Mortgage broker advising me to NOT pay off credit cards?

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Feb 6th, 2019 5:59 pm

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Feb 1st, 2018 1:18 am

tekkspekk29 [OP]: Newbie; Jan 30, 2018; 26 posts; 9 upvotes

Feb 1st, 2018 1:18 am

Mortgage broker advising me to NOT pay off credit cards?

I sold my house for $500k. I originally bought it for 380k and have a mortgage balance of 355k remaining. I am expecting $145k gross profit (including amount I paid off over the year) before realtor fees, taxes, lawyer fee, movig costs and other costs.

I will apply for a bigger mortgage now as my salary has significantly increased compared to when I had been approved for the mortgage mentioned above (380k)

The only debt I have is a car loan and 5 credit cards (limits are between 5k -18k). I have balances on each card for amounts between $1200 - $1500.

My credit score is in the very low 700's.

I have been really worried about these balances. Although they are not high....I assume that it is always best to have $0 balances.

I called my mortgage broker and shared this and he immediately advised me not to worry because he would place some sort of clause or statement saying that credit cards will be paid off when the sale of the home closes.

In terms of real cash, I told the broker I have funds avaible to pay off the credit cards but he advised me to keep the money in my account and not pay of the balances because I would be left with no real cash.

Is this true? Anyone been in my situation?

18 replies

Feb 1st, 2018 1:31 am

burnt69: Deal Addict; Oct 6, 2015; 2463 posts; 1372 upvotes

Feb 1st, 2018 1:31 am

tekkspekk29 wrote: ↑ In terms of real cash, I told the broker I have funds avaible to pay off the credit cards but he advised me to keep the money in my account and not pay of the balances because I would be left with no real cash.

You have a job don't you? Why wouldn't you have cash? Advising you to not pay $10k in credit card debt is nonsense.

+2

Feb 1st, 2018 2:55 am

Bryan2B: Sr. Member; Sep 9, 2014; 591 posts; 536 upvotes; Vancouver

Feb 1st, 2018 2:55 am

Pay your credit cards.

Also, change mortgage broker asap.

+11

Feb 1st, 2018 9:22 am

skeet50: Deal Addict; Jan 15, 2017; 4117 posts; 3620 upvotes

Feb 1st, 2018 9:22 am

Yes, change mortgage broker ASAP. A mortgage broker is not trained to provide you with personal financial advice. This is outside the scope of their position and could be deemed to be unprofessional conduct.

+1

Feb 1st, 2018 9:44 am

dantey: Deal Addict; Jul 14, 2002; 2594 posts; 1213 upvotes

Feb 1st, 2018 9:44 am

i love how your profit includes the amount that you paid off for your mortgage.
i won $10 from a lotto ticket and it cost me $10. winner!

+2

Feb 1st, 2018 10:26 am

CNeufeld: Deal Guru; Mar 23, 2008; 12337 posts; 8763 upvotes; Edmonton

Feb 1st, 2018 10:26 am

Balances like that (<$2000) shouldn't adversely affect your ability to get a mortgage. A lender likely wouldn't reject you because of them, although they may ask you to pay them off if they're concerned. From personal experience, they may ask to see PROOF that you've paid them off on a statement, so just saying you'll do it may not be enough.

Whether your mortgage broker is overstepping his bounds or you're not portraying what he said accurately is a different story. For example, if you expressed concern about having readily available cash, he might have suggested leaving the balances unpaid for now. As opposed to giving you unsolicited advice that you shouldn't pay them down.

C

Feb 1st, 2018 10:37 am

IndyBeak: Deal Addict; Sep 13, 2016; 2837 posts; 1596 upvotes; Mississauga

Feb 1st, 2018 10:37 am

dantey wrote: ↑ i love how your profit includes the amount that you paid off for your mortgage.
i won $10 from a lotto ticket and it cost me $10. winner!

Probably because OP would have spent that amount anyway if he rented elsewhere.

+1

Feb 1st, 2018 11:24 am

riffr aff: Deal Addict; Dec 15, 2009; 1350 posts; 502 upvotes; Ontario

Feb 1st, 2018 11:24 am

Not an expert ...

When I have applied for ANY loan the lender wants to know what available credit I have. IIRC a bank employee told me they need to understand how much debt you could potentially rack up in order to make the calculation on how much more debt they are willing to risk with the borrower.

Feb 1st, 2018 12:10 pm

MarkLinMTG: Newbie; Oct 20, 2017; 31 posts; 12 upvotes; Ontario

Feb 1st, 2018 12:10 pm

That's strange advice... Definitely pay your credit cards, letting them go into arrears will hurt your mortgage application.

The only thing I can think of is perhaps the broker wasn't clear. If you're carrying too much debt, the broker or lender may request that the debts be paid out either with mortgage proceeds or your own funds such as proceeds from the sale of your home.

Feb 1st, 2018 12:12 pm

speedyforme: Deal Guru; Dec 11, 2008; 10116 posts; 1537 upvotes

Feb 1st, 2018 12:12 pm

Sounds like he just wants to make sure you qualify and can afford a larger home than you realistically CAN afford.

You should have zero credit card debt as it is costing you much more than mortgage debt.

+1

Feb 1st, 2018 12:15 pm

mazerbeaner: Deal Guru; Feb 22, 2011; 10451 posts; 12977 upvotes; Toronto

Feb 1st, 2018 12:15 pm

What is the interest rate on your credit cards? They can vary wildly from a personal line one at 3.5% to a standard one at 20%.

Feb 2nd, 2018 11:47 am

FirstGear: Deal Fanatic; Nov 2, 2013; 5555 posts; 1425 upvotes; Edmonton, AB

Feb 2nd, 2018 11:47 am

The only rationale I can think of is that you're short of a downpayment, but you also have enough income to service that debt.

- or -

You would be short of a downpayment if you paid your CC off - so he/she is trying to tell the lender that you will pay the card off as a condition:
(1) Show lender proof of downpayment plus closing costs cash.
(2) Make condition to lender CC will be paid off.
(3) Pay CC off, then shoot statements to lender as proof of paid off CC.
(4) Re-take the balance out as a cash advance to use as downpayment and closing.
(5) After you take possession, get the MBNA 0% BT card, and use that to pay off your expensive cash advance.

Otherwise your broker is full of nonsense...

Also, contrary to popular belief, profit, as per CRA rules also, is rent + appreciation - mortgage interest - maintenance - other expenses , NOT rent + appreciation - mortgage payments - maintenance - other expenses

Consultant, Operator/Trucker

Oilfield & Industrial Services, Road Construction
Tax & Finance
In the Western Canadian Oilfield since 2013

Feb 2nd, 2018 12:14 pm

fryguy1987: Member; Jan 3, 2017; 413 posts; 393 upvotes

Feb 2nd, 2018 12:14 pm

Perhaps there was a miscommunication and he was telling you that not paying them off would not impact your ability to not get a mortgage. Did you ask him if it would impact your ability to get the actual mortgage or if you should pay them off in general?

Because even my 13 year old knows that leaving balances on credit cards cost money and makes no sense to do so so I have a hard time believing that is what the broker was implying but I can definitely see a conversation or statement along the lines of "don't worry about your balances or paying off your credit cards if you don't want to as they won't impact your ability to get a mortgage"

This doesn't mean that you shouldn't however.

+2

Feb 2nd, 2018 12:25 pm

Chickinvic: Deal Fanatic; Dec 27, 2009; 7411 posts; 4676 upvotes; Victoria, BC

Feb 2nd, 2018 12:25 pm

Pay off your credit cards. Not doing so is silly advice. Are you sure he didn't advise against closing your credit cards? I've heard that can temporarily dip your credit score. I honestly don't know why anyone would tell you not to pay off your balances unless you were hurting for available cash for your downpayment maybe.

+1

Feb 2nd, 2018 12:26 pm

Guest5666777784: Member; Feb 13, 2017; 369 posts; 349 upvotes; toronto, ontario

Feb 2nd, 2018 12:26 pm

Pay off your credit cards.

Source: certified financial planner

+1

Feb 2nd, 2018 12:35 pm

IndyBeak: Deal Addict; Sep 13, 2016; 2837 posts; 1596 upvotes; Mississauga

Feb 2nd, 2018 12:35 pm

fryguy1987 wrote: ↑ Perhaps there was a miscommunication and he was telling you that not paying them off would not impact your ability to not get a mortgage. Did you ask him if it would impact your ability to get the actual mortgage or if you should pay them off in general?

Because even my 13 year old knows that leaving balances on credit cards cost money and makes no sense to do so so I have a hard time believing that is what the broker was implying but I can definitely see a conversation or statement along the lines of "don't worry about your balances or paying off your credit cards if you don't want to as they won't impact your ability to get a mortgage"

This doesn't mean that you shouldn't however.

Most likely. A case of misunderstanding.

Feb 2nd, 2018 8:08 pm

S52B: Member; Dec 17, 2009; 246 posts; 169 upvotes

Feb 2nd, 2018 8:08 pm

I thought the emphasis here is not the "not paying off credit card" part, but rather the "no real money in bank account" part.

If OP only has 50k in his bank and had to use 40k of it to pay off his credit card, it will leave him with 10k cash in his account. Doesn't that look worse for his mortgage application?

Feb 9th, 2018 2:20 am

tekkspekk29 [OP]: Newbie; Jan 30, 2018; 26 posts; 9 upvotes

Feb 9th, 2018 2:20 am

It is interesting to see how poor some people's reading skills are on RFD.

For those that cafefully read my post, you were able to provide an accurate response.

Anyways, my broker(30+ years of experience) was right and I got the approval. Lender requires me to agree that all cards will be paid off from sale of funds. This way I can keep my real cash while I am looking for my next home in the mean time.

Feb 6th, 2019 5:59 pm

MortgagePro: Newbie; Feb 5, 2019; 2 posts

Feb 6th, 2019 5:59 pm

You got above 680 credit score, obviously good history of repayment on your mortgage and credit cards, that is a very good sign!
Your broker told you that there will be a condition on your new mortgage approval to confirm all credit card balances will be paid in full from the proceed of sale prior to closing.
With this clause, it means the approval amount of your new mortgage will not be affected even though there are balances still outstanding at the time of your new application.
Because the lender will simply not factor in the balance outstanding in calculating your debt servicing for the new mortgage.
HOWEVER, THE QUESTION IS: Why not pay them off since you have the cash on hands, interest charges on credit card typically ranged between 9.99% and 25.99%? Unless you need the cash to put down a deposit now?

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