Learn in 60 seconds how the new mortgage rules being implemented on January 1st, 2018 could affect you!
I’m happy to answer any questions you may have!
Learn in 60 seconds how the new mortgage rules being implemented on January 1st, 2018 could affect you!
I’m happy to answer any questions you may have!
The media continues to put the spotlight on the Vancouver and Toronto housing booms and the role played by foreigners to drive up prices. Affordability issues are of great concern and questions continue to arise regarding the sustainability of the housing bubble.
The viability of continued housing demand by the Chinese given the government’s 2015 introduction of capital controls, which limits capital withdrawal to the equivalent of $50,000 (U.S. currency) per person. Suffice it to say China’s capital outflow has surged in recent months, notwithstanding these controls. There are a number of ways to circumvent the rules and the penalties are tiny. The Chinese government is simply not enforcing the controls and the continued devaluation of the Chinese Yuan continues to trigger massive outflows. Much of that money is moving to housing in Toronto and Vancouver, as well as to Australia, New Zealand and the United States. The Chinese are now the number-one foreign purchaser of U.S. residential real estate surpassing Canadian inflows this year. This is stimulating the housing markets especially in New York, Los Angeles, San Francisco and Seattle. Chicago, Miami and Las Vegas are also seeing significant investment.
The Canadian government and regulatory response to this foreign inflow of money is evolving. The media have recently highlighted the potential for money laundering and the lax enforcement of anti-money laundering initiatives in the real estate sector. But it appears that most of the Chinese purchase of Canadian housing is not for money laundering purposes, meaning garnered through illegal activity or to support terrorism.
More on this to come.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
Have a client with great credit, income and job stability who is a loyal long-time client of a bank I will call Big Blue. When she went in to inquire about porting and increasing her existing mortgage to a new property, she was provided with a penalty of $4,000 and a new rate that was 1/4% higher than the best rate I could get her. . So she came to me and asked what I could do for her. I compete with Big Blue on a regular basis and knew that they could do better than that. I went through a full analysis of her financial situation including her short and long term goals. I determined the best product for her needs and gave her a rate that would save her the penalty plus thousands more! Once she had found a property, the client went back to Big Blue about a month later to obtain a penalty quote to pay out her mortgage in full. She was presented with a verbal quote of over $11,000! Her mortgage is only $200,000!
How is this possible you ask? Well, it turns out that Big Blue uses a calculation that takes into account the “discount off of posted rates” the lucky client received when negotiating her mortgage. What does that mean? Well, today’s posted rate on Big Blue’s website is 5.14% for a 5 year fixed and yet clients are being offered rates as low as 2.89% or even lower (under the table to certain clients and not others), on a daily basis. In other words, the posted rate is irrelevant unless you are in bad financial shape or completely stupid. Yet that same posted rate of 5.14% becomes relevant if you want to pay your mortgage out early because Big Blue uses this same irrelevant posted rate in their penalty calculation! Without going into great detail about how the calculation works, the end result is a penalty that is 3 times higher than that of a lender who posts realistic and relevant rates! These types of lenders understand that mortgage brokers are on top of current market conditions and that they won’t receive any business if the real rate isn’t provided up front. Therefore, they have no irrelevant posted rates and imaginary client discounts to go by and therefore their prepayment penalties are reasonable and fair.
Bottom line, this loyal client is stuck at Big Blue.
Before you sign your next mortgage, please consult a mortgage broker. At the very least they can explain the penalty calculation up front and let you know if you have been given a fair offer.
For me, the timing of Seth Godin’s latest blog could not be better. My friend who I wrote about in my last blog was recently let go from his job. When we met to talk about he lamented about how he may have hurt himself by speaking out in a leadership meeting with the executive against a decision coming from the top. My friend is intelligent, articulate and was very passionate about the well-being of the company and its employees. He is also politically astute. He knew he was “putting himself out there” when he openly questioned a particular strategy that was being endorsed by the company’s leadership. He did it because he wanted what was best for the company. Isn’t that what you want from your employees? Isn’t that leadership?
I guess he will have to find out somewhere else.
Yesterday afternoon, I met up with a friend to catch up on life. He informed me that he had recently been let go from the company he had worked for over the past 8 years. I know he was extremely competent and gave everything he had to the company. He was informed that the organization was taking a new direction and he was no longer a “fit”. He had never been let go from a job in his life. He is 53 years old.
Sadly, my friend’s situation is not uncommon. As I moved up the ranks of the corporate world, I witnessed many good people fall to the wayside as they reached their 50s, a critical time in the financial planning life-cycle. This is supposed to be the key earning years to help with the final push towards a comfortable retirement. In most cases, these people did not see it coming and were completely unprepared.
The world is changing and we need to be able to prepare, adapt and change with it. Unless you are already independently wealthy, relying on one income source is no longer advisable nor practical.
If you are in a job, earning a good living but you don’t love what you do, find a part-time passion and turn it into income if you can.
If you love what you do and you are making money at it, keep doing it, but make sure you have a fallback position.
There are lots of ways to earn income. Start up a part-time business, rent out a suite in your home or take on a student, but whatever you do, make sure you have a plan in case the income you are relying on today is suddenly gone.
I had an amazing boss and mentor earlier on in my career who gave me some sound advice when it came to improving results. “What gets measured gets done.” Its simple enough in principle but the toughest part is deciding what to measure and being consistent.
As a Certified Financial Planner, I have always believed in budgeting because not having a budget is like driving a car without holding onto the steering wheel. You will get to wherever you are going and the end result will probably be a crash. The problem is knowing where to start and then having the discipline to stick to it on a regular basis.
Here are a few tips that have worked for me and for my clients:
1. Budget monthly based on your net income. If you get paid bi-weekly, make sure you take your net pay, multiply it by 26 and divide by 12 months to get the correct amount.
2. If possible, budget only off of your net regular pay. Overtime and bonuses may fluctuate so it is best to be conservative and live off of what you know is coming in.
3. Separate your expenses into two categories: fixed and variable. Your fixed expenses are the ones that don’t change over the course of the year. This would include; rent/mortgage, property taxes, vehicle insurance, car payments etc. Your variable expenses are ones that will change from month to month and include: entertainment, home maintenance, groceries, gas, clothing, vacations etc. It is important that you don’t forget any expenses and even if you are not sure what a particular expense will be, you need to estimate and budget for it.
4. Set up a simple Excel spreadsheet. Put your Monthly net income at the top of the page in one cell. Put all of your expenses below that, starting with all of your fixed expenses and then listing all of your variable expenses. Add up the total of all your budgeted expenses using the “SUM” function. The difference between your net income and your total expenses is your “Monthly Variance”. If this total is POSITIVE, you should set an allocation for savings. If this total is NEGATIVE, you need to make changes to your budget.
5. Finally, you need to track your expenses on a monthly basis. The good thing is that you ONLY need to track your VARIABLE expenses. Set up another simple Excel spreadsheet with a tab for each month. As you spend, simply keep your receipts and put them in a box in the kitchen where you will see it every day. Every few days or even weekly, enter the description of the expense, the category (see below) and the amount. At the end of the month, total it up to make sure it is within budget. If it isn’t , you may need to go back to your budget to make changes or simply alter your spending.
Here is a list of possible categories for VARIABLE expenses:
Groceries/Gas/Home Maintenance/Vehicle Maintenance/Pet Care/Kids Activities/Entertainment/Health and wellness/Household Items/Clothing/Gifts
This is the most simple and effective way that I have found to create a budget and stick to it. It is working for me and for my clients. If you need help in setting it up, feel free to contact me.
We all know you are supposed to save for a rainy day. Unfortunately not all of us do because we are not sure how to do it. Here is a simple, step by step guide to help you prepare for the unexpected.
1. Prepare a budget
You need to know how much you are spending before you can determine how much you can save. First, write down all of your fixed expenses – the costs that don’t change from one month to the next and be sure to include a monthly payment for things that you pay once per year. Also, add in some money to allow for things like home and vehicle maintenance. Next, collect all your receipts for the next month or so and see how much you really spend on non-fixed expenses like gas, groceries, entertainment, household items etc. Then, look at your net income and see how much is left over. If there is nothing left over, you need to either reduce your expenses or increase your income. If there is money left over, you need to decide what you are going to do with it.
2. Create a short-term back up
If you currently have no savings, get yourself set up with a personal line of credit. This line of credit is only to be used as a back up and should not be attached to your main chequing account. Once you have a line of credit, as long as you maintain a good credit standing, your bank or credit union won’t take it away from you. It is important to apply for it when your income situation is good so it is there when you need it. You NEVER want to be going to your financial institution to ask for money AFTER something has gone wrong.
3. Open an TFSA (Tax-Free Savings Account)
If you have savings or are going to set up a monthly savings plan, you need to have a TFSA. The government allows you to contribute up to $5,500 per year where the money can accumulate tax free. There is no tax payable when you withdraw it, your limit accumulates each year and you don’t lose your limit when you make withdrawals. Once this is set up, this is the first place you go when you need money for an emergency.
An RRSP is a great savings vehicle for the long-term. It provides a tax deduction when you make a contribution and any returns earned inside of the RRSP are non-taxable. The ideal way to use an RRSP is to make contributions while your income is high and withdrawals in retirement when your income is lower. The reason for this is that RRSPS are taxable on withdrawal. If you have no other back-up option, an RRSP could be used to get you through the short-term but only as a last resort.
Government policy has made it very difficult for first-time home buyers to get into anything other than a condo or townhouse.
Because recent changes to qualification rules for buyers with less than 20% down make it extremely difficult to afford a single detached home which is on average, $555,000 in the Lower Mainland. With 5% down, you would qualify on a 25 year amortization instead of 30 or 35 years which is available to buyers with 20% down. These first-time home buyers would require annual household income of $111,538. According to Stats Can, the average household income in the Lower Mainland is $67,090. In addition to this, you have to pay the full property transfer tax on any property purchased over $450,000. So on top of your down payment, you are looking at a tax bill of $9,100 just for the privilege of buying an average home in the Lower Mainland. Are you feeling their squeeze?
Why force first-time home buyers into buying condos and townhouses?
My theory is that increased demand for condos and townhouses leads to increased development which means more jobs for the construction industry. More jobs is good for the economy and for a government trying to be re-elected. The trouble with this approach is that when these same first-time home buyers are looking to move to a bigger place with a yard in a good neighbourhood to raise their family, they will have to sell their condo or townhouse at a time that may not be the best move from a financial and real estate perspective. Under these circumstances, young families will likely have to learn to make do with less space and raise their families in multi-unit properties. Only time will tell.
Simply put, it is about independent thinking and transparency. A good mortgage broker will always act in the very best interests of his or her client. There is no conflict, just get the best possible mortgage that suits the clients needs. As a broker I have loyalty to my lender partners who work hard to help my acheive what is in the best interests of my clients. That is where the loyalty ends. If that lender is not offering the best possible mortgage for my client at the time I am shopping for them, the mortgage will be placed with whomever is offering that mortgage. Period. I am not conflicted in this regard and always know that I am doing what is best for my client at any given time. Having worked for a financial institution for 12 years, I offered the best mortgage that the Treasury Department would permit to my most loyal clients and leave it up to my client to blindly accept the deal or shop around. If they came back to me with a better deal, I would have to go back to the Treasury Department and ask them to to sharpen their pencil. Sounds alot like car shopping doesn’t it? “Let me ask my Manager…”. That’s what it felt like for me and I was the Bank Manager! With a good mortgage broker, there are no games. Best possible mortgage, up front. Next blog: How I choose the right lender for my client.
Independent advice is hard to come by. While there is always a spin as to what is in your best interests, it is a rarity to find a banker who is not towing the line for the ulitmate cause – shareholder profit. I fully support banks and any other company making profits – but not at my expense or at the expense of my clients. The banks have fantastic employees who are also great people and I have many friends and colleagues who work for major banks. The problem is, no bank is ever offering the best product for you at all times and even if they have it they may not offer it to you. My suggestion is: make a call to an independent mortgage broker or financial planner BEFORE you sign anything.