Wednesday, April 27, 2011

Bailey Bridge to Re-open

Gordon Cormier stands by the now-closed Searston Gut Bridge that connects Searston to Millville in the Codroy Valley. Mr. Cormier owns a restaurant near the bridge and says his business has been negatively affected by the closure. (Curtosy of Gulf News)

Congratulations to the Committee formed in the Codroy Valley area to lobby the respective government departments to re-open the Bailey Bridge. The bridge provides a vital link for people living in that area to commerce and leisure activities. The closure of the bridge meant long commutes for residents to access other communities and services. The impact on many of the merchants is certainly immeasurable as residents sought out alternative locations to do their respective commerce activities. We are very pleased with the news for the sake of our member's health and lifestyle. On behalf of the staff of the Doyles branch of Leading Edge Credit Union, once again congratulations to the committee and residents on making this initiative a reality.

Tuesday, April 26, 2011

Financial Literacy Series 101, Preparing for a Loan Appointment Vol 2

The day has come when you need to make an appointment to see your friendly credit union Financial Services Officer. Maybe it’s a car purchase, home renovation, or some other purpose to borrow; nonetheless some people view the whole ordeal as a stressful experience. Some people would say it is the fear of being turned down for the request. I strongly believe that the stress stems from being unprepared, and not knowing the lending process. If you are prepared for the experience you should increase your chances of knowing your borrowing position prior to making the appointment. So let’s take a look at what you should know about the applying for a loan with the goal in mind that your next experience will be a positive one.
First and foremost you need to understand your affordability position. Most lending institutions use a quick formula to determine if you can afford to make your payments. Simply write down all your monthly financial obligations from creditors on a piece of paper. This would include credit cards, mortgage, personal loans, and lines of credit. If you are unsure what your payment is on a credit card or line of credit, just multiply your balance by 3% to get a monthly payment. This calculation is used by most financial institutions. Once you have all your monthly debt payments added together, add in an additional $100 a month for living expenses. If you rent, also include this in your total. Ensure you are thorough with your debts and do not leave any out, as your financial institution will order a credit report and it will list all your debts. They will use the information in the credit bureau for their calculations, so if you have co-signed for a loan, ensure you also include that. Now that you have your total monthly financial obligations calculated, you need to focus on your monthly income. If you have a full time job that provides you a steady income, then a T4 or letter of employment from your employer will provide you with your monthly income. If you have fluctuating income from seasonal work, commissions, or various employers for example, dig out your notice of assessments from Revenue Canada for the past two years. Take your average total income for the year and determine your monthly income. So we now have the total monthly income and the total monthly financial commitments.  Our next step is to calculate a new payment of the debt you are applying for. Visit the Leading Edge Credit Union calculator tools on the website at: and input the appropriate data to come up with a new loan payment.

Monthly Income
Employment income
from all sources
Monthly Debt payments
Credit cards, loan payments, mortgage
Monthly living allowance
Costs considered for
daily living costs
New loan payment
Car $10000, 5 years at 8%
Total Financial payments

Total Debt Service Calculation
Total financial payments divided into income

As indicated above in the chart, the formula used by most financial institutions is called the Debt Service Ratio (DSR) calculation. It is calculated by dividing the total financial commitments by the total income. A benchmark of approvals is normally set at 40%. In other words, you should not have more than 40% of your gross income dedicated to debt payments. When you complete your calculations and if your DSR is over the 40% mark, your Financial Services Officer still may have solutions for you. In the case above this member has a DSR of 37% which is in line with the approval process.
So now you have some idea on your ability to qualify from an affordability perspective. Again the affordability is based on a formula and not your personal thoughts on money management. Certainly there are those individuals that can operate on a DSR of 50%, as well as there are those that cannot function on a DSR of 20%. The 40% is a benchmark that the financial institution will use. The next thing you want to prepare is a list of your assets. Assets are defined as positions that yield some financial value and in most cases can be used as security on a debt. Homes, investments, automobiles, recreational vehicles, and life insurance policies are just a few examples. If your intent is to use one or more of the assets as security, in preparation for the appointment ensure you bring along proof of ownership. Registration documents are the easiest form of proof of ownership and it will also speed up the approval process.
In speaking to Lisa Purchase and Donna Bailey who are certified Financial Services Officers (FSO) in the Port aux Basques location, they identified a couple of other important points. They suggest that you also prepare some questions prior to coming to an appointment that you would like answered. This becomes very important when you want to discuss a mortgage because it is more complicated. Having questions prior to the meeting will ensure you have a good understanding of what is being offered by your FSO. They also suggest that you bring identification as today’s legislation requires photo ID be presented before a loan can be processed.
At our credit union, rest assured that the staff is working for you. They are trained to provide you wise financial advice and guidance. We want each and every loan appointment to be comfortable and respectable. Hopefully the information contained in this blog will enhance your next experience. If you are a first time borrower, hopefully this information will take any edge off your feelings towards loan appointments.