As we mentioned in the previous blog, Joe & Mary have two obstacles that they have to overcome:

1) They will have to come up with equity to bring their mortgage below the maximum of 95% of the value of the property. (95% of $90,195 = $85,685.) However, their mortgage balance at renewal is $86,498, so they will have to pay in $86,498-$85,685 = $813 in equity to qualify for the mortgage.
2) Mortgage insurers such as CMHC and Genworth will not insure borrowers who have credit scores below 620. As I stated before, any mortgage that has a Loan to Value (LTV) higher than 80% is a high ratio mortgage and prime lenders will require it to be insured with a mortgage insurer. Thus, if Joe & Mary, or one of them, have damaged their credit so that their credit scores are below 620 they will no longer qualify for the mortgage insurer’s requirements and thus neither for a mortgage.

From all of this then we can see the following:

1) If your mortgage renewal is four or five years from today then you should have enough equity in your home to qualify for a mortgage. If your mortgage renewal is in 2009 I suggest that you do some estimations of your property value and then calculate your Loan to Value to ensure that it is below 95%. If it is above 95% make sure that you have access to equity to make up the difference. You will be able to borrow the difference, but only if your debt service ratios are not too high.
2) More than equity in our homes it is essential that we know how our credit works, what damages it and what builds it. Your credit worthiness is more important that your income! (Have you though why?) Check equifax.ca regularly to see the status of your credit. Although the report that you as a consumer sees at Equifax does not disclose your actual credit score it gives enough information that will enable you to judge your credit worthiness. If Joe and Mary have damaged their credit scores then no prime lender will borrow to them and they will be in default of their mortgage.

Their are many things that I could not mention here, just because there is not enough space for it. Things like debt service ratios and various options available to you through a mortgage broker (that banks don’t offer) are very important, but we ran out of space. It would be my privilege to meet with anyone who requires more information and a solution. You can compare other scenarios to determine your best mortgage options here.