If you or anyone you know is thinking of buying a home, now would be the time to take action. New mortgage rules may affect your buying power effective October 17th. Our finance minister has announced that all insured mortgages must qualify using 5 year benchmark rate currently 4.64% instead of the actual interest rate currently around 2.39% for 5 year fixed. What this means is that you could potentially have a significantly lower pre-approval amount.For example: Suppose your pre-approval amount today is $450,000 purchase price. AFTER October 17th your new pre-approval amount would be closer to $360,000. That is a HUGE difference. You must be lender and insurer approved before October 17th for current guidelines to apply. Contact me to find out more.Read More
- Make a double mortgage payment whenever you can. Doing this once a year can shave over 4 years off the mortgage! Sometimes you can skip a payment later on too…if you really, really need to. Try not to. If your payment is $2,000 a month, four years of no payments is $96,000!!
- Increase frequency of payment. For Example going from monthly to bi-weekly accelerated can shave over three years off your mortgage! $2,000, three years of no payments is $72,000!!
- Increase your payment. For example a one-time 10% increase can shave 4 years off the mortgage. That’s $96,000! Imagine if you bumped the payment 10% every year from the get go!!! You would be mortgage free in 13 years! Start to finish! Can’t do it? How about 5% every year….you would be mortgage free in 18 years! How about increasing the payment by the amount of your annual raise?
- Lump sum payments…same idea…mortgage is gone way faster! Even just one payment a year equivalent to 1 monthly payment will give you similar results as #2 above! How about using your annual work bonus?
- Renegotiate whenever rates drop to save interest and pay mortgage faster! Generally a good idea however *Caution* get independent professional advice (a cost benefit analysis) to make sure it makes sense for you at that time. I can help. A 1% reduction on a $300,000 mortgage will save $250 a month…times 5 years…that’s $15,000!!
- Keep your credit rating high for best rate. Always pay on time. Never let payments slip past their due date. Always keep balances low in relation to credit limits on credit cards, lines of credit, etc. 50% or less is best even if you pay the balances in full every month. What generally reports to the credit bureau is the statement balance each month. So if your credit limit is $3000 and you are running $3000 a month through the card each month (to collect all those points you never spend or can’t use in blackout periods) and paying in full, it will look like you are maxing out your credit limit and your credit score will drop accordingly.
- Increase your mortgage! Yeah I know sounds backwards! Do it to roll in your credit cards, line of credit, car loan etc for a better rate and a set payment plan. Oh you say you don’t want to extend the repayment period of that stuff by rolling it into your mortgage or you have a low or promo rate credit card (those never end well) I agree! Then keep the total payment amount the same but pay it in one neat monthly payment to the increased mortgage.
- Make an RRSP contribution and use the refund to pay down your mortgage.
- Go variable rate with your mortgage but keep payments as if fixed rate. Variable rates usually win out over fixed rates. By paying a higher payment you will pay off the mortgage faster. It’s also a buffer in case the rate rises above the fixed rate for short periods of time. *Caution* variable rates are not for everyone. Get independent professional advice to find out what is best for you. I can help!
- Take your mortgage with you when you change properties to avoid penalty or higher rate on a new mortgage. This is called “porting”. Make sure that your mortgage has this feature. It is not widely known and could save you a ton of dough.
- Set up auto savings every paycheque, even $10, when it reaches the amount of one mortgage payment, apply it to the mortgage. This concept goes nicely with #4 above.
- Unhook from the money drip…stop paying with your fancy points credit or debit card. Way too easy to overspend! Go old school, go off the grid…PAY CASH, it works!
- Don’t ever buy on layaway, you know, six months don’t pay schemes. You think…No problem I’ll just pay it in six months, it will be okay. Yeah right!
- Downsize your house. Two good friends and clients of mine, having followed many of the tips here, are in great shape except they have a six bedroom house! Two people, six bed house – go figure! They are nearly debt free so no biggy, but can you say the same? Circumstances change, make the adjustments along the way!
- Don’t want to move? Convert the basement/rooms to rental and use the income to pay down debt.
- Convert your mortgage to tax deductible. If you are self-employed, own rental property or have investments, this is likely possible. I won’t go into details here, just ask me how.
- Have a payment priority.
- Pay off the highest interest rate first.
- If you have tax deductible loans, pay them off last, slowest. Pay the non-tax deductible loans first and fastest.
- Pay off ugly debt first. Stuff like credit card purchases.
- Payoff bad debt next. Stuff like car loans, boat loans. Things that depreciate in value.
- Pay off good debt (or shall I say “not so bad debt”) last. Stuff like mortgages, investment loans. Things that hopefully appreciate in value.
- Buying a car? Finance it if you have to, don’t lease! *Exception* If you are self-employed it might make sense.
- You have $20,000 in a secret bank account for a rainy day fund and $20,000 owing on a line of credit. Seriously? The bank account is paying you next to nothing (which is taxable income to boot) and the line of credit rate is way higher (and not tax deductible). You know what to do. You can keep the line of credit open and on standby for rainy day funds. Make it the secret line of credit that you have but never use.
- Give your Banker more money. No really. Keep enough in your chequing account to meet the minimum requirement to waive your service charges. My bank charges $10 a month for 25 transactions and nothing, zero, zilch, zip if I keep $2,500 in the account. Let’s see $10 x 12 is $120 a year to pay off debt. I’d have to earn 5% with the $2,500 in my savings account to come out ahead. No brainer here. Oh yeah, if you need more than 25 transactions a month…see #12 above.
- #26? BONUS TIP and MOST IMPORTANT. Let’s face it, you’re not the Government and you’re not a Bank, you can’t run deficits forever and you won’t get a bailout….stop procrastinating already! See 1 through 24 above and take action now!
Sidenote: *Caution* beware of some too good to be true ultra-low rate mortgages. These “no frills” mortgages are often loaded with restrictions like pre-payment limitations, fully-closed terms, stripped-out features, or unusual penalties. You really need to compare product to product. If you’re not looking at what you’re giving up, you may regret it in the future. This alone could prevent you from taking advantage of tips #1, 2, 3, 4, 5, 7, 8, 9, 10, 14, 16 and 22!
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Purchasing a house is a big step.
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Purchasing a home is a big step. Here is your short money minute video about 7 Factors For Choosing The Right Home at The Right Price brought to you by Tania Grozelle!Read More
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Manulife One is an innovative all-in-one banking account that puts all your money to work all the time in order to outsmart your debt. Click here to see how it works. Then contact me today for more information.Read More
- It’s cheaper than renting. Once you have saved for the down payment you will likely find that mortgage payments and property taxes is less expensive than rent. This is particularly true with mortgage interest rates being historically low right now.
- Predictable payments – With a fixed rate term mortgage you know your mortgage payments will be the same for the duration of your term (usually 5 years). With rent, your landlord can decide to increase the rent at any time once your lease is up. Most leases are for 1 year at a time. In Alberta, landlords have the right to increase rents by as much as they see fit. You may find yourself unable to afford your rental property and be forced to move. There is a peace of mind in knowing that won’t happen to you!
- You can have pets! – Most landlords won’t allow pets or charge a premium if you have any. Many renters are forced to give up their beloved pets because they are unable to find a rental property that will allow them. When you own you will be certain to be able to provide a stable home for the rest of your fur babies’ lives. They deserve that right?
- Stability – You won’t have to worry that your landlord may decide to sell, have family members move in, tear it down to rebuild…etc. Perhaps you won’t get along with your landlord and you are forced to move. You will feel more secure and so will your children. Renters often have to switch schools for their kids simply because they move more often. Not a good thing! Who needs that kind of stress and hassle?!
- You can make improvements to your home – When you rent you have to get permission from the landlord before you make any changes even if it’s just paint. When you own, you are the boss of the place! You can knock down walls, put up shelves or whatever your little heart desires. You will also find that you will be much more motivated to improve your home when you own it. Who wants to help the landlord improve their investment right? When you improve your own home you put money into your own pocket! It’s an opportunity to add value while making the home more enjoyable for you and your family.
- Pride of ownership – You will feel better about yourself when you own your own home. I am sure most can agree that there is sense of accomplishment when one manages to break into the real estate market. It’s an important milestone and usually shows that you have managed to save for a down payment, establish credit by being responsible with your bills, and have demonstrated that you have income stability. Congratulations! You’re in the club.
- You can rent out your home – Many people will rent out their home once they decide to move onto another one. That way you have the potential to make a profit each month after expenses are paid while having someone else pay down your mortgage for you. You can build your own net worth even faster. Many people do not realize that you do not need to be a first time home buyer to purchase another owner-occupied home to qualify for a 5% down mortgage.
- Better quality housing – Chances are good that you will pay rent for a home that is not as nice as the one you would own for a similar payment or even less. Many rental properties are dated and have been subjected to wear and tear by previous tenants. As well, they are often located in less desirable areas where there is more crime and schools are not as good.
- You will have a higher net worth!! – Suppose you buy a home for $239,000. Your mortgage payments with 5% down payment with 2.75% fixed 5 year interest rate with 25 year amortization would be $1,086 monthly and property taxes estimated at $133 per month. Rent for a comparable home would likely be around $1500 (which can increase remember). Historical data shows that real estate prices tend to increase by average of 3.5% per year. We would estimate the value of the home in 5 years based on that reasonable assumption would be approximately $275,000. The balance at the end of the 5 year term, assuming no additional payments have been made, would be $200,937.96. You will have increased your net worth by just over $74,000 with an initial investment of down payment of only $11,995!!! The savings can be set aside for maintenance and improvements. As well, if you invest in improvements like a finished basement you will add even more value. You would be hard pressed to do the same while renting and in only 5 years. The effect is obviously much more dramatic over time. Win!!
- It’s forced savings –Let’s be honest. Most of us are not good savers. However, you have to pay for housing one way or another whether it’s rent or mortgage payments. With a mortgage payment you are contributing to your own net worth and not your landlord’s. So, even if you do nothing else right, if you buy then you will have something to show for all of your years of paying down the mortgage and it will eventually be paid off. Not the case with renting.
Call me today for further clarification on the above or if you or someone you know is ready to start building your/their own equity.Read More