costs are available in your lawyer’s trust account The lawyer will prepare all documents for your review and signature Step 3: Pay Closing Costs Closing costs typically range from 1.5% to 4% of the purchase price. These can include: Legal fees Title insurance Land transfer tax (where applicable) Adjustments for property taxes or utilities prepaid by the seller Home inspection or appraisal fees (if not already paid) Your lawyer will provide a final statement of adjustments so you know exactly how much is due on closing day. Step 4: Sign the Paperwork A few days before closing, you’ll meet with your lawyer or notary to sign all the necessary documents, including: Mortgage agreement Title transfer Insurance confirmations Statement of adjustments Bring valid government-issued ID to this appointment. Step 5: Transfer of Funds On the day of closing: Your lender sends the mortgage funds to your lawyer Your lawyer combines these funds with your down payment and pays the seller Legal ownership of the property is transferred into your name The lender is registered on title as a secured creditor Step 6: Get the Keys! Once the paperwork is filed and the funds have cleared, your lawyer will confirm that the transaction is complete. You’ll then get the keys to your new home—officially making it yours. The Bottom Line The closing process is a series of important steps, but with the right team in place, it doesn’t have to be stressful. By working closely with your mortgage professional and lawyer, you’ll have guidance every step of the way—from signing the documents to turning the key in the front door. If you’d like help preparing for the closing process—or want a clear breakdown of your own closing costs— connect with us today.
