Wednesday, January 23, 2013

Bank of Canada Rate Announcement- January 23rd 2013

Once again, the Bank of Canada has announced that it won't be changing interest rates -- so variable rate holders will continue to see their mortgage rates stay the same, as the overnight rate continues to sit at 1%. The reasons for the Bank's decision include a slightly weaker-than-predicted global economic outlook and a more pronounced Canadian slowdown in the second half of 2012.
From a global perspective, the economic expansion in the US is continuing at a gradual pace but experienced some resistance toward the end of 2012 with uncertainty related to fiscal negotiations. Europe remains in recession, with a more protracted downturn expected. Similarly, while growth in China is improving, the same can't be said for other emerging economies.
On the Canadian front, weaker business investment and exports led to a slower-than-predicted second half. Canadians are also heeding the warnings about high debt levels and starting to restrain household spending. That being said, the Bank still expects economic growth to pick up in 2013.
The above factors are forcing the Bank to stand pat on interest rates -- something many experts believe it will continue to do until at least the end of 2013, potentially the beginning of 2014. This era of low interest rates won't last forever, though, so if you're not taking advantage of it now -- by increasing your mortgage payments and paying off debt -- you should definitely do so!

Tuesday, January 22, 2013

Should you take out an RRSP loan this year?

Let’s be real; saving money can be hard. Attempting to invest enough for retirement can be so unexciting we will often find anything to spend our hard earned dough on other than retirement savings.  As tax time approaches, many banks and credit unions start to push RRSP loan sales.  While taking out an RRSP loan may seem like a good idea at the time, this article explains why it may not be the best strategy.

Monday, January 21, 2013

Why I find Mortgage Brokers invaluable

I sing the praises of Mortgage Brokers every day, but it’s always nice to hear it from a consumer’s mouth. Here’s an article sent to me this morning through Axiom...

Why I find Mortgage Brokers invaluable:

My sister and her husband recently bought a new house and, despite my strongly-voiced opinion, opted to go with their bank when choosing a mortgage. The bank gave them a good rate, but they suffered numerous headaches that I don’t remember experiencing at all when I obtained my mortgage through a mortgage broker.

The whole ordeal made me think about what I appreciated most about my mortgage broker experience, and I thought I'd share my list with you. Our broker got us a good rate and had access to a wide variety of products, but those two factors didn't even make my top five.

1. Brokers accommodate my schedule and needs.

When we first applied for a mortgage, my mortgage knowledge was a little more advanced than your average consumer, thanks to my time spent writing for Axiom and Canadian Mortgage Professional magazine. To catch up, my husband wanted to meet with our mortgage broker in person to get a Mortgage 101 primer. Not only did our broker happily accommodate our request but, because my husband's work schedule was a little crazy, she met us after work hours as well. Awesome.

2. Brokers explain stuff (and they don't leave anything out).

My sister and her husband had a few difficult hiccups - the most notable being a surprise $5,000 fee charged to their new mortgage, because their old home closed before they took possession of their new one. One thing about our broker - she explained everything to us. Like, everything. And if there was anything we were at all confused about, she was just an email away - and replied promptly that same day. As a result, when it came to closing day, we had absolutely zero surprises.

3. Brokers have your back. 

My sister and her husband had to wait seven excruciating days for their pre-approved mortgage to be formally approved after they put an offer on their dream home. During that time, they bit their nails and worried that the bank was going to come up with some absurd excuse to not give them a mortgage. When we went with a broker, our mortgage wasn't only approved in a ridiculously short amount of time, but I never once felt it would fall through. Our broker was on our side - she wanted us to get a mortgage. If this lender didn't work, she'd find another who would. Simple as that.

4. Brokers are well-connected.

If you're looking for a real estate agent, or an interior decorator, or a good moving company, they usually know. Or they can find out. I somehow doubt bank reps have those same professional connections.

5. The relationship doesn't end when the mortgage is signed.

I'm not sent quarterly newsletters or bombarded with post cards/Christmas cards, but when I have a random mortgage question, I know I can send an email and receive a prompt reply. And that's exactly how I like it.

I'm not sure every mortgage broker does the things listed above, but if you don't, you should. They made a world of difference and have definitely made a repeat customer out of this lady!

Tuesday, January 15, 2013

Let this be the last year you stress about RRSP contributions!

Now that the holidays have been and gone, many Canadians are turning their attention to the upcoming RRSP season. March 1st is the deadline to contribute to your RRSP and have it reduce your 2012 taxable income. For many, this can be a very stressful time of the year as some of us scramble to put together a lump sum contribution to our RRSP. In the attached news story, the Bank of Montreal suggests that making a monthly contribution throughout the year is more manageable than purchasing a lump sum at the beginning of the year. I tend to agree; and believe that an even better strategy is to combine both approaches if possible- contributing monthly as well as setting up a separate savings account to accumulate a lump sum which can be contributed before March 1st. If you haven’t been able to put together a contribution for 2012, an RRSP loan may be the last option for you but there are pros and cons to borrowing money to purchase investments. Any good tax strategy involves pre-planning, a reasonable budget and some sound advice.

In my line of work, I have the pleasure of dealing with some great financial planners and advisors. If you would like some advice on tax planning and investments please drop me a line and I would be happy to refer someone to you!

Wednesday, January 2, 2013

How to live like the millionaire next door

It's 2013 and a fresh start. Time to get back on track with your savings. But how? Here's a great article on how to start from MoneyVille:

How to live like the millionaire next door
By Adam Mayers | Sun Dec 30 2012 Published on
The great truth about saving is that while everybody says you should do it, nobody really wants you to, except you.
What everyone really wants — your kids, the bank, the grocery store, your favourite boutique, is for you to spend as much money as you can and as often as possible.
That’s why saving is so difficult.
Temptation is everywhere and the self-justifications for giving in are huge.
The added disconnect for baby-boomers is that they grew up in the most affluent generation in history. They are conditioned to think that things always get better, so why save for tomorrow when you can enjoy today?
The boomers’ kids, seeing how their parents live, want the same good life. You can borrow on your line of credit at 3.5 per cent, so a new bathroom with heated floors and marble tub is a phone call away. You can push the day of reckoning way off into the future by making a monthly interest-only payment, not touching a penny of the principal.
This may explain why Canadian line of credit debt stood at $219 billion at the end of last year, according to the Bank of Canada. That’s double the amount of five years earlier. Twenty years ago this form of consumer borrowing didn’t exist.
Helping us along this path of ever-rising spending are Bank of Canada governor, Mark Carney, and finance minister, Jim Flaherty. They love to admonish us for poor savings habits, while seducing us with low interest rates and easy credit. And where do banks make bags of money? Lines of credit, credit cards and mortgages.
According to Moody’s our debt-to-income ratio is at an all-time high of 150 per cent, higher in Canada than it was in the U.S. prior to the subprime mortgage crisis. It means on average we owe $150 for every $100 we have coming in.
But if you want to succeed, you have to live like The Millionaire Next Door, as the title of a book by Thomas Stanley and William Danko puts it.
Successful people know that the key to financial independence is spending less than you make. Stanley and Danko profiled the lifestyle of these people to find out exactly what that involved. They discovered there’s a big difference between accumulating wealth and having a lot of money to spend.
They found that the wealthy rarely drive fancy cars or live in the biggest house in the best neighbourhood. They don’t wear $1,000 suits, buy status objects, or live a status lifestyle.They live below their means, plowing what they don’t spend into savings and investments.
Their neighbours who live in luxury, wear the expensive clothes and have the new cars have big salaries, but not necessarily lots of wealth.
You can be the millionaire next door. You don’t need a raise, or a better job. You just have to look at what you make and what you spend and bring the spending down below what you make. A small reduction in spending can dramatically boost your savings.
1. Start with a budget. Everyone hates budgeting. It’s boring and time-consuming, so finding the motivation can be tough. But you have to start here. Look at what’s coming in every month. Then look at where the money goes, right down to the $5 a week for the office lottery pool. Spend a month keeping track of where it goes. Write it all down. This is important because writing things down makes it real. You’ll be surprised at what you find.
At the end of the month, come up with a plan that cuts spending to less than the amount coming in. Take the saving and put it out of harm’s way. A good place is a tax-free savings account. Whatever you make inside a TFSA is tax free.
2. Payroll deduction. Out of sight, out of mind, works well with savings because it reduces the temptation to spend. Payroll deduction is your ally. Send your monthly saving directly into a TFSA, or other account (your bank can help) via payroll deduction. If you get a raise, take part of it and increase your deduction. It doesn’t have to be a lot. An extra $25 a week is $1,200 a year.
3. Set the budget aside. Carl Richards, who contributes to the New York Times Bucks blog isn’t a fan of budgets, but is a fan of the budgeting process.
Richards wrote a book called The Behavior Gap, which looks at how and why we make such bad saving and investment decisions.
He believes that financial plans, of which budgets are a part, are worthless, but the process of planning is vital. A plan makes all kinds of assumptions about the future that you can’t possibly know . . . things such as how big a raise you’ll get, or how much the hydro bill will rise next year. But the process forces you to confront what you’re doing now and act accordingly. You can always change the plan.
4. Ask for savings: Once you find some savings, the goal is to find more. An easy way is to make like Oliver Twist and ask. Ever noticed how phone and cable companies have all kinds of great deals, but you never seem to get them? That’s because the juicy come-ons are aimed at new customers. They already have you. But, if you call and ask for a better deal, you’ll probably get one. That’s because they know it’s easier to keep you as a customer than find a new one. This includes your bank. Call periodically and review your services. Is there a bundling discount, a cheaper way to borrow, a better rate? If your mortgage comes due, shop around.
5. How to ask for savings: The key to getting a better deal is persistence, patience and being informed. Always be polite. The person on the end of the phone doesn’t set policy, just executes it.
Do your homework. If Bell is offering a better deal and you’re with Rogers, know the details on the Bell deal and ask Rogers to match it. If the rep can’t help, then ask for the customer-retention department — they probably can. Be reasonable, but be prepared to take your business elsewhere.
6. Spend on things you love: While every little bit helps, don’t forget to reward yourself. The goal of saving is not to deprive yourself of earthly pleasures, but to free up money to spend on things that are important to you.
As Alison Griffiths wrote, in a personal finance column for the Toronto Star: “Though your purchases may rank as wasteful or uninteresting to others, if they fuel your life’s engine, go for it!”

Amen to that.