Tag Archives: RUBINA AHMED-HAQ

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

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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

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Variable vs fixed mortgages? It’s complicated

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Variable vs fixed mortgages? It’s complicated

Canadians are now into the busiest season for real estate. More homes change hands during the spring than at any other time of year. One decision homeowners will have to make about their new purchase is the kind of mortgage they will sign up for. Historically, variable rates have saved money, whereas the five-year fixed has provided the stability many conservative homebuyers want.

But that decision is getting complicated. Canada’s biggest bank, RBC, has cut its five-year fixed rate. Several banks, such as TD Bank and BMO Bank of Montreal, have quickly followed and cut their five-year fixed to the same level.

The move by some of Canada’s commercial banks is overdue. Unlike variable rate loans that are affected by the Bank of Canada’s benchmark rate, fixed rates are tied to the bond market. Bond yields have been dropping for the last two months.

Rate savings

The yield for the Government of Canada’s benchmark five-year bond fell from a high of 2.48 per cent on Oct. 5, 2018 to a low of 1.76 per cent on Jan. 3, 2019. This means it’s cheaper for commercial banks to borrow money at a fixed rate. Therefore, they can offer those interest rate savings to their mortgage customers.

The cut to fixed rates has shortened the spread between the variable and fixed rate mortgage. The Bank of Canada usually raises rates by 25 basis points or a 0.25 of a per cent each time. With the BoC hinting at raising rates 2019, one rate hike would mean your variable rate mortgage would become more expensive to service, than if you had locked in at today’s fixed rate.

For the first time in many years Canadian mortgage seekers are faced with a unique challenge. Previously going variable often meant saving money over the long term. Those who had the stomach to handle interest rates going up and down were the perfect candidate for a variable rate mortgage. For those who wanted security of knowing what their payments will look like, the fiveyear fixed has always been popular.

Rock bottom

The other problem is rates have been at rock bottom for so long that for many homebuyers it’s hard to see rates rise anywhere close to normal. But if we look back to before the financial crisis, before rates were slashed to record low levels, the prime rate at commercial banks was 6.25 per cent in July 2007. At that level, rates were considered much more normal.That rate is 2.5 per cent higher than what prime is today.

What new homebuyers and those renewing their mortgage term have to ask themselves is, could I afford this mortgage loan if rates were two to three percentage points higher?

Canadians need to prepare for higher rates, by making lump sum payments and accelerating their regular payments. Take advantage of lower interest rates, and if I was in the market for a mortgage today, I would strongly consider locking into the special fixed rates being offered by banks, because it seems it is almost guaranteed to beat the variable rate in the next five years.

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.

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Do you marry for love or money?

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Do you marry for love or money?

When we think about a couple getting married, thoughts of romance usually spring to mind. Where did they meet? When did they know they were in love? And how did they get engaged? But a new survey from the U.S. reveals for most couples it’s not romance that’s getting them to the alter, but the financial stability of the person they’re vowing to spend their life with. The Merrill Edge Report asks the question, “Is financial security the new happily ever after?”

In sickness and in wealth

The report by Bank of America Corp.’s Merrill Edge surveyed more than 1,000 people. It found 56 per cent of respondents prefer someone who provides financial security compared to 44 per cent who want to be “head over heels,” in love. There was also very little difference between men and women. Fifty-four per cent of men want financial security and 57 per cent of women want the same. The only generation that prizes romance more, are the youngest respondents, the Gen Zs, born after 1996. They choose love 54 per cent of the time.

This is good news

Canadians are waiting longer to get married. The latest data from Statistics Canada shows, the average age of first marriages is 31 for men and 28 for women. The longer you wait to get married, the more likely it is you’ve built up your net worth. If you already own a condo or any real estate, for example, you have a large financial asset at stake. This is true as well for any retirement savings you’ve built up over the years. The survey, as unromantic as it sounds, is actually encouraging and shows we are being more pragmatic about our financial future before we tie the knot.

We are still avoiding the ‘money talk’

If most of us have finances top of mind when we get married, we should all be taking the steps to talk about our individual money situation before the big day. But bringing up this topic can be awkward. The survey found that while we’re looking to our partners for financial security, we also tight-lipped when it comes to discussing our own finances. Most admit they rarely talk about their debt, their salary, their investments or their spending habits with their soon to spouse, and that has to change.

How to get started

Ideally, you should have the money talk before you get engaged. But at the very least do it before you say “I do.” Make a date with your partner. Ask them to clear their schedule for that time so you can both really focus on what’s important, your collective financial goals. Agree on some questions that need answering, such as: How much debt are you in? What do you bring home every month after taxes? Where do you see yourself living in five years? Are you a risk taker or conservative when it comes to investing? These questions will help get the conversation started.

Be open minded

During that initial conversation and during your relationship, your partner is going to spend money on something you would not choose for yourself. That doesn’t mean they have made a bad money decision, just one that is not a priority to you. If the spending is within reason, and is not putting your household finances in the red, learn to compromise. This doesn’t mean that every purchase they make that’s not in line with your values is ok, but remember you’re still two different people with separate ideas of what valuable is. By accepting that early on, you are bound to have fewer arguments about money in the future. If financial stability is important to you, as it seems to be for the majority of people, the only way to find that is to keep the lines of communication open about your spending and your feelings about theirs.

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.

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Tax season – the most dreaded time of the year

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Tax season – the most dreaded time of the year

Now that the holiday season is over, Canadians can now look forward to tax season. For many, it’s often a scramble to get their return completed before the deadline, so that they avoid paying any penalties. This year, that date is April 30, 2019. Take a deep breath and get all your ducks in a row, you still have a few months to file with the Canada Revenue Agency (CRA).

Penalties and fees

If you owe money, the CRA starts charging interest on your balance one day after the deadline passes. Many Canadians now file their return online, a method that the CRA supports, and recommends. To file it online means that it is immediately received and there’s a digital record. The CRA has a list of certified software packages and web applications. If you file by mail, you can have a paper tax return mailed to your home. For Canadians with simple tax situations, you can also file by phone.

Get registered

If you haven’t done so already, open a My Account on the CRA website. It’s a secure service for those who file their taxes. You can also use the autofill function in the CRA certified tax preparation software NETFILE, which automatically fills in part of your return, including your information from your T3, T4, and T5 slips.

File no matter what

Even if you’re not expecting a refund, it’s still a good idea to keep the CRA up to date on your income situation. Otherwise payments, such as the Canada child benefit, may be delayed. This also applies for anyone who has zero income. File a return in order to take advantage of all the government tax credits that you are eligible for.

Important tax credits

The Canada caregiver credit provides tax relief to individuals who are caring for a dependant with a mental or physical impairment. In addition, Canadians can now have their disability tax credit application certified by a nurse practitioner. If you need intervention to help conceive a child, there is also a medical expense tax credit for that.

Self-employed tips

If you are self-employed you have until June 17th to file your return this year. However if you have a balance owing to the CRA, it is due by the April 30th deadline. If your income situation changed dramatically this year, and you have been making income tax instalment payments, figure out the balance that you owe by the deadline. With the new CRA Biz App, you can view transactions and pay balances.

Professional advice

Accountants and tax preparation professionals are all working overtime during tax season. If you have questions, the CRA is also a great resource. For Canadians who need help with their tax return, and can’t afford a professional, they may apply to the Community Volunteer Income Tax Program clinic. To see if you’re eligible and to find a clinic near you, visit cra.gc.ca/volunteer.

Reinvest your return

If you’re expecting a refund this year, you may be dreaming about how to spend it. The best thing that you can do with your tax return, is to reinvest it into your RRSP. By doing so, you’re kick starting your retirement savings for 2019, which helps to reduce your overall income for next year. Another option is to use that money to pay down high interest debt. If you are carrying a balance on your credit card, or a line of credit, this money could help you on your way to becoming debt free. Most importantly, get it in on time.

Rubina Ahmed-Haq

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

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Bank of Canada holds interest rate for now, but hikes still to come

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Bank of Canada holds interest rate for now, but hikes still to come

 

Bank of Canada

The Bank of Canada held its target for the overnight rate at 1.75 per cent on Jan. 9, where it has been since October 2018, and is lowering its growth forecast this year for Canada and around the world.

After raising the rate three times last year, some experts expected the Bank would do so again, either in late 2018 or early this year.

So, what does this latest non-action mean, and what can Canadian consumers expect in the coming months?

“The Bank gave several reasons for its decision to keep rates steady,” says Rubina Ahmed-Haq, personal finance guru and Homes Publishing columnist. “This includes lower oil prices, a weaker outlook for the global economy and Canada’s economy slowing more than expected.

Weaker investment

“It was a surprise that market pessimism did not come up,” she adds. “Despite stock market volatility making headlines for the last two months, there was no mention of the wild swings investors have been experiencing. The Bank did talk about weaker consumer spending and housing investment. This could be because of Canadian investors watching their portfolios and not feeling as confident in their spending.”

Sill, Ahmed-Haq says, the Bank remains very rosy on Canada’s economy, noting it has performing well overall. In its statement, the Bank says, “Growth has been running close to potential, employment growth has been strong and unemployment is at a 40-year low.” But still not enough to raise rates at this time.

Energy sector a concern

“The energy sector has been a concern for the Bank for some time now, but there seems to be a new focus on the housing sector, especially on the impact of mortgage guidelines changes and the five rate increases that have happened in the past 18 months,” James Laird, co-founder of Ratehub Inc. and President of CanWise Financial mortgage brokerage, told Homes Publishing.

Ahmed-Haq and Laird agree we should still expect higher rates in the coming months.

“The policy interest rate will need to rise over time into a neutral range to achieve the inflation target,” says Ahmed-Haq.

Rate hikes to come

Forecasters are now predicting two rate hikes this year, down from earlier predictions of as many as three rates hikes in 2019.

“The Bank’s moderated outlook in the last two announcements has caused bond yields in Canada to drop lower than any point in 2018,” says Laird. “However, we are yet to see a corresponding decrease in mortgage rates. We would advise consumers to keep a close eye on mortgage rates in coming weeks.”

 

Highlights from the Bank’s announcement

  • Bank of Canada maintains target for overnight rate at 1.75 per cent
  • Canadian economy performing well overall
  • Employment growth strong
  • Unemployment rate at 40-year low
  • Canadian consumption spending and housing investment weaker than expected
  • Housing markets adjusting to municipal and provincial measures, new mortgage guidelines and higher interest rates
  • Household spending to be dampened by slow growth in oil-producing provinces
  • Real GDP growth forecast at 1.7 per cent for 2019
  • Growth of 2.1 per cent forecast for 2020

 

RELATED READING

Where are interest rates headed in 2019?

Homebuyers undeterred by changes in mortgage landscape

Interest rate hikes may not cost you as much as you think

 

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Where are interest rates headed in 2019?

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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

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The financial pitfalls of downsizing

Higher rates and new rules cooling the condo market

 

 

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How to host Christmas dinner in your condo – for cheap!

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How to host Christmas dinner in your condo – for cheap!

One of the biggest challenges condo owners face is lack of space. Many who choose condo living do so to minimize maintenance costs and live close to where they work and play. That often means a smaller unit where every single square inch has a purpose. For day-to-day living this is an excellent solution, but for hosting a large gathering it can be challenging. With Christmas coming up condo owners might feel like their only choice is to attend a party at a larger home, but with some careful planning, you too you can host a great party in your home and not break the bank.

Book the party room

The easiest and most obvious choice is to book your condominium party room. Most of these spaces come with food prep rooms, a lounge area and of course a spacious place to seat all your guests. With only a few weeks before the holidays the best dates may be gone already, but inquire about Christmas 2019. Maybe you can book now for the year ahead and let guests know that next year the holiday meal will be hosted by you. As a courtesy let your doorman know your plans to minimize delays of your dinner guests getting in. Go a step further and make signs that lead to the room, as some condo buildings are difficult to navigate.

Rent it

Most condo owners don’t have a table that will seat eight to ten guests. If you’re hosting in your unit look into renting a dining table with chairs. Turn your condo into a restaurant like feel. Move all the unnecessary furniture out of your main space into your bedroom. Leave only the long table and chairs and a few seats for guests to lounge. Keep the focus on the table and encourage guests to claim their seats as they arrive. This way, like a restaurant, they can stand during cocktail time and know there is a seat available right way if they need it. In some cases you can rent a dining set for as low as $200 and this includes set up. Some companies will provide the china and flatware, too.

Pot luck

The easiest way to keep costs (and efforts low) is to make your holiday dinner a potluck. After all if you’re spending money on renting furniture or a party room to accommodate your guests you may already be looking at a few hundred dollars to put on your party. As host commit to making the main dish. Ask your guests to bring dessert and the fixings. Also, for a big Turkey dinner skip the appetizers. When guests arrive already having your first course on the go, like a soup or salad. This will keep guests occupied and save you the hassle and money of making extra appetizers.

Prep

Having a small space means there is little room to do any work once guests arrive. After all you should be talking to them and not stuck in the kitchen. Make all you dishes ahead. In fact, except for dressing the salad, don’t leave anything to the last minute. The joy of holiday cooking is that casseroles and can be cooked ahead and kept warming in the oven.

Saving money

Planning ahead will make sure you don’t blow your budget. Make a list early of what you want to buy, search the flyers to get food ahead of time on sale. Make conscious choices to not cook meals that have complicated ingredients that you’ll have to go out and buy; use what you have at home first. Christmas is about getting together and enjoying a great meal with family and friends. A small space and small budget should not sway you from hosting.

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.

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Finance: More Transparency Coming To Toronto Real Estate Market

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Finance: More Transparency Coming To Toronto Real Estate Market

Canadians will now have greater access to real estate sold prices in Toronto. In August the Supreme Court of Canada refused to hear the Toronto Real Estate Board’s (TREB’s) appeal to an earlier federal court decision that accused them of anti-competitive practices by the Competition Bureau.

This means all homes and condos listed on the MLS and sold in Toronto will be readily available without the need of a password or engaging an agent.

TREB’s major argument was concern around copyright and privacy. They said putting all this data online publicly would be problematic.

In a statement released after the Supreme Court refusal, TREB CEO John DiMichele said “TREB believes personal financial information of homebuyers and sellers must continue to be safely used and disclosed in a manner that respects privacy interests and will be studying the required next steps to ensure such information will be protected in compliance with the Tribunal Order once that comes into effect.”

This is a first for a major real estate board in Canada, but has been going on in the U.S. for more than 10 years. Here’s what to expect.

Better Informed Client

When working with a real estate agent, sellers and buyers will no longer have to ask them for comparative sales in the area. This is the best way to understand what a home’s market value is. When putting their house on the market, sellers can arm themselves with the latest data. Buyers as well can make offers with confidence as they will have been able to research the area they are looking to buy in on their own.

Agents Can Provide Better Service

Realtors serve a key role in the real estate transaction. They serve their client and make sure they get the best deal and guide clients through the process. For sellers they can help determine fair market value for your home, they arrange open houses and find potential buyers. Often, they have a roster of potential buyers they can show the house too as well.

For buyers, agents are often subject matter experts in the areas they service — knowing the history of the area and what streets are most sought after. When negotiating they ensure all the checks are done to make sure the home you are buying is being fairly represented.

What Changes Can We Expect?

With data now readily available, consumers can expect to see an increase in websites focused on this information. It’s not just active sellers and buyers interested, but any homeowner wants to know what their biggest investment (their home) is worth. Making data available in a user friendly way could be challenging, especially if a home has seen a number of transactions in a few years. Also making sure data is accurate and up to date is important. Expect to see a number of sites pop up dedicated to providing this information.

No Concern for Realtor’s Role

Those agents with a large client base and established reputation should not worry about their business being affected. The need for a knowledgeable agent, willing to work hard for their clients, will still exist. For those agents who may not have the same level of expertise, they may have to work harder to get up to speed on how they can provide a service to their client, other than regurgitated sold numbers. For those agents there may be a steep learning curve as the market in Toronto becomes more transparent. Looking further this could have an effect on other markets in Canada, especially those next door to Toronto, whose clients will demand the same level of access to sold prices.

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.

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Finance: To Move or Not To Move?

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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

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Higher Rates and New Rules Cooling the Condo Market

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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.

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