Insurance Increasing

CMHC loan insurance is increasing as of March 17th. Yes, this means that as of that day it is going to be more expensive for anyone putting less than 20% down. No, the increase to your monthly mortgage payment is not as little as $5 a month when you consider the average Toronto home price.  The media is playing down the cost as they are reading the same thing that everyone else is reading which is based on the average home price of a CMHC insured mortgage in Canada of $245,000. Unfortunately, the prices in the GTA and Toronto are a lot higher than $245,000. Here is a chart that they have put out for what they deem to be the average transaction in Canada for 2016.

chart-jan-blog

The overall average Toronto selling price for 2016 was approximately $730,000.  Here is my own chart to give you an idea of what this change means based on the average Toronto transaction.

Down payment of 8% (CMHC said this was the approximate average in 2016)

Purchase Price $730,000
Down Payment $58,400
CMHC Insurance 26,864
Total Mortgage $698,464
Monthly Mortgage Payment $3,287.56
Increase to Monthly Mortgage $12.65
Payment  

An increase of $12.65 to your monthly payment should not induce panic. It will impact how much you qualify for monthly but it will be marginal. If you are shopping for homes and this difference does cause you stress, you should talk to a mortgage professional that can help you work out a budget that takes into account monthly savings for retirement and life events alongside your monthly mortgage payment and determine a price point that helps you end up in your comfort zone.

blog-image

HURRY! The RRSP Deadline is approaching!

It’s that time of year again! The RRSP deadline is fast approaching (March 1st). It’s great to have a plan in place that involves monthly contributions towards retirement savings but if you are like many people, the contributions happen once a year in a panic before the deadline.

I am going to focus on defining RRSPs and TFSAs. I won’t begin to get into how to invest your money (i.e. mutual funds versus GICs etc.). It is best for you to talk to a financial advisor about what is best for you.

What is an RRSP? A Registered Retirement Savings Plan is a government registered investment account which allows you to contribute money from your pre-tax income. For most people who have income tax deducted on every paycheck, this means that you will receive an income tax refund of the tax you paid on the amount you contributed to your RRSP throughout the year. Any investment growth within your RRSP is also considered tax-free. The government is basically encouraging you to plan ahead for your retirement by offering you these incentives. When the time comes to withdraw funds from your RRSP, you will pay tax on the money you take out based on your income tax bracket at the time of withdrawal. The hope is that you are in a lower tax bracket by the time you get around to withdrawing the money. Although you are technically able to withdraw money from your RRSPs at any time, it is not advisable due to associated penalties. There are several programs that allow you to access money without penalty but that is for another article….

What is a TFSA? The Tax Free Savings Account is just that: a savings account that allows for tax free growth. Any individual over the age of 18 is allowed to contribute up to $5500 per year. Money contributed to this account is from your after-tax income and you are able to withdraw from this account at any time without penalty.

Which should you use? It is important to think of the pros and cons for both and decide what is best for you. Most advisors recommend a balanced approach in terms of contributing equally to each. In an ideal world you could contribute to your RRSP and then invest your tax refund back into your RRSP or your TFSA. Either way, it’s always good to set aside money for retirement no matter what account you put it in. Remember that the longer your money is invested the more money it can make, so a little can go a long way!

 

What to do with debt….

I know I am a little slow to post this…life always seems to take over and this seems to be the thing I put off…

I was thinking that I should probably have saved my debt focused blog until after Christmas as that might be when people are thinking about debt repayment more. I’m a lady of my word I promised that my next post would be about debt repayment. Hopefully if we discuss it all now it will make people think before buying too much on credit this year…obviously the first thing to say when talking about debt is AVOID IT! Now that I have gotten that out of the way lets be more practical and discuss what to do with it once you have it.

If you find yourself not getting ahead due to various bill payments there are a few different options to consider. The best thing to do is to consolidate your debt into one loan so you have just one payment to go with. You can talk to your bank and see if you qualify for a loan. If you can back your loan with some sort of security (car or a house) you will be able to get a better rate than if you have no way of providing security to your loan.

If you have a property, you could refinance your mortgage in order to get some extra money to pay off your debts. This is a great option because mortgage rates are at all time lows so you will likely be getting a rate much lower than any other loan you might get. Unfortunately this is not always an option. On a refinance you can only access 80% of your property’s current value. So if you already have a mortgage, and you have only had your property a few years it might be too soon to do a refinance. Therefore you might not have gained enough value in your home to take money out. You also might face penalties for breaking your current mortgage as well as the possibility of legal fees to complete the transaction. These are all important factors to consider when deciding whether it is worthwhile for you to do. Talk to a mortgage professional like myself to decide if the numbers work and if it is worth your while.

Now that we have discussed the most common options on getting your debt under control lets discuss the other options…

There are debt consolidation companies out there that will help you before you get to bankruptcy. If you are behind on your payments and your suffering, you can contact these companies and they will negotiate settlements with your creditors and help arrange a debt consolidation loan for you. Your interest rate on the loan will be high but it will likely be lower than the interest rate you pay on your credit cards. They will charge you a fee for all the work they do. The fee will be a percentage of the amount they save you when they negotiate your settlements. This is a great option to help you start over before you really get into trouble. It won’t show up as a bankruptcy or a consumer proposal on your credit bureau. It will just show up as your accounts are paid.

It is important to note that for any of the above options you need to qualify and have a steady income that affords you the basics of life after you pay your bills.

Another less attractive option is a consumer proposal. What is a consumer proposal you ask? It is a binding legal agreement made between a person and their unsecured creditors. If you owe less than $250,000 in unsecured debt (not including you mortgage) and cannot reasonably pay your unsecured debts in a timely manner you might qualify. If you go this route, you will have a licensed bankruptcy trustee negotiating a reduction in the amount of debts you owe to an amount you can afford as well as set you up on a plan that allows you to pay the debt off in 5 years or less. It also means you can keep your home as long as you make your mortgage payments.

The main difference between a proposal and a bankruptcy is that bankruptcy eliminates your personal unsecured debt whereas a proposal sets you up with a plan to pay your debts off. With bankruptcy you will most likely be required to surrender most assets if not all assets (including your house) in order to pay off your debts. Bankruptcy may be quicker and cost you less in fees but it will cost you more in the grand scheme of things as it will wipe your credit history to zero. It means you will have to start over and take years to repair your credit enough to get a mortgage or a loan.

If you have claimed bankruptcy or have gone through a consumer proposal you will find it hard to get a credit card which should be your first step in starting over. You can go to your bank or talk to someone like myself to arrange a secured credit card. You will be required to put down a deposit as security on the credit card. The deposit is often double of what your limit will be on the credit card. For example if you want a $1,000 limit you will need to give the lender $2,000 as a deposit to qualify. They will hold that money in a term deposit or GIC for you until you qualify for a credit card the conventional way. This is a necessary evil when starting over. It also helps you start off slowly and help you get on track with your spending habits.

There you have it! I know this isn’t as short and sweet as my last post but I hope you still found it to be valuable information. I am happy to provide any one with specifics on where to go or who to talk to about debt management programs or anything else discussed above. Just msg me and we can discuss further! As always, any feedback is appreciated!

What’s your number?!

It’s something no one talks about but something people need to be better educated on. I am talking about one of your most valuable assets, your credit score. Most people walk around thinking they have amazing credit because they don’t charge purchases or they walk around not even really knowing what a credit score is. What people don’t realize is that your credit score is actually pivotal when it comes to taking one of life’s biggest steps, buying a house. Your credit history can make or break what kind of mortgage or loan you qualify for as well as what kind of lending institution you can go with. Most importantly it affects what kind of interest rate you can get. Your credit score is important when looking to obtain any type of financing whether it is for a house, a car or any other major purchase. If you are interested in learning a few basic things about your credit and how to nurture it than read on!

A credit bureau is an institution that collects and keeps information on you. No matter what you do they are keeping track! Well, financially speaking that is! So if you missed your credit card payments for a month or two because you were backpacking through Europe, your credit report will show that and your choices are reflected in your score. You are responsible for your own credit history. A credit bureau keeps track of all of your monthly financial obligations and whether they are current or past due. It also looks at how much debt you have outstanding as well as your credit limits. Your report will also show any bankruptcies, or judgments that have been placed against you. The most common example of this would be an unpaid cell phone bill. Some people decide to fight their bill with their cell phone company on principle and what they don’t realize is that that company is more than happy to just place a judgment on your record which will eat away at your score and quickly bring your number down. The credit bureau compiles all this information and translates it into a number which is referred to as your score and that number is used as a numeric assessment of your risk level at any given moment. This number aids lenders in determining how dependable you might be when it comes to repaying your debts.

There are a few easy things you can do to make sure that your credit is on track.

The first thing you should do is make sure that your credit is in good standing. You can check your credit score online by paying a small fee to obtain your credit report or you can contact a professional like myself to do so. I am always happy to help you understand your credit and go over ways to improve your financial standings or just let you know how awesome you are (credit wise)!

One common misconception is that ‘less is more’. Most people assume that they have a great credit score if they only have one credit card. Unfortunately this is not the case. You cannot build a credit history if you do not use credit. So the key is using your credit facilities responsibly. A standard requirement that most lending institutions look for when looking at your credit report is that you have two active credit facilities reporting on your credit report for a minimum of two years. So if you are thinking of eventually getting a mortgage, you should make sure you are on the right track now as it takes time to build your credit.

The best way to build or rebuild credit, depending on your situation, is to have two forms of credit (for example two credit cards) and to pay your payments on time. You do not have to use them every month or carry a balance. Just make sure you are making your payments when you do use them.

It is important to understand what affects your credit score. As mentioned before any judgments placed against you will lower your score. It is not a one time deduction either. It will continue to lower your score as long as it sits there. This is where it is very important to know what is on your credit report. It is often where people realize they have fallen victim to identity theft. Having your credit score checked repeatedly can also lower your score. Many people do not realize that every time they are looking to get a new credit card or are shopping for mortgage rates and filling out numerous applications that their credit is likely being checked each time. The more times it is checked the lower your score gets. Last but not least paying your monthly obligations late will also affect your score. Your credit report will show how many times you have been over 30 days late on a bill. The more late payments you have the lower your score gets which as a result makes you considered a higher risk.

I promised to keep my blog entries short and sweet so stay tuned for next week where I will focus entirely on rebuilding blemished credit. If you find yourself in a bad financial situation there are options out there and steps you can take before getting to the point of bankruptcy. Send me a private message if there is anything specific you want me to go over. Obviously if you are in really bad shape, don’t wait until next week! Message me and I can explain your options to you!

I hope you found this post useful and a great starting point for getting your finances on track! I also hope you had enough time to read it!

 

 

 

Hello World!

5 minutes or less is my mantra nowadays. Ever since I became a mom and decided to work from home I have found that 5 minutes is about all the time I get in a day to do something for myself…if I am lucky! Any parent out there will know what I mean. 5 minutes to take a shower or have a coffee would be glorious! So the purpose of this blog is to give you some useful information about your finances and provide you with some light reading when you do get those 5 minutes to spare.

You don’t have to be a parent to read my blog! I promise to keep it mostly focused on personal finances. I might share a few random things that my kids say or do but only if I feel it is worth sharing!

I am always open to feedback and would love to hear of any topics you wish for me to summarize for you so that you can become better educated about personal finances in 5 minutes or less!

~Christy