Tag Archives: finance

al_nd19_finance_fi

Dos and Don’ts – financial advice for the holiday season

Latest News


Dos and Don’ts – financial advice for the holiday season

The holidays are often a time for over-consuming and over-spending. We second guess ourselves and wonder whether we’ve purchased enough in terms of gifts, food and drink for all the get-togethers. Our wallets are opened more frequently in the six weeks leading up to end of the year, than at any other time of the year.

While some people adopt a laissezfaire approach and just go for it, others may be wanting to rein in old habits. As with most things in life, when you know better, you do better.

Do

Create a list of the people who you are buying for, along with what you intend to get them. Set a budget before you venture out to shop. Being tempted by the beautiful window displays, and being drawn into the excitement of the season is lots of fun in the moment, but not so much fun when you receive your credit card statement. By having a monetary plan for how much you want to spend on each person in advance, will help to keep you under control in the stores.

Don’t

People just want to have fun, but don’t try to keep up with the Joneses. Others may be (momentarily) impressed with a fancy charcuterie board, but five minutes into the evening, no one will care, nor will they remember. Spend your money on creating great experiences, not on expensive items that are stored away for 11 months of the year.

Do

Stock up – especially if you’re going to be hosting, or attending other parties where you may need to bring a contribution, or a gift for the host. Look for sales. If you notice a nice bottle of wine that would be suitable for a number of occasions, and it’s on special, pick up the quantity that you’d need for each event. The time and gas, alone, of having to go back multiple times will also save you money.

Don’t

Make sure that you don’t skip an automated contribution to a registered savings vehicle, like an RSP or TFSA, in order to add to your holiday budget. Compounding works in your favour, and can work against you too. Depending upon your age, every dollar could yield as much as $32 in your retirement. If you miss a simple $250 contribution, it could lead to the equivalent of a month of gross income (that you will need in the future) flying out the door.

Do

Use reward cards that offer cash or travel perks. If you’re a bit trigger happy with your credit card, why not reap some benefits from the card provider in the New Year.

Don’t

Do not borrow money to shop. Some people are too quick to treat their lines of credit like a savings accounts. When you do so, you never really know what you paid for an item, or the accumulating interest charges attached to it. Preferably, buy with cash or debit, or use a credit card with reward points, and then immediately pay it off.

If you recognize your weaknesses, get help from a professional. Often their advice will help you to reach your long-term goals, without giving in to short-term spending sprees. And, above all else, enjoy the holidays.

Brandon Parkes is a Senior Consultant with IG Wealth Management. He was also mortgage-free at the age of 32. 416.450.8538 or brandon.parkes@investorsgroup.com

SHARE  

Featured Products


cl_nov19_finance_fi

Canadian household wealth falls for the first time in a decade

Latest News


Canadian household wealth falls for the first time in a decade

After nearly a decade of growth, Canadian household net worth is down

New data from Environics Analytics shows the average household in Canada is less rich than they were a year ago. Called WealthScapes, the study looks at how wealthy Canadians are across the country. For a decade, that number had been going up mostly because of higher real estate price.

Now with a slowdown in the housing market when it comes to sales and prices, the net worth of Canadians has fallen as well.

The study says “After almost a decade of wealth accumulation, the average Canadian household net worth declined slightly in 2018. While the latest financial snapshot of Canadian households includes some positive trends, growing debts, shrinking pensions and a sharp drop in liquid assets are putting pressure on families.”

The analysis by Environics Analytics shows Canadian net worth fell by 1.1 per cent in 2018 compared to data gathered in 2017. The average Canadian household has $7,594 less. The average Canadian net worth is $678,792.

This happened despite Canadian households not taking on significantly more debt. Peter Miron, senior vicepresident, research and development and the architect of WealthScapes at Environics Analytics, says, “Despite being relatively prudent in terms of their debt acquisition and repayment in 2018, Canadian households felt the effects of a significant decline in equity market valuations over the fourth quarter of the year.”

But, there are pockets in Canada that did buck the trend and see their net worth increase. The city of Moncton posted the largest gains in household net worth at 2.2 per cent. The study says the New Brunswick city is not just relying on real estate prices rising to see residents’ net worth rise. “Moncton’s households were actively building their savings faster than anyone else in Canada in 2018, on average stashing, away $11,097.”

The richest households continue to be in the big urban centres. The average household net worth in the Toronto grew by 0.1 per cent in 2018 to $977,698. Environics says, this growth was due to an above-average savings rate as well as slightly above-average real estate performance in 2018.

The richest Canadians are still in Vancouver, despite their household wealth falling more than the average, by 1.3 per cent. The average Vancouver household net worth was $1.14 million.

For all of Canada, though, there are other bright spots in this report.

Miron says, “On a more positive note, Canadians are actively taking steps to reign in their debts and build up their savings. In fact, four provinces saw the average debt per household decline in 2018.” Those provinces are Alberta, Saskatchewan, Newfoundland and Nova Scotia.

Household salaries are higher as well. The average household income in Canada was up by 3.4 per cent to $99,654. Canadian household net worth falling for the first time in 10 years is not a positive story. But, depending on where you look, there are places in Canada that are doing better financially. And it’s not all because of higher real estate values, rather more because of higher salaries and better savings rates. From a personal finance perspective that is a very good news.

Rubina Ahmed-Haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.

SHARE  

Featured Products


cl_oct19_finance_fi

Why condo co-ownership is gaining popularity

Latest News


Why condo co-ownership is gaining popularity

More Canadians are partnering up with friends and family to buy a condo. New data from Teranet, the provider of Ontario’s online property search and registration, shows co-ownership in condominiums specifically was more than 37 per cent in 2018. With condo prices continuing to rise year over year, for many, pooling their money is the only option to get into the condo market. For others it’s a more creative way to manage a huge responsibility, like owning real estate. Here is what the latest data shows.

The trend is growing

Compared to data from 2012 more condo purchases are being made with more than one person on title. Condos with only one person on title in 2018 was 48 per cent. That is down from 57 per cent in 2012. Parents are pitching in more too. For example, units owned with parental assistance is at more than 14 per cent. Compare that to 2012 when only nine per cent of condos were purchased with help from mom and dad.

Owners close in age

The data from Teranet show co-owners are relatively close in age. That number has also risen slightly. In 2012, 50.1 per cent of the province’s homes had several owners on title, with the age gaps being 20 years or less. This proportion went up to 51.6 per cent by 2018. The rise is small, but shows more people, young or old, are choosing to buy together, whether it be young people buying their first home, or retirees deciding to downside together.

Financing options

Owning a house with a friend of family member means you will need to apply for a co-mortgage. Some financial institutions are now launching products that are specifically aimed at this group of people eager to find a way to buy their first home. There are many factors to consider in a co-ownership situation. This will include how the regular monthly bills will be handled, who will get what room and how emergency costs can be covered. As well, have an exit plan if you co-own a property.

Consider the future

Unlike when you buy with your spouse or long term partner, life can change at different times. One co-owner may meet someone and want them to move in. Another may get a new job and want to sell the home and take the equity to buy a house elsewhere. Draw up a plan now of how you will handle the sale of the home and what each co-owner’s expectations are.

With co-ownership of condos on the rise, more needs to be done to protect all those involved in the transaction to make sure the real estate purchase is worth it for everyone.

Rubina Ahmed-Haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.

SHARE  

Featured Products


cl_jul19_finance_fi

Are American style mortgages coming to Canada?

Latest News


Are American style mortgages coming to Canada?

Are American style mortgages coming to Canada? Bank of Canada Governor Stephen Poloz has encouraged financial institutions to start looking at new ways to offer mortgage products – including establishing longer term mortgages, much like those in the U.S.

Poloz recently spoke to a group of finance and mortgage professionals, impressing upon them that mortgage products need to innovate. Among other suggestions, he proposed the idea of longer mortgages. “One basic idea would be to encourage more diversity in mortgage durations. It is true that most financial institutions offer fixed-rate mortgages longer than five years.”

Few Canadians, he says, take advantage of longer mortgages, but that could change. “Forty-five per cent of all mortgage loans have a fixed interest rate and a five-year term. In comparison, just two per cent of all mortgages issued last year were fixed-rate loans with a term longer than five years.”

The U.S. has had 30-year mortgages for decades, but in Canada, most mortgages are still five-year terms that are renewed as we amortize our loan.

So, are these long-term products a good idea for Canadian consumers? There are pros and cons.

Pros

Longer mortgages are a great option for anyone who doesn’t like to spend time renegotiating the terms of their mortgage agreement every five years. Most of us take on a 25-year amortization, but are forced to talk to the bank every five years when the term is up.

Longer mortgages would be especially good for those who don’t shop their mortgage around and stay with the same financial institution until the end of the amortization.

Cons

But for anyone who likes to save money, it’s not a good deal. If you compare the data, in Canada we make smaller interest payments on our loan compared to homeowners in the U.S. The five-year fixed mortgage was created in Canada, albeit in the 1800s, so homeowners had the opportunity to pay more down at the end of the term, without penalty. As anyone who has a mortgage knows, there is a limited sum you can pay above and beyond your regular payment. Also, every five years you can renegotiate the rate – which during an environment of falling rates, is very advantageous.

Poloz also seems to like the idea that was announced in the spring federal budget – that the Canada Mortgage and Housing Corp., beginning this fall, will help first-time homebuyers by taking an equity share in their home, up to 10 per cent to help lower their payments. He calls this an example of how the mortgage industry is innovating.

Still, when it comes to longer term mortgages, don’t expect this change to happen anytime soon. It’s all just talk right now. But coming from the Bank of Canada governor, that is significant. He emphasizes that the system is not broken – it has served Canadians and financial institutions well. But he also says the mortgage industry is pretty much the same now as when he got his first mortgage in the 1980s. And that, he says, feels a little stagnant.

The mortgage experience across Canada is very different, he says. This means there has to be several products available that give homebuyers options, because no one homebuyer is like another.

Rubina Ahmed-Haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.

SHARE  

Featured Products


cl_apr19_finance_fi

Cost of living and retirement savings are barriers to homeownership

Latest News


Cost of living and retirement savings are barriers to homeownership

Anyone living in a big Canadian city such as Toronto knows the cost of living is high. Everything from basic needs, such as food, clothing and shelter to non-essentials are expensive, and according to a new survey they are also barriers to homeownership for young families.

Basic living costs biggest barrier

Conducted by Sotheby’s International Realty Canada and the Mustel Group, the survey found that “across Canada’s key metropolitan areas, young, urban families identified the cost of covering basic living expenses, such as rent, groceries and utilities, as their leading financial barrier to saving for homeownership.” One third of Canadians surveyed said this was their primary obstacle. In Toronto, the number was slightly higher with 35 per cent saying basic cost of living was keeping them from saving for and owning a home.

But the barriers don’t stop there. Would-be homeowners say even non-essential lifestyle expenses such as dining out, travel, entertainment and fitness memberships were also preventing them from breaking into the real estate market.

Giving up a lot to get there

The report surveyed more than 1,700 families living in Canada’s largest cities, including Toronto, Vancouver, Calgary and Montreal. It focused on families where the heads of the family are between the ages of 20 and 45. The majority, 51 per cent, said they were willing to minimize or reduce non-essential lifestyle spending to reach their real estate ownership goals. This includes cutting out dining out and travel. Many were also willing to give up clothing or technology purchases. To save, more than 37 per cent of families said they have reduced or eliminated health and fitness expenditures. A further 15 per cent say they are reducing if not eliminating car ownership.

Retirement on the back burner

The most concerning finding is one in five homeowners worried that prices will continue to rise are delaying saving for retirement. The implications of this can be significant. The shorter time you save for retirement the shorter time that money has to grow. A 2018 CBIC poll called “Am I saving enough to retire?” found the magic number Canadians needed to retire is $756,000 but they found as many as 90 per cent don’t have a retirement plan. The poll findings also show that almost a third of those nearing, or on the cusp of retirement aged 45 to 64, have nothing saved for their retirement. For those who have saved, the average value of their nest egg is $345,000 – only half as much CIBC says you need to retire.

What is the best decision?

Buying real estate should not come at the cost of ignoring other financial obligations. One easy solution is the look for properties that are less expensive. Condos are often the best choice for first-time homebuyers. If a more expensive property is what you desire, spending more time saving for your down payment will lower your payments when you finally purchase. The reason many young families are willing to sacrifice, is 78 per cent of those surveyed by Sotheby’s and the Mustel Group believe their home will either outperform or match the performance of their financial investments in the next five years. If the last 10 years is an example, that would be true, but it’s important to understand that as interest rates rise, so will the cost of borrowing and that will put downward pressure on home prices, too.

The bottom line? Financial sacrifice is necessary when buying a home in most Canadian urban centres, so plan and prepare.

Rubina ahmed-haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.

SHARE  

Featured Products


al_ma19_finance_fi

Till debt do you part, looking for love in all the wrong places?

Latest News


Till debt do you part, looking for love in all the wrong places?

Dating can be complicated, especially later in life. You’re probably carrying some extra baggage, which can come in many forms. And, there still might be an ex in the faded picture, as well as children and grandchildren. It can be a difficult world to navigate.

When you’re younger there are any number of reasons of why you might fall for someone. But, when you’re older, you’re hopefully a lot wiser too. In addition to emotional baggage, financial baggage could be holding you back from finding the perfect partner. A personal finance website called Finder, found that 68.5 per cent of Canadian adults say that they would reconsider a relationship based on a person’s financial debt. Baby boomers might be a tad more savvy, as 70 per cent of those surveyed would consider their partner’s debt unacceptable and a roadblock for the relationship to continue.

Deal breaker

Some debt is considered worse than others. The Finder survey found that payday loans were viewed as the least acceptable form of debt. More than 58 per cent of Canadians said that if they found out that their partner was carrying this type of liability, then it would be a deal breaker for them. Pay day loans have notoriously high interest rates, and are often used as a last option to get funds.

Other types of debt that may have your love interest rethinking, also include credit card debt, and money owed to family and friends.

Acceptable debt

Angus Kidman is the editor-in-chief at Finder and he says, “The uncomfortable truth is that the majority of Canadians are turned off by personal debt. Given so many people in relationships aspire to share finances, it’s not surprising that individuals view partner debt unfavourably. In saying that, not all types of debt are equal. Prospective partners are more likely to accept mortgages or business loans.”

These types of loans don’t evoke the same feeling as high-interest debts do. Mortgages or business loans are viewed as ‘good’ debt, as they relate to assets and the potential of increasing your earning capacity.

Indebted romantics

If you’re searching for love, and think that your debt might be holding you back, then your first step is to figure out how you are going to pay it down. Make a plan to cut out the variable spending, and commit to the plan.

Also, sit down and have a serious talk about money with your love interest. If your debt is hindering your relationship, it’s better to find out now, rather than later. You may learn that they, too, have some debt issues that they haven’t been able to discuss, or that they’re very supportive. While honesty is always the best policy, it’s never more important than when dealing with personal finances.

“While it can be difficult to talk about debt, it’s important to have open and honest conversations about the state of your finances to minimize relationship friction,” says Kidman. “You should also have frank discussions about the level of debt you’re willing take on in the future, and the circumstances under which it’s acceptable.”

One of the most common reasons that couples split up has to do with their relationship with money. To get your new relationship off to a good start, it’s best to be open and direct, and make a plan to become debt-free.

Rubina Ahmed-Haq is a journalist, personal finance expert and HPG’s finance editor. She appears on CBC TV and radio, CTV Your Morning, Global Toronto, and writes for ratesupermarket.ca. Follow her @alwayssavemoney. AlwaysSaveMoney.ca

SHARE  

Featured Products


Debt Consolidation

Debt consolidation in Canada – how it works and why you may need it

Latest News


Debt consolidation in Canada – how it works and why you may need it

There’s no sugar-coating – the journey to financial freedom is tough. The good thing is, there are effective ways to get out of debt fast. If one of your current goals is to be debt-free, debt consolidation is worth considering. Keep in mind that the only way to keep your finances in order is to learn how to save money and make smarter financial decisions. With that said, we’ll share some more information on debt consolidation to help you decide if this is for you.

What is debt consolidation?

Put simply, debt consolidation in Canada involves bringing together small loans, bills or money you owe from different sources into a single, new loan and then make one monthly payment. Since you are consolidating different types of debts together into a combined loan, the term debt consolidation is used. Remember, each loan has its own repayment terms and interest rates so, in reality, you cannot combine them. What happens is that you take a new loan to clear all the smaller loans you had and then start paying the new loan only.

Who issues a debt consolidation loan?

Debt consolidation is offered by banks, credit unions and other financial companies that deal with credit. When you apply for the debt consolidation loan and your application is approved, the company will deposit the cash to your account and it’s your responsibility to clear the debt or they pay out the debts on your behalf.

What are the benefits of debt consolidation loan?

There are many reasons to consolidate different debts into one payment.

  • Simplifies the repayment process: You never have to keep track of multiple debts, there’s only one payment you need to make each month.
  • Saves money: Sometimes you end up paying lower interest rates especially if you had high interest credit card debt.
  • Can make life manageable: If you get a debt consolidation loan with a lower interest and amortization period then you can repay the loan in smaller monthly payments.
  • Can get out of debt faster: With a lower interest rate, it means most of the monthly payment you make will be going towards repaying the principal hence you’ll be able to clear the debt faster.

How do they determine interest rates on debt consolidation loans?

There are two main factors that determine how much interest you’re likely to pay for debt consolidation:

  • Your credit score: Banks and finance companies consider borrowers with a low credit score as more unlikely to repay debt as agreed in the agreement. Therefore, if your credit score is not good enough, lenders are not confident in your ability to repay the new loan as agreed. You are considered a higher risk borrower and hence they will offer you a much higher interest rate.
  • Collateral: Other finance companies will offer you a debt consolidation loan with lower interest if you provide good security. There are only specific things that the bank can accept as security, mostly stuff that they can easily convert into cash such as real estate or a new vehicle.

Is a debt consolidation loan for you?

There are certainly downsides to debt consolidation. One thing that most people do not understand is that you have to deal with poor financial habits before consolidating debt. Most people take debt consolidation loans with a lower monthly payment compared to their previous payments. This means that they now have something extra to spend every month. They then continue to spend more money than what they earn instead of creating a plan to stop overspending and get their finances back on track. This makes their financial situation worse and in the long run, their credit score becomes worse and qualifying for a new loan is almost impossible.

Therefore, the important thing to do when you take steps to get out of debt faster is to create a budget and follow it making sure you work with how much you spend versus what you earn.

What are your options for debt consolidation?

There are different ways to go about consolidating debt:

  • Home equity loan: This is often considered a second mortgage which you can qualify for if you have acquired equity in your home.
  • Line of credit: There are unsecured and secured lines of credit offered by banks for borrowers with a good credit score and a good income.

Don’t be fooled!

Debt consolidation should help you to get out of debt, not put you in further debt. Therefore, be keen on people who try to sell you a debt consolidation loan that has hefty up-front fees.


SHARE  

Featured Products


al_nd18_finance_fi

Where are interest rates headed in 2019?

Latest News


Where are interest rates headed in 2019?

The Bank of Canada has raised interest rates five times since July 2017. As of the Oct. 24 announcement, the overnight lending rate is 1.75 per cent and prime at commercial banks is 3.95 per cent.

Higher rates means money is getting more expensive to borrow and if you have a variable mortgage rate your monthly payments have gone up.

In its latest announcement the Bank of Canada indicated the various reasons they raised rates. This included the finalized trade agreement that replaces NAFTA called the United States Mexico Canada Agreement or USMCA.

In its press release after the announcement the Bank states that the USMCA agreement will help “reduce trade policy uncertainty in North America, which has been an important curb on business confidence and investment.” The trade agreement was the biggest roadblock for the Bank to raise rates. This was evident when they held rates steady for the several past announcements while the U.S. Federal Reserve continued to hike its benchmark rate. Although not always the case, in most instances, if the Fed raises rates, Canada does as well.

The Bank also points to a solid global economic outlook as a reason to hike rates. Here at home it says “The Canadian economy continues to operate close to its potential and the composition of growth is more balanced… Real GDP is projected to grow by 2.1 per cent this year and next before slowing to 1.9 per cent in 2020.”

After the announcement, Bank of Montreal economist Benjamin Reitzes noted that the BoC statement shows, “Policymakers are clearly upbeat on the outlook, and assuming the economy doesn’t face any big speed bumps, expect rates to continue to push higher at least through early 2019.”

BMO economics predicts three rates hikes in 2019. In January, April and July.

So as rates are expected to rise, what costs can Canadians expect to go up?

Mortgages

Anyone with a variable mortgage rate or any loan with a floating rate, like a line of credit, is already seeing their costs rise. Commercial banks usually hike rates as soon as the Central Bank does. If you have a variable rate mortgage on your condominium, you may want to inquire about fixing your rate today. If you’re worried about your affordability, by fixing your rate you will know how much your payments will be for the remainder of the term.

Savings rates

One of the positives of a higher rates is we get better return on the money we’re putting away. This includes money we have in our savings account. Fixed income rates will rise as well and banks are able to offer a higher rate of return on any money you invest with them.

Stronger dollar

A rate hike almost always means our currency gets stronger. This can be great for Canadians travelling abroad as you get more money during currency exchange. But a stronger dollar can spell trouble for companies trying to export their goods and services. The stronger dollar makes it more expensive for any foreign buyer.

Life could cost thousands more

A report by Environics Analytics released after the October rate hike reveals in the long run the interest rate hike could cost Canadians thousands. They say, so far, the effects of higher rates has been limited to short-term debt and variable rate debt. But when fixed rate debt starts to catch up life will get more expensive. They say “the true long-term effect of these interest rate hikes will be approximately $2,516 a year per household or 5.0 per cent of discretionary income.”

The sense from economists is interest rates are expected to rise going into 2019. If you’re concerned you need to stress test your finances, calculate how much your debt would cost if rates were 2 or 3 percentage points higher. If you find that might be unaffordable make the changes now to prepare for what seems to be inevitable.

Rubina Ahmed-Haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney

RELATED READING

The financial pitfalls of downsizing

Higher rates and new rules cooling the condo market

 

 

SHARE  

Featured Products


al_so18_finance_fi

Finance: To Move or Not To Move?

Latest News


Finance: To Move or Not To Move?

To Move or Not To Move? That is the question

An overwhelming number of Canadians over the age of 65 want to stay in their family home. A survey, commissioned by Home Equity Bank and conducted by Iposos, revealed that 93 per cent wanted to stay in their current home throughout their retirement.

While this may be the preferred choice for many, smaller retirement nest eggs, as well as rising health care costs and maintenance on a larger property, often make it impossible to do so.

Take the time to figure out what it actually costs you to carry your home.

Do the math

When you have several people living in a house during the child rearing years, you expect expenses to be higher. As the children move out, those higher costs don’t add up – especially if you’re only using a portion of the the house. If you still have a mortgage, add that to what it costs to maintain the property, as well as utilities, repairs and property taxes. If, when totalled, that number represents the same portion of your retirement income as a mortgage did when you were working, then it might be a sign that you need to move. Retirement income is often lower, so it doesn’t make financial sense to pay the same costs as when you were working.

It’s a wonderful idea to preserve the family home for when children and grandkids come to visit. But, in reality, how many times do they actually spend the night? If you moved, would an extra bedroom be sufficient? Or, maybe, there’s a guest suite in your condo building. There are lots of options for visitors.

Lifestyle changes

Where you live may have been, partly, determined by where you worked. If retired, living in a specific place is no longer a requirement. If you’re helping with grandchildren, or find that much of your social life is outside the area in which you live, it might make sense to move closer. If you’re a traveller, having a smaller living space, like a condo, makes economical sense and it’s a great no-worry option when you’re away.

Make staying more affordable

If, after weighing all the pros and cons, you decide to stay in your home, there are still ways to save money. Consider renting an extra bedroom to a student or to a person who’s on a temporary contract in your area. Another great option is Airbnb. Or, go a step further and create an income suite in your basement for long-term tenants.

It may be possible to refinance your home. In this case, it means that you will have to make mortgage payments, and when the home is passed onto your beneficiaries, that loan will be settled first by your estate. There is also the option of a reverse mortgage. Read the fine print carefully, as the rates on such loans are often much higher, which means it’ll cost you more.

Selling the family home, and downsizing, can be an emotionally difficult period of time. By looking at it from a financial perspective, it could prove to be a responsible decision, so that you have the money to do what you want to do during your retirement.

Rubina Ahmed-Haq is a journalist, personal finance expert and HPG’s finance editor. She appears on CBC TV and radio, CTV Your Morning, Global Toronto, and writes for ratesupermarket.ca. Follow her @alwayssavemoney. AlwaysSaveMoney.ca

SHARE  

Featured Products


condo-banners-finance_600px

Higher Rates and New Rules Cooling the Condo Market

Latest News


Higher Rates and New Rules Cooling the Condo Market

Higher Rates and New Rules Cooling the Condo Market: But It’s Not Bad News

After remaining at a record low for close to a decade, the Bank of Canada has started to raise its benchmark interest rate. A strong economy and positive job growth are some of the reasons behind the hike. This increase means anyone with a variable rate mortgage is now paying more for the same loan. Money is getting more expensive to borrow.

More Cooling Effects

Added to this, new mortgage rules brought in at the beginning of 2018 are making it harder for borrowers to qualify for more. The lender is now required to stress test all mortgages, regardless of the down payment or the amount being borrowed. These new rules mean borrowers have to show they could pay their mortgage if rates were two percentage points higher than their contract rate, or the Bank of Canada posted fixed rate, whichever is more. Overall this is keeping homebuyers away and has had a cooling effect on the housing market, including condos. One report by the Mortgage Professional of Canada claims 18 per cent of home buyers can’t pass the stress test, even though they can afford the mortgage payments.

What Industry Critics Are Saying?

No surprise mortgage brokers, and the association that represents them, are concerned homebuyers will no longer be able to borrow enough for the home they want. The recent report by the Mortgage Professionals of Canada found that, “New government policies are causing consumers to have a more negative outlook for housing and real estate in Canada.” The Report on the Housing and Mortgage Market in Canada says most consumer still see real estate as a good investment but “overall strength of consumer sentiment has been weakened by increasing interest rates and the new rules making it harder for homebuyers to secure mortgage financing.”

One Solution

The report argues that the stress test, albeit important, is too strict (or maybe too stressful), for first time homebuyers in particular. Paul Taylor is the president and CEO of Mortgage Professionals Canada. He says, “We support a stress test, albeit at a reduced rate of 0.75 per cent, as it is a useful tool to test a borrower’s ability to make future payments. However, the cumulative impact of rising rates, a two percentage or greater stress test, provincial government rules in Ontario and British Columbia, and further lending restrictions are negatively supressing housing activity not just in Toronto and Vancouver, but throughout the country.”

Managing Expectations

The Bank of Canada is hinting rates are poised to go higher. Before the end of 2018 the Bank could raise rates again, making money even more expensive. They are warning debt seeking homebuyers to pull the reigns on the amount they agree to borrow, because it will cost more when rates rise. The stress test represents where rates could be by the end of the mortgage term. They are realistic and frankly, in my opinion, they are needed. Canadians are close to a record level of debt. Statistics Canada data shows in June 2018 Canadians owed $1.68 cent for every dollar of disposable income. That is actually down slightly from the beginning of the year, indicating the new mortgage rules are already working.

Canadians shopping for a home need to be realistic about what they can now afford. Looking in the rear view mirror is not helpful. Where prices were and what you could afford then is not the reality now. Crunch your numbers based on this new reality, higher rates and stricter rules, and see how much you can afford. Even then, you don’t have to borrow the whole amount the bank offers. By borrowing less, you will automatically save yourself thousands in interest payments. Mange your expectations of the house you are buying. Maybe a smaller home, or a condo in a different area is the solution. Keep your options open.

Rubina ahmed-haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.

SHARE  

Featured Products