Tuesday, July 22, 2014

Build a budget that works

The key to successfully managing your money is to create a monthly budget that actually works. Everyone spends differently so it's important to be realistic (make achievable goals) and to stick with it. It will take some time to get used to but the rewards can be significant.

Here's a great budgeting tool from the "Queen of Debt Reduction", Gail Vaz-Oxlade to help you achieve your financial goals: http://www.gailvazoxlade.com/resources/interactive_budget_worksheet.html

Thursday, July 17, 2014

Bank of Canada holds interest rate at 1%- again

As predicted, the Bank of Canada announced yesterday that it will maintain its overnight rate at 1% -allowing variable rate mortgage holders to, yet again, breathe easy.

Although CPI inflation reached the 2% target sooner than originally expected, core inflation has yet to meet that threshold. In addition, the higher CPI inflation is largely attributable to the temporary effects of increased energy prices, rather than a more permanent change in domestic economic fundamentals. For these reasons, the Bank doesn't believe an interest rate increase is necessary - yet.

Another factor contributing to the Bank's decision is the state of the global economy, which doesn't seem to be doing as well as the Bank had predicted back in April. Because of this, the Canadian economy isn't expected to perform as well as anticipated either - and the Bank doesn't believe it will reach full capacity until mid-2016 at the earliest.

All these factors spell good news for variable rate mortgage holders. If you're wondering if a variable rate mortgage makes sense for you - or if you have any mortgage questions at all - feel free to contact me, anytime. I'd love to help!

Thursday, July 3, 2014

What if bi-weekly payments don't fit with your lifestyle?

Have you heard? 68% of people in their twenties, who responded to a survey conducted by Manulife, don't consider mortgages to be debt.  Folks, no matter which way you slice it, when you borrow money, and have to pay it back, it's debt. There is good debt (appreciating assets) and bad debt (depreciating assets like cars) but either way your debt must be repaid and there is an interest cost, and an opportunity cost, to getting in debt.

With Canada's household debt near all time highs, this is probably a good time to talk about ways to pay that mortgage debt down as quickly as possible.

I'm sure you've heard it before from your parents or your friends; pay your mortgage bi-weekly, instead of monthly and you'll pay your mortgage off faster. This is true. Why? Because in two months out of the year you will make three mortgage payments; which works out to one extra monthly mortgage payment a year being made on the balance outstanding of your mortgage.

When I explain this to some of my clients they get excited, realizing this simple step will help them to pay off their mortgage faster, and cost them less interest overall. But, for some clients, bi-weekly payments just don't work. Examples include individuals that are paid on the 15th and 30th every month or self employed individuals that would find it difficult to budget for a mortgage payment every two weeks.

I am one of those people. I don't want a mortgage payment every two weeks. I am busy and have enough on my plate and I don't want to make three mortgage payments in two months of the year, because those months will just plain suck. So, is there an alternative? Yes!

If you take your monthly payment and divide it by 12, and then increase your monthly mortgage payment by this amount every month, the effect will be the same as paying your mortgage with bi-weekly accelerated payments.

Here's an example:

$250,000 mortgage @ 2.99% over a 5 year term
Monthly mortgage payment:
$1,181.83
Balance at the end of the term:
$213,645.52
Bi-weekly accelerated payment:
$590.92
Balance at the end of the term:
$207,227.55
Monthly payment with an increase of $100/month (approximately one monthly mortgage payment divided by 12)
$1,281.83
Balance at the end of the term:
$207,185.45





As you can see from the example above, there are alternatives to paying your mortgage bi-weekly and still paying it off quicker. Mortgage Brokers know what's up and can help to give you creative ideas on how to reach your financial goals. If you would like more information on this concept feel free to get in touch!