7 Ways to Save You Money

Many Canadian families are working hard to save money and reduce debt.  By saving modest amounts, however, you can reap big rewards over time.  Here are easy ways you can save $100 or more this year!

1) Plug into Bargain Electricity

Are your electricity bills excessive?  Maybe you're using too much power at peak hours.  For instance, try running your dishwasher at night, rather than during the day.  By taking advantage of off-peak rates, most consumers can save about $100 a year.  Also, replace pre-1992 appliances when they break down with new ones with the Energy Star Label.

2) Challenge Your Property Tax

Go to your local assessor's office and find out what property taxes your neighbours are paying.  If your house is similar but your taxes are higher, you may want to challenge your bill.  Also, read the description of your home.  Errors in square footage or the number of bathrooms could mean an overcharge.  The assessor's office or local board of tax review can tell you how to file an appeal.

3) Pay off your Plastic!

If you carry a credit card balance from month to month, pay it back pronto.  A $1,000 balance at 18 percent blows nearly $200 a year in interest charges.  If you can't pay it off in full, transfer your debt to a lower-rate card.

4) Skip the Service Contract

Extended warranties on electronics are rarely a good deal.  Experts say most product breakdowns occur in the first year and are covered by the manufacturer's warranty.

5) Buy in Bulk

Items you may use a lot, such as paper towels and diapers, are often far cheaper when you buy in quantity.  E.g. new parents buy an average of 2400 disposable diapers in their baby's first year alone.  Diapers that cost 20 cents apiece sold at grocery shops might go for 15 cents when bought in bulk at a discount store or warehouse.  Just a nickel a diaper could add up to an annual savings of $120.

6) Rethink Your Vacations

The "staycation" (relaxing at home) is becoming a popular way to save a bundle on a vacation.  But if you still want to travel, consider using discounted accommodation like VRBO.com and through Groupons.

7) Use Online Banking

Online banking can save you time and money.  If you sometimes forget to pay bills, set up automatic payments in order to avoid potential late fees.  It also allows you to monitor your cash flow.

Source: Reader's Digest

Second Mortgage Loans vs. Home Equity Loans

It’s not surprising that some homeowners confuse the terms “second mortgage” and “home equity loan.” After all, a second mortgage is a type of home equity loan. But more often than not, home equity loan is used to describe a home equity line of credit, or HELOC. If you want to take advantage of the equity that you have built up in your home, you will need to decide if a HELOC or a true second mortgage is best for you.

Before discussing which might be better for your purposes, let’s look at some of the basics of each. A second mortgage pays out a fixed sum of money to be repaid on a set schedule, like your initial mortgage. Unlike refinancing, the second mortgage does not supersede the first mortgage. Second mortgages are usually 15 to 30 year loans with a fixed rate of interest. Like the initial loan, the rate of interest and points (if any) will be based on your credit history, the price of the home, and the current interest rate. While the interest rate on a second mortgage may be a little higher, the fees are generally lower.

HELOC, however, is similar to a credit card, and it may even include a credit card to make purchases. Like credit cards, interest is charged, and the amount you can borrow is based on your credit worthiness.

To determine the limit of your HELOC, lenders will look at the appraised value of your home, you may have access to up to 80% of the appraised value or purchase price of your home (whichever is lower), less any prior outstanding mortgage charges. As your mortgage balance decreases, your available rate increases.

Your current financial needs will help to determine which type of loan is right for you. If you need money for a one-time expense, such as building a new deck or paying for a wedding, you would probably opt for the fixed-rate second mortgage.

But if you forecast a recurring need for extra money, such as tuition payments, you may prefer a HELOC. A line of credit allows you to borrow when you need the money and, if you pay back the amounts quickly, you can save money over a second mortgage. You also need to consider your spending habits. If having another credit card in your wallet would temp you to spend more often, then you are not a good candidate for a HELOC.

Once you make an initial determination about which loan might be right for you, you will need to discuss the details with a professional.  We recommend that you speak with an independent mortgage broker with experience in this sector to help you make the most effective decision among the products available.

 

Source: AllBusiness.com

Half of Canadians expect to be debt-free by 2017???

In a Leger Marketing poll, 54% of Canadians said they expect to be debt-free in five years. The average current debt of Canadians is $112,329. Getty Images files

Is it a dream or reality? Half of Canadians now in hock expect to be debt-free by 2017 and that includes their mortgage, a new Bank of Montreal study says.

In a Leger Marketing poll, 54% of Canadians said they expect to be debt-free in five years. The average current debt of Canadians is $112,329.

Men are more likely to carry large debt, with 30% saying they owed more than $100,000, compared to 22% of women. Those in the age group of 35-44 are also the mostly heavily in debt, with 43% saying they owe more than $100,000.

“While debt is a part of life for the majority of Canadians, it doesn’t have to be a permanent fixture,” said Su McVey, vice-president, BMO Bank of Montreal. “While interest rates have likely kept debt loads manageable for many households, that picture may be poised to change in the coming year.”

Once again, the Bank of Canada made no move Tuesday to change its key lending rate, which is tied to the prime lending rate at most financial institutions. “Some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2% inflation target over the medium term,” the bank said. “The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.”

Despite the near-record-low rates, Canadians have been encouraged to lower debt levels by both the Bank of Canada and the federal government.

Clearly some Canadians are heeding the call. The BMO survey found 25% of Canadians have no debt. Only 26% of respondents with debt say they have debt load of more than $100,000. The average monthly debt payment for those in the survey is $1,138.49.

BMO cited Statistics Canada data which shows residential mortgages account for 63% of household liabilities, something it described as “good debt.” Consumer credit makes up 28% of liabilities.

While most news appears good, the survey did find 30% of Canadians “appear to be treading water,” in BMO’s words, by paying only the minimum amount they owe. This is despite the fact 70% of Canadians say they can afford to pay more than the minimum.

The online survey was conducted between April 2 to 5 and is considered accurate to within 2.5 percentage points, 19 times out of 20.

 

Author: Garry Marr

 

Canadians’ homes are getting less affordable, but we still keep buying

Julian Beltrame, Canadian Press | 13/08/27

 

OTTAWA — Home ownership has become less affordable for the average Canadian, but that hasn’t stopped many from jumping into what may already be an overpriced market, suggests a new report from the Royal Bank.

 

Why there's no reason to panic about rising rates.  There is a simple answer to all this hysteria about mortgage rates going up. Find out more Royal Bank says its housing affordability index reversed course in the second quarter of this year in two of the three categories it measures — bungalows and two-storey homes — after generally improving over the past year.

 

The quarterly increase was not spectacular — 0.3 points to 42.7% on a detached bungalow and 0.4 points to 48.4% on a standard two-storey home. The index on a condo was unchanged at 27.9%.

 

As with past samplings, Vancouver and Toronto continue to stand out as the least affordable cities. During the second quarter, Vancouver’s affordability reading rose 2.2 points to 82.1 on a detached bungalow, while Toronto’s edged up half a point to 54.5.

 

By contrast, other major municipalities were far more tame and below the national average. On a detached bungalow, Montreal slid slightly to 38.1%, Ottawa was mildly higher at 37.1, Edmonton was at 34.0 despite a 1.8 point gain, and Calgary held steady at 33.0.

 

The affordability index measures the cost of servicing a home, including mortgage payments, utilities and taxes, in relation to a household’s pre-tax income. The higher the reading, the less affordable is a home to a particular family.

 

RBC chief economist Craig Wright noted that the deterioration in affordability did not scare many Canadians from jumping feet first into the housing market during the second quarter as sales actually surged by 6.4%, following a general slowdown since last summer’s introduction of stiffer mortgage lending rules.

 

“We saw a bit of a bounce-back in prices,” said Wright. “We had a series of regulatory changes, but now it looks like the market has adjusted and now seems to be recovering somewhat.”

 

The report is for the April to June period and does not capture this month’s announced increases of between 0.1 and 0.2% — 10 or 20 basis points— in posted mortgage rates at several major banks. A 20-basis point hike in rates will increase monthly payments up to $100 on a typical $500,000 mortgage.

 

“Mortgage rates will be the next challenge,” Wright added. “The move upward we’ve seen probably suggests that affordability will be a little more challenging (in the third quarter).”

 

But he noted that despite what has been a hot housing market in Canada, with prices hitting new highs almost monthly, affordability remains close to historic levels in part because interest rates are so low.

 

The Bank of Canada has long warned Canadians to take a forward-looking approach to home ownership and calculate what will happen to monthly payments once interest rates begin to rise, which it says is inevitable.

 

But Wright said the situation of affordability is more complex than simply interest rates. A sharp spike in rates will cause problems, yet most, including the Bank of Canada, currently anticipate the increases will be modest and gradual and won’t likely start occurring until late next year. The central bank has kept its short-term trendsetting rate at 1% for now.

 

As well, Wright points out that the bank will likely only start a monetary policy tightening phase once the economy starts improving, so the higher rates might be offset by an improvement in employment and in incomes, which could offset the negative impact on household finances. Higher rates might also lead to lower real estate prices, which also improves affordability.

Rule changes may have knocked 10% of homebuyers out of market

One year later
The Canadian government’s latest moves to prevent a housing bubble may have knocked up to 10 per cent of potential homebuyers out of the market, Bank of Nova Scotia says in a new report that, like others, suggests a soft landing for the industry.

Among the new rules that went into effect a year ago tomorrow, by Finance Minister Jim Flaherty and the Office of Superintendent of Financial Institutions, was a cut to 25 years in the maximum amortization for insured mortgages.

That marked the fourth round of tighter rules and sparked a plunge in home sales over the past year, though prices have largely held up across the country.

Over the past few days, several local real estate boards have reported June sales that suggest the market has stabilized.

In Vancouver, for example, sales in the Vancouver area climbed by almost 12 per cent from a year earlier for the best showing in two years. And in Toronto, the other city that has sparked fears of a meltdown, sales slipped by less than 1 per cent.

Having said that, of course, the year-earlier period left a lot to be desired.

Still, many analysts believe Mr. Flaherty got just what he wanted, averting a crash.

“Canada’s housing market is proving remarkably resilient notwithstanding the barrage of negative headlines,” said economist Adrienne Warren of Bank of Nova Scotia.

“Based on a review of local real estate boards representing about 50 per cent of national activity, home sales in June were in line with year-ago levels,” she said in a new report.

“On a month-to-month seasonally adjusted basis, we estimate national sales rose for a fourth consecutive month. Market conditions remain well balanced: Average prices are up 4 per cent year over year but have levelled out in recent months.

National numbers are expected to be reported next week.

Most cities, Ms. Warren said, are posting “modest firming in sales and moderate single-digit year-over-year price increases,” though there are differences among the regions.

“Sales in Vancouver are stabilizing at a level significantly below long-term trends, while activity in many other markets, including Toronto, is largely in line with the 10-year average,” she added.

“Calgary is outperforming the national trend, though the impact of the recent floods will impact activity in the coming months.”

So how much of a difference did last year’s restrictions make?

According to a survey released today by BMO Nesbitt Burns, they stabilized the market but didn’t kill it.

Some 66 per cent of potential first-time buyers polled by Pollara said Mr. Flaherty’s move didn’t alter their plans for when they buy, while 19 per cent said they’ll now wait longer. Fourteen per cent said they would buy earlier.

Ms. Warren said the latest restrictions may have “reduced the pool of potential buyers” by up to 10 per cent, but that “historically low interest rates, steady job gains and population growth continue to underpin housing demand.”

The next several months make forecasting a bit more difficult, however.

While “stable pricing” is attractive, mortgage rates have start to inch up, which could hurt the market in the second of the year, she said, particularly in the more costly cities of Toronto and Vancouver.”

“Meanwhile, the outlook for continued low short-term interest rates will provide a cushion to any potential further rise in long-term borrowing costs.”

Statistics Canada also reported today that the number of permits taken out by builders in May climbed 4.5 per cent from April.

That was driven by the residential construction industry in Ontario and the non-residential sector in Quebec.

Permits for residential construction alone rose 4.2 per cent, far slower than April's 21.6 per cent but still the third increase in a row.

Building permits, traditionally volatile, climbed 4.4 per cent for single-family homes and 4 per cent for multi-unit construction, such as apartments and condominiums.

Canada's condo market, in particular, has been a source of worry.

"Numerous apartments and apartments-condominium projects in Ontario, Alberta and Nova Scotia contributed to sustaining the advance from April," Statistics Canada said.

Chief economist Avery Shenfeld noted the "firm uptrend" in residential construction, though he believes that will cool.

"We still expect homebuilding to decelerate, but the evidence seems to be pushing some of that off into a 2014 story," Mr. Shenfeld said.

"Note that current permits and starts could still be responding, in the case of multiples, to pre-sales that took place months ago, so there could be a substantial lag before decelerating demand flows through to building."

 

MICHAEL BABAD

The Globe and Mail

Published Monday, Jul. 08 2013, 7:21 AM EDT

 

Is Paying off Mortgage a Safer Investment for Your Cash?

Study after study suggests that Canadians are having a tough time paying off their mortgages, as debt levels continue to hit record levels year after year. Why?

Could it be that there are more opportunities to spend? Could it be that some people don't want to pay off their mortgages faster?

Or are some professionals advising alternate investment strategies, suggesting that paying off the mortgage is not the best financial strategy?

BIG MORTGAGES AFFECT RETIREMENT
Rebecca and Darcy are in their mid-50s and are starting to think about retirement planning; they would like to retire in the next five years.

One of their biggest hurdles is a $225,000 mortgage. Currently, their $2,200 monthly payment would have the mortgage paid off in 10 years.

Rebecca and Darcy recently both received increases in pay at work, allowing them to increase their mortgage payments by $1,000 per month and pay off their mortgage in just under seven years.

Just as they were working with the banker to renew their mortgage, Darcy also got news that he is going to receive a significant inheritance, which he could use to pay off the mortgage all at once.

When they asked the banker what they should do, the advice concerned them.

ADVICE FROM THE BANK
The banker suggested that in a low-interest-rate environment, paying off the mortgage might not be the best thing to do with the $225,000 inheritance.

Instead, they could invest it into a mutual fund that made over six per cent over the past year and over five per cent compounded over the last five years. With mortgage rates at 2.5 to three per cent, higher investment returns would mean more money in their pocket.

The banker put together a nice graph showing Rebecca and Darcy that investing the $225,000 would give them over $315,000 in seven years at five per cent, and that their $3,000 monthly payment would mean the mortgage would be paid off at the same time.

The bank's conclusion? Keep the mortgage and invest the lump sum for a higher return.

WHAT WOULD YOU DO?
The banker is mathematically correct, but the big "if" lies in the rate of return, which cannot be controlled or predicted. The five-per-cent return is not guaranteed; what if the next five years aren't as generous?

I ran some numbers at two per cent for the couple, and in that scenario, $225,000 would only grow to $258,000 after seven years. Alternatively, paying off the mortgage and investing the $3,000 per month mortgage payment at the same two per cent would give them $274,000 after the same period.

Basically, if the return on investment is greater than the interest cost on the mortgage, then the math would tip toward investing money. If the return on the investment is lower than the interest rate on the mortgage, then the math would tip toward paying off the mortgage.

We could complicate the calculation with after-tax returns, but we'll keep things simple for this column.

The bottom line is paying down the debt is a more conservative option. It puts more control, flexibility and security in the hands of Rebecca and Darcy. Investing is always great when the returns come, but a good return is not guaranteed.

The banks make money when you keep a mortgage and they also make money when you invest in their mutual funds. Could that have any influence over the banker's advice here?
There is no right or wrong solution here. Both investing and paying down a mortgage are financially responsible.

I tend to err on the conservative side, so if I were in Rebecca and Darcy's shoes, I would pay off the mortgage, then invest the $3,000 per month for retirement. What would you do?



Jim Yih is a financial expert. Visit his award-winning blog, RetireHappyBlog.ca

© Copyright (c) The Edmonton Journal

Overbuilt Condo Market May Put CAD Economy at Risk

OTTAWA — An overbuilt and overpriced condominium market is posing a risk to Canadian households, banks and the economy in general, the Bank of Canada warned Thursday in its latest review of the health of the country’s financial system.

New housing already purchased and in the pipeline continues to propel the Canadian real estate market but worries persist about what happens when that tap turns off.

For now, the industry got another bit of good news Monday with Canada Mortgage and Housing Corp. saying new home construction or starts reached the lofty 200,000 level in May on a seasonally adjusted annualized basis.

The central bank particularly singles out the Toronto condo market, which it notes continues to carry a high level of unsold high-rise units in the pre-construction or under construction phases.
Overall, the bank says it believes both global and Canada financial conditions have improved somewhat despite the subdued pace of the economic recovery.

In Canada, the growth in household credit has continued to slow and has fallen broadly in line with growth in disposable income, and overall activity in the housing market has moderated.

But it is still worried about the housing market, and particularly condos in Toronto.

“If the upcoming supply of units is not absorbed by demand as they are completed over the next 12 to 30 months, the supply-demand discrepancy would become more apparent, increasing the risk of an abrupt correction in prices and residential construction activity,” it says.

“Any correction in condominium prices could spread to other segments of the housing market as buyers and sellers adjust their expectations.”

That could start what it terms a negative feed-back loop. A plunge in house prices bites into net household worth, shatters confidence and consumer spending, impacting income and job creation.

“These adverse effects would weaken the credit quality of bank’s loan portfolios and could lead to tighter lending conditions for households and businesses. This chain of events could then feed back to the housing market, causing the drop in house prices to overshoot.”

The warning comes as Statistics Canada reported the price of new homes nationally rose 0.2% in April from the previous month. Economists had expected an a 0.1 increase.

The bank cautions that its unravelling scenario is not what it is predicting. In fact, it still expects the correction in the housing market to go smoothly.

“Nevertheless, simple indicators continue to suggest some overvaluation in the housing market; house prices are high relative to income and housing affordability could become a concern when interest rates begin to normalize,” it adds.

The continuing highlighting of household imbalances, despite noting that the risks have in fact lessened somewhat in the past six months, suggests the central bank remains worried that with interest rates likely to continue at near emergency low levels, the dangers of something going off the rails intensifies.

 

Last week, the OECD singled out Canada as one of three nations in the advanced economies with the most overvalued housing market, adding that despite that elevated status, prices continue to rise.
Any number of shocks could send Canada’s house of cards tumbling, the bank says, particularly higher borrowing costs that pinches households already carrying record high levels of debt.

Even an intensifying of the ongoing euro-area financial crisis, which could occur, the bank says, because there are signs Europeans are becoming weary of austerity and reforms.

“If the situation were to occur … trade and financial linkages could spread the shock to other regions, leading to a more severe and protracted reduction in global demand. This in turn could trigger a sharper correction in Canada’s housing market.”

The bank says even if the worse does not happen, it will take years for Canada’s housing imbalances to right themselves.

The report is the first published under Governor Stephen Poloz who took the post June 3 as Mark Carney left to head the Bank of England. Poloz told lawmakers last week he is concerned about the risks posed by consumer debts that grew through the housing boom as banks increased mortgage lending. He also said the limits of domestic-demand led growth have become clear.

Household debt reached a record 165% of disposable income in the fourth quarter, and Finance Minister Jim Flaherty tightened mortgage rules last year to avoid what he called signs of overheated condominium markets in Toronto and Vancouver. Statistics Canada will publish first-quarter debt figures later this month.

The central bank forecast Thursday that the debt to disposable income ratio will stabilize this year. Other signs of “constructive evolution” of household imbalances include slowing housing starts and resales since mid-2012, according to the report.

Julian Beltrame, Canadian Press | 13/06/13 | Last Updated: 13/06/13 11:45 AM ET