Five Money Tips I Wish I Followed in My Twenties
Life & Money
Whether you've landed your first full-time 'I'm an adult now' job or are hustling a series of part-time side gigs, getting ahead financially is possible, and not just for Fortnite-playing YouTube stars. Spoiler alert: it starts with avoiding common mistakes many of us made in our 20's.
As millennials, we’ve come to expect a few things for free or close to it (don’t go changing, Snapchat and Netflix) but affording the big-ticket items like buying a home or realizing a start-up dream can often feel overwhelmingly impossible. If building a fabulous future is more important to you than living in the present moment; take these financial tips for a test drive.
Don’t be a Professional Student
Working towards an undergraduate or graduate degree, or enhancing skills through continuing education may be excellent life choices. Getting an education can negatively impact your financial health when you become a professional student — remaining in school with no real plan and no line of sight on earnings, especially if racking up student loan debt is the only way to pay for it. If you are avoiding the realities of landing a paying position at a company, it may be time to take stock of your life plan being a perennial student.
Don’t be Turned off by “Good” Debt
One of the best ways to get ahead financially may include incurring some good debt. While this may sound counter to everything you have been taught, good debt can include investing in an affordable mortgage — or any asset that increases in value — increasing your net worth along with it. A student loan for a program that elevates your future earning potential is another example of good debt. Bad debt: splurging on a huge wedding when you can barely afford to reload your Starbucks app.
Don’t Fall into the Digital Dollars Abyss
Things that are obsolete: Blockbuster Video. Public Pay Phones. Coming soon is physical currency? Governments still print money (for now) but we can go weeks without handling cash thanks to Apple Pay and our debit/credit cards. The downside: We don’t physically see the money being depleted in our wallet as we spend our way through the day. A budgeting app or a simple login to your banking app can help you track how money is slipping through your fingers with each and every swipe or tap. Keep track. Resist your temptations from time to time, and watch how your digital dollars can grow.
Do Consider the True Cost of Plastic Purchases
Credit cards are one plastic accessory that is almost impossible to avoid (just try booking an Airbnb without one). Having access to good credit and learning how to manage it is critical to financial success; however, it can also be the start of a downward financial trend if you’re not savvy. Yes, you can now purchase South X South West tickets on your handy piece of plastic, but if paying the cost off takes months you may ultimately pay double the cost via the credit card interest. Consider a disciplined approach to using your square piece of plastic: If you can’t afford it now, buy whatever it is you desire and make sure you pay it off. This not only builds your credit rating, but establishes a healthy relationship with Plastic. If you are using plastic to bridge yourself financially, ask yourself if you will be able to still afford your desired purchase when you’re paying more than the current price once interest is added to your plastic purchase down the road.
Do Invest in Yourself
Investing in the sometimes confusing and ever-fluctuating investment world can be a daunting experience for the inexperienced. You may not be killing it on the salary front (yet!), so investing your hard-earned dollars might seem like seriously risky business. Make sure you are setting aside 10% of your earnings into a TFSA or separate Savings account. You can even automate the payments so they come off as soon as your paycheque hits your account – that way you don’t miss the money. There are other ways to invest without literally investing dollars— Use your early working days to invest in educating yourself on just the basics of how markets work, how to read a stock table, and how to understand the various exchanges. Why? The better educated you are, the more decision power you’ll have when the time comes to dip your toe in the investment world — like contributing to an RRSP.
Nation's capital enjoying renaissance
by Neil Sharma Sep 2018 MBN
Construction in the nation’s capital is on fire.
According to Ameera Ameerullah, CEO of Canada Mortgage & Financial Group, the firm has been lending on a lot of construction projects this year.
“We are currently facilitating about $47mln in land development and construction financing in Ottawa presently,” she said. “It ranges from land assembly and construction for single-family detached bungalows to a 76-unit low-rise condominium development in three phases, and land assembly for a retirement facility and golf course.”
Given that Ottawa is an historically stable market, and one that’s growing, Canada Mortgage & Financial Group’s presence there isn’t surprising.
“It’s a growing community in Canada, specifically in Orleans, which is up and coming with a stable job market due to the federal government,” said Ameerullah. “Orleans has one of the strongest household income levels in Canada, and the rental vacancy has been close to 2% over the past 10 years.”
Indeed, by all accounts Ottawa’s real estate market is on fire. According to Chris Allard, a broker with DLC Smart Debt, the growth in new construction is mostly occurring in the city’s east, south and west ends.
However, it’s creating frenzy for borrowers, brokers and lenders.
“We have some clients on waiting lists to even be able to put in an offer with a builder,” said Allard. “A builder only releases X amount of properties for a certain model and there’s already a waiting list. Those aren’t going to multiples, but you hope to be the next guy to actually put an offer in. I have clients who have slept in sleeping bags outside a sales centre just to put their names on a list.
“A lot of people need preapproval letters for builders, as well.”
Ottawa’s resale market is replete with multiple offer situations and, inevitably, broken hearts. Comparing it to what occurred in the Greater Toronto Area a couple of years ago, Allard says it’s ideal for sellers but tough on buyers.
“It means the parties involved are all a bit more stressed,” he said. “The borrowers are stressed because perhaps they did not put any financing conditions on their offer; the mortgage professional is stressed because if the borrower did put in a financing condition, then in a lot of cases the financing condition is very short, which means we need to be quick at getting an approval. That means we add pressure on the lenders to do everything quickly, but when there’s a hot market lenders are busy too, so the pressure goes down the chain from the borrower to the mortgage broker to the lender.”
Related stories:
Canada's top markets for home buyers and sellers
Stress tests derailing most would-be home owners' dreams – study Landing
5 Surprising Mortgage Facts
There’s something about September that signals a fresh start. It’s a perfect time to get serious about saving money on your mortgage. So get out your notebook: here are five surprising mortgage facts that can save you money over the long term!
Fact #1: Your credit score matters even more
Lenders are beginning to review client files prior to renewal, which means if your credit score has slipped, you may be offered a higher rate at renewal, even if you have never missed a payment. Regardless of where you are in your mortgage term, it is very important to always pay your bills on time, use only 30% of your credit limits, and monitor your credit score regularly.
Fact #2: Refinancing is still one of the best ways to get debt under control
If you’re holding too much high-interest debt and you have enough equity, consolidating all of it into a low-interest mortgage can save you thousands in interest, lower your monthly payments, boost your cash flow, and eliminate the stress of multiple debt payments. It can also improve your credit score!
Fact #3: Interest-only mortgages are once again available for those with more than 20% equity in their homes
While not a product for everyone, this can be a great financial strategy for those who want to minimize their mortgage payments to free up cash flow for other uses like investing, business needs, post-secondary education, maternity leave or other life situations. Lump sum payments can be made when the time is right for principal paydown.
Fact #4: Variable mortgages are popular
While fixed rates are higher today than they were a year ago, many lenders are offering exceptionally low rates on their variable rate mortgages. In addition to offering the ability to save on interest, a variable mortgage can be significantly less expensive if you need to get out of your mortgage later.
Fact #5: Insured mortgages get the best rates
If your mortgage is not insured, it’s possible that you weren’t eligible for the best rates available at that time. Some uninsured mortgages can now be switched at renewal to a new lender that will offer an insurable rate, a move that could offer huge savings. Not sure if your mortgage is insured or not? I can find that out for you.
If you have any questions about your current mortgage strategy, are thinking of refinancing, or getting closer to renewal, get in touch. I’m here to help you, your family and friends understand which mortgage facts are the most important at any given time.
Ever-increasing home ownership costs scaring off Gen Zers
by Ephraim Vecina MBN
In a fresh RE/MAX survey conducted by Leger, a significant number of prospective home buyers in the 18-24 age bracket are not interested in owning homes amid a market environment characterized by inflamed price growth and an upward trend in interest rates.
38% of the poll’s respondents, which were all members of Generation Z, indicated that they have no desire to go into home ownership at the moment.
The RE/MAX study added that Gen Zers in Toronto tend to prefer renting or continue living with parents. The analysis also found, however, that nearly 51% of that generation in Vancouver would like to own a home within the next few years.
For Gen Zers in Ontario and B.C., among the top reasons to own a home are planning for the future (63%), getting a good investment (25%), and avoiding the various pitfalls associated with renting (3%). Of this cohort, 8% also said that buying their own homes is something they “should” do.
Read more: Millennial demand, economic strength continue to push prices upward – report
Regarding their preparations for possible future purchases, 50% of respondents in B.C. and 45% of those in Ontario said that they would like to learn more about the housing market, as they fell that their current level of knowledge is limited.
“Gen Zers are interested in learning more, and a greater effort needs to be made to educate them about the benefits and potential risks of home ownership,” RE/MAX of Western Canada regional executive VP Elton Ash said.
"While the prospects of home ownership may seem daunting, that doesn't mean that Generation Z should give up hope,” RE/MAX INTEGRA Ontario-Atlantic Region executive VP and regional director Christopher Alexander added. “It will be more important than ever for financial institutions and real estate professionals to educate this generation and reach them through the platforms they frequent, such as social media and online.”
Generation Z is expected to outnumber the millennial segment in the near future, RE/MAX stated. Multiple observers have previously argued that this young cohort, which is possibly the most tech-literate ever, will make major waves across the housing sector and its associated industries over the next two decades.
Related stories: Condo segment might experience a boomer surge in the near future
When it comes to mortgage renewals, Canadians are leaving money on the table
Globe and Mail with Kelly Wilson
Mortgage renewals can be a nerve-wracking experience, especially for first-time homeowners — and this year, there will be a lot of Canadians getting ready to go through that process.
Almost half of existing mortgages are up for renewal this year, according to a CIBC report from earlier this year. But despite homeowners having the opportunity to look for a better deal than their existing rate, or for a more appropriate product to fit their current stage in life or future goals, Canadians are unlikely to go rate shopping.
A HSBC survey of 10,000 people across ten countries showed that Canadians are the least likely to look for a better mortgage rate, with only 50 per cent saying they’ve done so, in comparison to the global average of 61 per cent.
It’s a stat that baffles mortgage brokers and financial planners.
Kelly Wilson, an Ottawa mortgage broker, says she believes every homeowner should consider rate-shopping at renewal time. Because the banks’ offer is based on posted interest rates, “the best mortgage rate isn’t being offered up front,” she says.
For those coming up on their renewal period and looking to get a better rate, Ms. Wilson recommends starting as early as six months in advance. Most financial institutions won’t let borrowers out of their existing rate until the renewal date, but “it's good to start locking in at a much earlier stage because if you start to see the trends going up, it may be worth paying a small penalty to re-lock in early,” she says. If they don’t appear to be changing, she says, it’s better to wait until the closing date to lock in.
She also says factors like how long someone has been in their property, how much equity they’ve developed, and if they’ve previously paid CMHC on their homes contribute to being able to get better rates.
Robert McLister, founder of RateSpy.com and a mortgage planner at Toronto-based intelliMortgage, agrees. He says that because of new rules like the federal government’s “stress test,” some lenders are offering even less competitive rates. “If your bank’s analysis of you as a borrower leads it to believe that you can’t easily switch lenders...it may quote you materially higher renewal rates,” he says.
Borrowers who look at multiple lenders can save ten basis points or more, Mr. McLister says — and for those offered less competitive rates, the savings from switching lenders could be even higher.
People who are shopping around often make the assumption that sticking with the one of the big banks is better, Mr. McLister says, but “there’s little risk of loss when dealing with a smaller lender.” And, he added, doing that might allow borrowers to avoid “onerous” bank penalties.
Borrowers also need to watch out for potential penalties on increasing their mortgage if there is a chance they’ll need more money before renewal; or a portability charge if they think they might move before their next renewal.
“Make sure the lender you pick allows at least 30-60 days, but preferably more than 60, to port your mortgage without penalty if there’s a chance you’ll move before maturity,” Mr. McLister says.
A mortgage renewal may also be the time to start considering moving from a fixed to a variable rate, or even move mortgage products altogether. It can seem like a scary decision, but it’s one that may benefit borrowers in the long run.
Ms. Wilson says there are three strategies homeowners can use with a variable rate: taking the lower payment right now to manage a change in their lifestyle; acting as if they’re paying the higher rate in the spread, and putting all the extra money they’re spending directly to their principal cost to pay down the mortgage before rates actually go higher; or investing the potential savings from a lower rate into a tax-free savings account or an RRSP, to earn a better rate of return.
As for moving products, borrowers should think about what their short- and long-term goals are, and whether their mortgage product matches them, says Scott Kwasnecha, a Leduc, Alberta-based financial planner with Financial Services Group, which is affiliated with Manulife Canada.
“Buying a house and having a mortgage for 20 or 30 years is one of the biggest financial decisions people make, so they should take some time to look around,” he says.
For people with specific goals related to their house, like paying off a first home to upgrade to another property, or investing in a vacation home, Manulife One could be a good fit.
Manulife One is a tailored debt management solution that combines investments, mortgages, credit cards and lines of credit into one account, with any income coming into the account directly going towards total debt. Because Manulife One calculates interest daily, homeowners stand to save thousands in interest payments, and customers are still able to withdraw from the account as needed for expenses.
“It’s a different style of mortgage that can be very fitting for clients who are looking for something that’s not the standard five-year rate. It can be a very powerful tool if used properly,” Mr. Kwasnecha says.
“It’s good if you’re good with money, a disciplined person and don’t want to pay a lot of interest over your lifetime.”
Advertising feature produced by Globe Content Studio. The Globe’s editorial department was not involved.
Housing misery is the Canadian young adult's lot – study
by Ephraim Vecina 28 Aug 2018 MBN
A recent survey by the Angus Reid Institute found that inflamed housing costs are taking a toll on young Canadian home owners’ well-being, with a significant proportion describing their experiences as “uncomfortable” to “miserable”.
The poll, which took stock of the sentiments among home owners in the hottest markets, also found that in general, younger people have a negative mindset surrounding housing costs and availability, while older people tend to have more positive viewpoints.
In Vancouver, young respondents who reported being uncomfortable and miserable are deliberating between ownership, renting, or living in another arrangement. The city’s young home owners cited high monthly mortgages and the need to commute far as the leading reasons for their gloomy outlook.
“More than half of the ‘uncomfortable’ say they are giving serious thought to leave Metro Vancouver, while that number rises to eight-in-ten (81%) among the ‘miserable,’” Angus Reid stated, as quoted by LowestRates.ca.
The survey results among Toronto’s young home owners are similarly discouraging.
“Driven primarily by their propensity to use transit more often, and the likelihood of having a commute of one hour or more, the GTA population skews slightly more ‘miserable’ than Vancouver,” Angus Reid said
In recent years, affordability has become a dominant concern among home owners and hopeful buyers alike in Vancouver and Toronto.
“It is a progression of pain for both regions, where Vancouver really seems to be settling in, resigned to living with this chronic pain,” Angus Reid executive director Shachi Kurl said earlier this week, as quoted by CBC News.
Almost 75% of those living in Vancouver indicated a belief that housing costs have become “unreasonably high”. 20% of respondents said that prices need to shrink by 30% or more, and 29% said that their budgets would welcome at least a 10% drop.
Meanwhile, 56% of Toronto’s residents polled said that they are burdened by current prices. 13% added that they would like to see costs fall by 30% or more, and 22% said that a 10% price decline would make ownership more feasible.
Related stories: Average monthly payments now much higher compared to last year
Canada's top markets for home buyers and sellers
by Ephraim Vecina Aug 2018
In a new analysis of housing markets nationwide, real estate information portal Zoocasa culled data from local real estate boards to calculate sales-to-listings ratios – and find out which markets are the best for home buyers and sellers alike.
To evaluate these metrics, a high percentage indicates a large proportion of listed homes selling out (a sellers’ market), while a lower ratio points to would-be buyers having more choices (a buyers’ market). A balanced market has a percentage anywhere between 40% and 60%.
Zoocasa emphasized that buyers’ markets are not necessarily the most affordable, only those with the lowest likelihood of competitive hurdles like bidding wars. On the other hand, sellers’ markets abound with multiple offers for the same property due to sustained demand.
Canada’s top buyers’ markets are as follows, with the sales-to-listings ratios indicated as well:
- Newfoundland and Labrador (35%, average home price of $254,533)
- Greater Vancouver (43%, average home price of $1,024,282)
- Fraser Valley (45%, average home price of $770,734)
- Edmonton (48%, average home price of $376,429)
- Quebec CMA (49%, average home price of $268,897)
Meanwhile, sellers in these markets can expect more traffic compared to other locations in Canada:
- London and St. Thomas (78%, average home price of $363,727)
- Montreal (73%, average home price of $392,660)
- Ottawa (72%, average home price of $405,279)
- Windsor-Essex (71%, average home price of $305,983)
- Saguenay CMA (70%, average home price of $193,646)
Canada's elderly prefer to stay put in their cottages
by Ephraim Vecina 22 Aug 2018 MBN
The average price of recreational real estate across Canada saw a significant 13% year-over-year increase in June 2018, according to a new survey by RE/MAX.
The report pointed at sustained demand among Canada’s elderly as the driving reason for the increase in value of this property type, which covers assets like waterfront, non-waterfront, water access, and ski-in properties.
RE/MAX also noted that another major contributor to price increases is the growing phenomenon of retirees settling down on their already purchased recreational properties.
“Combined with the fact that Canada’s senior population is the largest it has ever been, and many of these retirees are using recreational properties as retirement properties, pricing has increased across the majority of markets,” RE/MAX Integra Ontario-Atlantic Canada Region executive VP and regional director Christopher Alexander told the Financial Post.
Nearly one-fifth of the survey’s respondents indicated that they are using their recreational properties as their retirement homes, while one-third stated that their purchases are meant as investments.
“A lot of them are cashing in and buying recreational properties or they’re refinancing and just taking some equity to do it or their straight up selling their urban home and moving into recreations markets full time,” Alexander said.
According to the RE/MAX survey, the influence of retirees on Canada’s recreational market has only strengthened in time. As of 2018, retirees accounted for 91% of activity in the segment, compared to the 55% proportion last year.
Related stories:
Retirement ain't what it used to be
Retirees stoking demand in recreational market – survey
Payday loans led Canadians' search queries over the past year
by Ephraim Vecina Aug 2018
Over the past year, Canadians indicated a markedly increased interest in payday loans over other product types, according to the latest data from search analytics firm SEMrush.
In the period covering June 2017 up to June 2018, the search volume for payday loans reached an average of 29,000 a month on platforms like Google. Payday loans thus ranked first among 10 different loan types Canadians searched for in this period, The Canadian Press reported.
To compare, the same online users searched for mortgages at a rate of only 18,800 a month during the same time frame. Student loans racked up 17,800 searches per month, with consolidation loans and car loans following suit.
Products such as payday loans – which were accumulated amid the record-low interest rates of past years – have become an important lifeline for households trying to stay afloat, but paying off the debt accrued during this period will likely prove to be a significant challenge for Canadian borrowers, according to a recent analysis using data from Equifax.
The study conducted by the Canada Mortgage and Housing Corporation found that average monthly housing payments were much higher in Q1 2018 compared to Q4 2017.
Read more: Higher rates to choke indebted households further
In particular, Toronto and Vancouver displayed worrying trends. The average monthly mortgage payment in Toronto stood at $1,662 in Q1, representing a 6.4% increase from the last quarter. In Vancouver, this figure was even more pronounced at $1,794 per month by the end of the first quarter, up 6.53% from Q4 2017.
In contrast, Montreal saw the average payment reach $1,060 in Q1, up 2.51% from the quarter prior.
The CMHC attributed the significant Toronto and Vancouver increases to a heady cocktail of rising rates and large debt loads. The analysts also warned that this is just the beginning as interest rates are beginning to normalize, following several years of rock-bottom levels.
Related stories:
Commentary: The case for Ontario intervening in the payday-loan segment
Indebted Canadians exhibiting increased optimism – poll
Reverse Mortgage Borrower Motives Expand as Education Spreads
August 2018 | by Guest | HECM, Live Well Financial, News, Reverse Mortgage
As the industry continues to adapt to a new landscape of lower principal limit factors, reverse mortgage experts say it’s key to remember why most borrowers pursue the products in the first place — and how those motives have changed amid greater education and positive news coverage.
Traditionally, homeowners take out reverse mortgages to gain financial flexibility and address the most pressing needs facing the retired population, like aging-in-place upgrades, medical bills, and caregiver services.
Because qualifying borrowers don’t have to make monthly principal or interest payments, homeowners tend to see the products as simply an extra source of cash — whether it’s making their home wheelchair accessible, buying a home with more attractive amenities, or simply preserving more of their savings.
Originators also say that managing debt is often what drives their clients to seek out a loan. Loren Riddick, national sales manager for Fairway Independent Mortgage who has closed more than 100 Home Equity Conversion Mortgages, says that close to half of the borrowers he sees use the loan to eliminate mortgage payments and restructure debt so they can live more comfortably.
The reasons fluctuate somewhat according to demographics, originators told RMD, and the recent regulatory changes have also shifted potential borrowers’ motivations: Of those who apply for a HECM loan, fewer people qualify than in the past due to changes such as Financial Assessment, which can alter their reasons for pursuing one.
“The traditional media assumes that everyone is a needs-based borrower,” says Live Well Financial vice president of education and organizational development Dan Hultquist. But, according to Hultquist, the scale has increasingly tipped away from the crisis borrower and toward one with more financial planning options.
Hultquist divides most borrowers into three basic groups: needs-based, lifestyle, and retirement planning. Needs-based borrowers have urgent motives like medical bills to cover. Lifestyle borrowers want to be able to travel, buy a new car, or upgrade their kitchens. Finally, originators that derive business from sources like tax planners, financial advisors, and estate planners tend to have clients with a retirement cash flow incentive who are driven by the flexibility and future security a reverse mortgage can provide.
Paying off debt means freeing up cash that can be invested in their individual dreams and goals. Riddick helped a client with a $250,000 home get a loan in order to help him invest more in his church. Another client’s loan was part of a long-term generational legacy plan that encouraged descendants to attend college.
Lately, Hultquist sees another, “potentially growing” category: Those who want to relocate, upsize, or downsize to another home that makes more sense for their needs. Retirees are catching on that, if they can afford the upfront cost, a reverse mortgage can help them buy that dream home on the beach or condo in a desirable active adult community.
“I was surprised to find that more people are upsizing with a HECM for Purchase,” says Hultquist.
According to a recent study from AARP, 90% of people 65 and over want to stay in their homes as they get older. And while Riddick laments that the people who need a reverse mortgage the most are the least likely to qualify for one, he’s excited that homeowners are becoming more educated about how the loan works.
“Folks understand you’re not giving up ownership,” he says, referring to a common reverse mortgage misconception.
“It’s more and more accepted.”