Do banks frequently ask for mortgagor/borrower to cancel credit cards?

[alanbrenton]

My wife and I have been pre-approved for a 4.2% 5-year fixed with RBC for a home purchase closing in September 2010. We were told, however, by the Mortgage Specialist that we may need to close of credit cards and line of credits.

Why does RBC want us to close some of our credit cards / LOC's?

My concern about this is that we've taken advantage of the 1.99% for life MBNA credit card loan and that our credit scores will take a hit if we do cancel some our cards as our utilization ratio will go through the roof.

Is it purely the debt to income ratio that the bank is looking into or will our assets (registered accounts) play a role in the bank's decision? We are planning to put down at least 20% d/p.

I have asked on the Official Mortgage thread and was told that it was too soon for us to shop around through a Mortgage Broker.

Thanks for any advice.

[Just Confused]

That happened to me about 10 years ago... back when Canada Trust was still a separate outfit. Presumably it was to make us fit into some threshold ratio of some sort that CT was using to assess us for risk.

Basically they "closed" a bunch of my unused CC accounts at the same time they gave us the loan. Strangely, within months the institutions holding the newly closed accounts were sending teaser rate promotions to us and were glad to have us back as customers. We just opened up the CC accounts again. The twits at the bank never followed up on it or requested us to stop. So, in effect, it changed nothing. We smiled, played their game, got the loan and within a very short period of time had our drawerful of cards back again.

I've never been one to worry about my credit score so I have no idea what effect all the query activity & opening/closing of accounts did to it. I have all the cards so it doesn't matter to me.

[sonypcs]

If you go to a mortgage broker for mortgages instead of you walk to the bank, their condition will be much lower. Since there are a lot of white label mortgagee's (also owned by the bank) that will be willing to lend you the money and buy the home instead of going thru directly..

[tjthemanto]

My wife and I have been pre-approved for a 4.2% 5-year fixed with RBC for a home purchase closing in September 2010. We were told, however, by the Mortgage Specialist that we may need to close of credit cards and line of credits.

Why does RBC want us to close some of our credit cards / LOC's?

My concern about this is that we've taken advantage of the 1.99% for life MBNA credit card loan and that our credit scores will take a hit if we do cancel some our cards as our utilization ratio will go through the roof.

Is it purely the debt to income ratio that the bank is looking into or will our assets (registered accounts) play a role in the bank's decision? We are planning to put down at least 20% d/p.

I have asked on the Official Mortgage thread and was told that it was too soon for us to shop around through a Mortgage Broker.

Thanks for any advice.

They are afraid that you might just borrow some money from your LOC for your downpayment.

You need not close down any of your CC or LOC , maybe you can just reduce the limit on each CC or the LOC till Sep 2010 by calling the diff. CC & LOC and again increase it later on after you move into your house.

Did you mean Sep 2009 ??

I don't think the 4.2 % rate will be fixed till Sep 2010 .

They ( RBC ) will only guarantee the rate for 90 days .

No bank will guarantee a pre - approved mortgage rate for the next 1 year .

Make sure you get that in writing if they say its ( i.e the rate of 4.2 % ) is guaranteed till Sep 2010 .

[alanbrenton]

Thanks for your responses. I hope I can an even better deal prior to closing. This is a new home purchase and some banks offer 15-18 months pre-approvals-- I have the conditional approval in writing.

[aidan24]

RBC is notorious for this. But you can actually fight back a little to keep some accounts. As a RBC morgage manager once told me, RBC likes to calculate debt service load on the entire credit limit, instead of just the outstanding credit. This is why they often come back and say close some accounts.

I understand your predicament --> not all big banks are pushy about this though.

[brunes]

Best advice is to say "go climb a tree" to RBC, take your quote to another bank, and get them to match or beat it. SOMEONE will.

Also, you will have the added benefit of not having to deal with RBC.

[alanbrenton]

RBC is notorious for this. But you can actually fight back a little to keep some accounts. As a RBC morgage manager once told me, RBC likes to calculate debt service load on the entire credit limit, instead of just the outstanding credit. This is why they often come back and say close some accounts.

I understand your predicament --> not all big banks are pushy about this though.

I have grown a dislike for RBC ever since it changed my LOC from prime + 0.5 to prime + 3.1 . I have no clue what their credit and risk department was up (my wife and I have a total of $60k at 1.99% from MBNA Canada) to when they'd rather make an additional $750 (at most) more on interest charges and lose out on making more money on other services. I even tried talking to my RBC account manager if I can keep my old rate but this request, she said, fell on deaf ears.

I've downgraded by joint VIP banking package and am more willing to shop around and not be held hostage by one financial institution.

[alanbrenton]

If you go to a mortgage broker for mortgages instead of you walk to the bank, their condition will be much lower. Since there are a lot of white label mortgagee's (also owned by the bank) that will be willing to lend you the money and buy the home instead of going thru directly..

When would be the earliest I can shop the various mortgage brokers since closing is a year from now? Maybe I should start asking on the Personal Finance forum so that there will be no surprises down the road.

They are afraid that you might just borrow some money from your LOC for your downpayment.

You need not close down any of your CC or LOC , maybe you can just reduce the limit on each CC or the LOC till Sep 2010 by calling the diff. CC & LOC and again increase it later on after you move into your house.

Did you mean Sep 2009 ??

I don't think the 4.2 % rate will be fixed till Sep 2010 .

They ( RBC ) will only guarantee the rate for 90 days .

No bank will guarantee a pre - approved mortgage rate for the next 1 year .

Make sure you get that in writing if they say its ( i.e the rate of 4.2 % ) is guaranteed till Sep 2010 .

No, the closing is actually September 2010. For new home purchases, some banks do offer 18-24 months of rate protection.

Your idea of lowering and then increasing the credit limits right after sounds like a brilliant plan. I should look into this.

We already have $50k saved up in our RRSP's to avail of the HBP. We have also provided $40k prepayment to the builder and have about $15k in our TFSA accounts. We are contemplating on meeting the 20% d/p to avoid the CMHC insurance.

Best advice is to say "go climb a tree" to RBC, take your quote to another bank, and get them to match or beat it. SOMEONE will.

Also, you will have the added benefit of not having to deal with RBC.

The RBC Specialist informed me that she will look into a rate reduction every quarter or so often (forgot her termininology) and lock it at an even lower rate. I am waiting for her to communicate this to us though I think she probably wouldn't.

As always, thanks for all your responses/help.

[Kelster34]

alanbrenton try www.monstermortgage.ca - they will get you the best rate. Tell them what RBC is offering you. They are awesome and it is at no cost to you - they are paid by the bank should you go with the mortgage they find for you. Good luck and congratulations! :D

[angel_wing0]

also, you will have the added benefit of not having to deal with rbc.

+1.

[alanbrenton]

alanbrenton try www.monstermortgage.ca - they will get you the best rate. Tell them what RBC is offering you. They are awesome and it is at no cost to you - they are paid by the bank should you go with the mortgage they find for you. Good luck and congratulations! :D

Thanks Kelster. So you think I can start shopping at www.monstermortgage.ca? I'll give them a call tomorrow!

I guess if RBC pre-approved us for the amount that we want, then other financial institutions will deem us as being good credit risks as well, right?

EDIT:

The online form asks for SIN (though not mandatory), do we really have to give this info out during the course of the application/call? I'm applying the old fashion way as there may be more incentive for the live agent/mortgage specialist to seal the deal and get credit for it.

Online form Step 3 Financial Information looks good as it asks for things the RBC Mortgage Specialist never asked us for:

Cash in bank
Gift
Investments
RRSP
Other Assets Value

[zombie999]

We were told, however, by the Mortgage Specialist that we may need to close of credit cards and line of credits.


I was told the same thing. I ended up closing couple of credit cards I didn't want/use anyway.
But when the time came for the mortgage to be advanced, they never actually ask me to close anything. So, don't worry about it.

[Kelster34]

I don't think you have to give them your SIN, but it will speed up the process if you do. Tell them if you haven't already, that you were pre-approved at RBC and what rate RBC gave you!

Good luck and let us know how everything goes!

Cheers,
Kelster34

:D