Understanding Credit And How It Relates To Your Mortgage

Dean Garrett • July 25, 2024

Credit. The ability of a customer to obtain goods or services before payment, based on the trust that you will make payments in the future. When you borrow money to buy a property, you’ll be required to prove that you have a good history of managing your credit. That is, making good on all your payments.

But what exactly is a “good history of managing credit”? What are lenders looking at when they assess your credit report? If you’re new to managing your credit, an easy way to remember the minimum credit requirements for mortgage financing is the 2/2/2 rule. Two active trade lines established over a minimum period of two years, with a minimum limit of two thousand dollars, is what lenders are looking for.

A trade line could be a credit card, an instalment loan, a car loan, or a line of credit; basically, anytime a lender extends credit to you. Your repayment history is kept on your credit report and generates a credit score. For a tradeline to be considered active, you must have used it for at least one month and then once every three months.

To build a good credit history, both of your tradelines need to be used for at least two years. This history gives the lender confidence that you’ve established good credit habits over a decent length of time.

Two thousand dollars is the bare minimum limit required on your trade lines. So if you have a credit card with a $1000 limit and a line of credit with a $2500 limit, you would be okay as your limit would be $3500. If you’re managing your credit well, chances are you will be offered a limit increase. It’s a good idea to take it. Mortgage Lenders want to know that you can handle borrowing money.

Now, don’t confuse the limit with the balance. You don’t have to carry a balance on your trade lines for them to be considered active. To build credit, it’s best to use your tradelines but pay them off in full every month in the case of credit cards and make all your loan payments on time.

A great way to use your credit is to pay your bills via direct withdrawal from your credit card, then set up a regular transfer from your bank account to pay off the credit card in full every month. Automation becomes your best friend. Just make sure you keep on top of your banking to ensure everything works as it should.

Now, you might be thinking, what about my credit score, isn’t that important when talking about building a credit profile to secure a mortgage? Well, your credit score is important, but if you have two tradelines, reporting for two years, with a minimum limit of two thousand dollars, without missing any payments, your credit score will take care of itself, and you should have no worries.

With that said, it never hurts to take a look at your credit every once and a while to ensure no errors are reported on your credit bureau. So, if you’re thinking about buying a property in the next couple of years and want to make sure that you have good enough credit to qualify, let’s talk.

Connect anytime; it would be a pleasure to work with you and help you to understand better how your credit impacts mortgage qualification.

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Dean Garrett

Mortgage Professional

Your Guide To The A First Home Savings Account (FHSA)

By Dean Garrett • March 6, 2025

Dreaming of owning your first home? A First Home Savings Account (FHSA) could be your key to turning that dream into a reality. Let's dive into what an FHSA is, how it works, and why it's a smart investment for first-time homebuyers. What is an FHSA? An FHSA is a registered plan designed to help you save for your first home taxfree. If you're at least 18 years old, have a Social Insurance Number (SIN), and have not owned a home where you lived for the past four calendar years, you may be eligible to open an FHSA. Reasons to Invest in an FHSA: Save up to $40,000 for your first home. Contribute tax-free for up to 15 years. Carry over unused contribution room to the next year, up to a maximum of $8,000. Potentially reduce your tax bill and carry forward undeducted contributions indefinitely. Pay no taxes on investment earnings. Complements the Home Buyers’ Plan (HBP). How Does an FHSA Work? Open Your FHSA: Start investing tax-free by opening your FHSA. Contribute Often: Make tax-deductible contributions of up to $8,000 annually to help your money grow faster. Withdraw for Your Home: Make a tax-free withdrawal at any time to purchase your first home. Benefits of an FHSA: Tax-Deductible Contributions: Contribute up to $8,000 annually, reducing your taxable income. Tax-Free Earnings: Enjoy tax-free growth on your investments within the FHSA. No Taxes on Withdrawals: Pay $0 in taxes on withdrawals used to buy a qualifying home. Numbers to Know: $8,000: Annual tax-deductible FHSA contribution limit. $40,000: Lifetime FHSA contribution limit. $0: Taxes on FHSA earnings when used for a qualifying home purchase. In Conclusion A First Home Savings Account (FHSA) is a powerful tool for first-time homebuyers, offering tax benefits and a structured approach to saving for homeownership. By taking advantage of an FHSA, you can accelerate your journey towards owning your first home and make your dream a reality sooner than you think.

Is It the Right Time to Refinance? 5 Signs You Should Consider It

By Dean Garrett • February 27, 2025

Refinancing your mortgage can be a smart financial move, but how do you know if it’s the right time? Whether you’re looking to lower your monthly payments, access home equity, or consolidate debt, refinancing can offer valuable benefits. Here are five key signs that it might be the right time to refinance your mortgage in Canada. 1. Interest Rates Have Dropped One of the most common reasons Canadians refinance is to secure a lower interest rate. Even a small decrease in your mortgage rate can lead to significant savings over time. If rates have dropped since you took out your mortgage, refinancing could help you reduce your monthly payments and save thousands in interest. ✅ Tip: Check with your mortgage broker to compare your current rate with today’s market rates. 2. Your Financial Situation Has Improved If your credit score has increased or your income has stabilized since you first got your mortgage, you might qualify for better loan terms. Lenders offer lower rates and better conditions to borrowers with strong financial profiles. ✅ Tip: If you’ve paid off debts, improved your credit score, or increased your savings, refinancing could work in your favour. 3. You Want to Consolidate High-Interest Debt Carrying high-interest debt from credit cards, personal loans, or lines of credit? Refinancing can help consolidate those debts into your mortgage at a much lower interest rate. This can make monthly payments more manageable and reduce the overall cost of borrowing. ✅ Tip: Make sure the savings from refinancing outweigh any prepayment penalties or fees. 4. You Need to Free Up Cash for a Major Expense Many Canadians refinance to access their home’s equity for renovations, education costs, or major life expenses. With home values rising in many areas, a refinance could help you tap into that value while still keeping manageable payments. ✅ Tip: Consider a home equity line of credit (HELOC) if you need flexible access to funds. 5. Your Mortgage Term is Ending, and You Want Better Terms If your mortgage is up for renewal, it’s the perfect time to explore refinancing options. Instead of simply accepting your lender’s renewal offer, compare rates and terms to see if you can get a better deal elsewhere. ✅ Tip: A mortgage broker can help you shop around and negotiate better terms on your behalf. Is Refinancing Right for You? Refinancing isn’t always the best move—there can be penalties for breaking your current mortgage, and not all savings are worth the switch. However, if you relate to any of the five signs above, it’s worth discussing your options with a mortgage professional. Thinking about refinancing? Let’s chat and find the best option for you!