Mortgage 101 – the relationship with your credit card | October 2021 Part 3

In this episode of Mortgage 101 with Clinton Wilkins and Todd Veinotte, as heard on News 95.7, the guys talk about the relationship with your credit card: From knowing when your credit card fee will come in, managing a backup credit card, leasing large home improvement equipment (like heat pumps), to purchasing and operating investment properties. The bottom line no matter what: “You can’t just use your home as a constant ATM.”

Mortgage 101 with Clinton Wilkins & Todd Veinotte: The relationship with your credit card | October 2021 Part 3

Don’t feel like watching the video? Check out the transcript below.

Transcript:

Don’t forget about your credit card fee

Todd Veinotte: [00:00:00:01] Welcome back to Mortgage 101: Your Guide to Homeownership with Clinton Wilkins myself, Todd Veinotte, right here on News 95.7. What are we talking about?

Clinton Wilkins: [00:00:09:26] We were talking about…

Todd Veinotte: [00:00:12:27] Credit, wasn’t it?

Clinton Wilkins: [00:00:13:16] Yeah, that’s one of the biggest myths.

Todd Veinotte: [00:00:16:02] Well it is a huge myth, right?

Clinton Wilkins: [00:00:17:13] It’s a huge myth that credits either good, bad, ugly forever. You know, one small blip can make a difference, but is it the end of the absolute world? Not necessarily. And there’s lots of really good things you can do with credit. And I mean, we talked a little bit about it earlier in the show.

But one of the big things that you can change is making your payments on time. So it’s really easy, Todd. Just do it. And sometimes it’s the smallest little things that people forget about.

Todd Veinotte: [00:00:54:17] Such as?

Clinton Wilkins: [00:00:56:19] That $10 minimum payment on a credit card, that happens. And sometimes I find people are like, “Well, I don’t really use that credit card.” But there’s, you know, an automatic payment that shows up that once a year, and they forget or don’t look.

Todd Veinotte: [00:01:09:03] It’s the fee, right?

Clinton Wilkins: [00:01:10:14] It’s the fee that happens a lot.

Todd Veinotte: [00:01:11:11] It happens a lot. Yeah.

Clinton Wilkins: [00:01:13:00] That’s why if you’re really not going to use the credit card,

Todd Veinotte: [00:01:16:01] Get rid of it.

Clinton Wilkins: [00:01:16:24] Get rid of it.

Should you have a backup credit card?

Todd Veinotte: [00:01:17:08] Yeah. That said, though, might it be prudent to have, because if you need to get your hand on some money and you’ve got, if you can get $30,000 to $35,000 on a credit card sitting there and you absolutely have to have it, it’s nice to have it there, right? For just the sake of 100 bucks a year to service?

Clinton Wilkins: [00:01:34:10] Well, I mean, you know, I think there’s like an adage that says, you know, it’s a lot harder to get credit when you need it.

Todd Veinotte: [00:01:43:24] Exactly. And I’ll give you a direct example of this exact scenario, shall I?

Clinton Wilkins: [00:01:48:18] Yeah, tell us.

Todd Veinotte: [00:01:49:10] Okay, I’ve got a line of credit with Scotiabank. I’ve actually got a line of credit with RBC, which has zero balance on the Scotiabank has a line of credit because I’ve used it to fix up my house, which I’m going to be dealing with when we remortgage, right? The appraisal, whatever. But they also sent me a $35,000 credit, credit card. And the interest is, it’s not a low interest credit card, but I’m not carrying a balance on it.

But there are some incentives to it. But in order to keep the credit card a year, it cost me 100 bucks. It bills once a year, like you said. And I’ve decided to spend that hundred dollars every year just to keep that credit in case hell hit the fan and I needed 35 grand.

Clinton Wilkins: [00:02:34:23] And you know what? That 35 grand will probably keep you going for a while. Or guess what? If something major happened to your house, it probably wouldn’t be ideal to put it on a credit card.

Todd Veinotte: [00:02:43:06] Better than the alternative.

Your house needs heat in Nova Scotia

Clinton Wilkins: [00:02:44:01] Yeah, you have the available credit. Right? And people come to me in a pinch like I helped a young couple who bought a house a couple of years ago. Luckily, they were in a position with the equity to be able to refinance, but they needed a new heating system for their house. And guess what? We were right around the time that we’re going to have to start turning on some heat.

You know, some of us probably already have turned on some heat already, right? And they didn’t have the available credit and they didn’t have the cash. Could they have gone to apply for a line of credit or something? Maybe. But it was just as easy for them to do a refinance and we actually got them into a better mortgage product than they had already. And, you know, we were able to refinance their home up to 80 per cent of the market value.

And obviously, with the price the value increases and the amount that they paid it down the last few years, they were in a position that they could get the equity out that they needed. And guess what? It’s saving them from maybe getting a higher interest line of credit or maybe a loan. And they were actually offered a loan for like nine per cent.

Todd Veinotte: [00:03:50:19] Yeah. From who? Not, specific I guess.

Clinton Wilkins: [00:03:53:02] I don’t know. I don’t know who was at the credit grantor, but it was like a to loan put in a new heating system. And you know, here’s the thing in Nova Scotia, you need to have a safe place over your head. And I know we’ve obviously talked about that quite a bit, but you need to be able to have heat.

And that’s one of those, you know, core things that you need in a home. You can probably deal without a furnace, you know, in the spring and summer. But for the fall and you know, obviously going into the winter, you need to make sure that you have a reliable heating source.

Leases on large improvement equipment, like a heat pump

Todd Veinotte: [00:04:24:27] What are your thoughts on people they get into houses and they get they sign these deals with these leases on heat pumps and things like that. That can be problematic when you when you’re trying to sell or can it not?

Clinton Wilkins: [00:04:35:22] Yeah, because some of it’s a lease. Buyers don’t always want to assume a lease from a seller of a property because it’s like another payment. You know, I’ve seen lease furnaces and lease hot water tanks and leased, you know, propane tanks. That’s actually, there’s no option but to lease it, but there’s certainly leased equipment that can be involved. And it’s not for everybody because it’s going to increase that housing cost.

And I’ve actually seen recently some purchase agreements where the buyer is like, I’ll pay your price for your house. But part of the deal is that the heat pump, lease or loan or whatever will be paid out as part of the closing, so they wouldn’t then have a payment. And I think that’s a good way to do it.

Todd Veinotte: [00:05:20:23] Well, it is, but it’s going to cost you money when you’re selling.

Clinton Wilkins: [00:05:23:02] It’s going to cost the seller. In this case, they probably got a little bit of a higher price for their house, but they had to pay out this loan.

Todd Veinotte: [00:05:31:12] They had to pay the loan. Right.

Clinton Wilkins: [00:05:32:27] And the loan with paid out of the sale proceeds. So it wasn’t like the seller had to call it up.

Todd Veinotte: [00:05:36:14] Right. But the bottom line is think before you do these things that this is going to be at play, right?

Clinton Wilkins: [00:05:40:15] Yeah, exactly. And I mean, it’s another payment. And, you know, sometimes death by a thousand slashes and you may not think it’s, you know, a huge payment, or maybe it is a small payment, but sometimes the payment over a really long time.

And, you know, it’s just like an extra expense that you might not need to really take on. So if you know you have a different avenue for financing and improvement like that, I think you should take it.

Do everything you can to protect your credit

Todd Veinotte: [00:06:07:00] But back to credit scores not being perfect, but you do need to have good credit in order to lease these types of products, right?

Clinton Wilkins: [00:06:13:18] I would say by and large, yeah.

Todd Veinotte: [00:06:15:27] Yeah. So I know that you’re downplaying, you’re saying it’s a myth that you need perfect credit. And if you don’t, it’s the end of the world and you’re not going to be able to manoeuvre at all. But goodness gracious, do everything you can to protect your credit score, it’s going to make your life a heck of a lot easier.

Clinton Wilkins: [00:06:29:13] It will be a lot easier if you do have a great score. I will agree with you, Todd. Is the end of the world if you don’t? No, because there always is a workaround. But there are some things that are unavoidable. Situations happen.

Todd Veinotte: [00:06:44:19] Yeah, that’s right. Like, job loss.

Clinton Wilkins: [00:06:46:14] Job loss, health, matrimonial breakdown, these things happen every day. But you know, if you have some money in the bank or if you have access to credit, you should be able to hopefully get through that.

I think when you’re really close to the wind already, one small incident can be catastrophic. And, you know, sometimes it can be a slippery slope. I see people that have like 10 and 12 revolving credit facilities, it’s like, why do you need that many? But I do agree, Todd, like having that credit card that you have as a backup. Probably a great plan, but it’s not for everyone because some people can’t,

Todd Veinotte: [00:07:22:09] They can’t manage it, right?

“You can’t just use your home as a constant ATM.”

Clinton Wilkins: [00:07:24:03] Then they’re going to be in to see me, and they’re going to be in a situation where, you know, I have clients that we’ve, you know, done three, four, five, six refinances for them over the last, like 10, 15 years. And you know, they’re refinancing every so often, but eventually, we’ll get to a position that they just can’t refinance anymore.

Todd Veinotte: [00:07:43:05] Then what?

Clinton Wilkins: [00:07:44:11] Then guess what? They’re just going to have to hunker down and start paying it down, paying it back. You can’t just use your home as a constant ATM. Yeah, I think there’s nothing wrong with a refi. We’re in the business of mortgage lending.

I want to do refinances, but it needs to be an educated decision and we just won’t refinance someone for a refinance sake. There needs to be a positive outcome and really, we need to make sure that our clients can be in a better financial position from that refinance.

Todd Veinotte: [00:08:14:11] Well, you don’t want to be 60, whatever years old and saying, my goodness gracious, we’ve refinanced this property for five or six times. We have a ton left to pay on it. We don’t have the equity in it. It could be part of our retirement plan, but it’s not now because we wanted to do extra cruises and extra trips.

Getting your mortgage ready for your retirement

Clinton Wilkins: [00:08:32:09] And I see those people, some of these are my clients and some of them are new clients coming in the door. And my advice changes at some point. I’m usually like hammer it down before retirement, but that’s not always possible. And when clients come in and they’re preparing to retire, but haven’t retired yet, Todd, I sometimes have a conversation with them about either changing the product that they’re in, maybe changing it from a mortgage into a home equity line of credit.

Or sometimes what we do is we do a refinance and we extend that amortisation back to 25 or 30 years to bring the payment down as far as we can. Because you and I both know in retirement there’s less disposable income. Probably. And chances are in retirement, you might have more chance to spend some money.

So if you’re not going to get it paid down before retirement, you might as well just extend it over a long period of time. And then you’re not renting, you’re still owning, you’re still paying it down, but maybe you’re paying it down more slowly and maybe it’s cheaper to still own that home than it is to rent. And we know the situation with rentals is probably as heated or more than it is for borrowers and buyers trying to buy properties.

Investment properties: Is the financing too hard to get?

Todd Veinotte: [00:09:46:24] Yeah. Speaking of properties, investment properties, pretty complex? Is that a myth that it’s too complex in order to pull that lot together?

Clinton Wilkins: [00:09:56:04] Not necessarily. Through our channel, we finance residential rental properties up to four units. So, and we usually will have borrowers with a maximum cap of five or six properties, but they can have up to four units per property. So you can build yourself a pretty good, healthy portfolio in your personal name. And we have buyers and borrowers that, you know, will buy a property and they’ll fix it up and rent it up and then we’ll do a refinance. And maybe then that enables them to buy another property. And you know, we have these conversations with customers every day. And it’s exciting, you know, it’s nice building that net worth. And I think some people are doing it as retirement projects these days. You know, if you have a lot of equity in your home and you can leave it to the home to make the down payment for another rental property, it can be a great solution,

Todd Veinotte: [00:10:50:23] It’s not for everybody, though.

Clinton Wilkins: [00:10:51:22] And it can be a good project to going into retirement.

Todd Veinotte: [00:10:54:00] Again, but some people retiring, the last thing they would want be to deal with that headache.

Investment properties: Is it right for me?

Clinton Wilkins: [00:10:59:04] It really takes, I think, a special person that wants to own rental properties. You have to have some compassion and you also have to have a little bit of thick skin. To be honest. You know, things go wrong. They go wrong, you know, if you own your principal residence, but they can certainly go wrong if you want to rent a property as well.

Todd Veinotte: [00:11:17:10] Plus, you got to know what it’s like to deal with people, like you said who are renters and not satisfied. Unhappy customers. Because those are your customers, when you’re when you have tenants. They’re your customers.

Clinton Wilkins: [00:11:27:19] Yeah. And guess what, if your customer doesn’t pay, that could really negatively impact your personal finances. Right? And that is certainly a risk that you need to think about when you’re doing a rental property. Todd, have you ever rented a property to anybody?

Todd Veinotte: [00:11:42:04] I have. I had a two unit in St. John.

Clinton Wilkins: [00:11:45:11] And did you live in one unit and rent out the other or they were both a rental?

Todd Veinotte: [00:11:48:18] Both rental, yeah. It’s a tough business, just even with two units to be in.

Clinton Wilkins: [00:11:55:15] Because you had a full-time job.

Todd Veinotte: [00:11:56:13] I had a full-time job and you’re always getting calls. There was a shared driveway. They were fighting about that they would. It was just like children, almost. Not to dissuade people from having, from doing this.

Clinton Wilkins: [00:12:08:07] But it’s not for everyone, and I think you need to think about things like that. Do you want to get the call about fighting about where people are parking?

Todd Veinotte: [00:12:13:25] And they will.

Clinton Wilkins: [00:12:15:02] And they will, and I think they’ll fight about anything. And, you know, even like the best tenants ever, still may not be a dream. But yet the ones that maybe you think are going to be really annoying are just like, so good. There’s a lot of false positives and false negatives, I think when it comes to managing a rental property, and it certainly is for a lot of people, but it’s not for everyone.

I’ve owned rentals and, you know, sometimes it’s gone well and sometimes it hasn’t. Personally, today I don’t have any. But I have had and the last tenant that I had actually moved out at the end of August. And, you know, the tenant was really good at paying, but really demanding on maybe some other things. But I had a property manager, so they took care of that. But I still, you know, was involved, you know, as one would. You want to make sure that the assets going to be protected, right?

Todd Veinotte: [00:13:06:09] All right. We have one more segment left and we’ll find out what we’re going to talk about. We’ll be back here in News 95.7.

If you have any questions, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.

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