Get off the treadmill, you’re not a hamster

As the year is winding down, I have been thinking of what I have accomplished this year. What I worked on and did not finish, and what I just did not get around to doing at all. How did you do with your scorecard? Sadly if you are like most, you may not even of kept score.

It turns out that only 5% of the population actually set goals, and more importantly only a smaller percentage of those actually write them down. Are you getting up day after day, doing the same thing and expecting different results. You know that’s the definition of insanity right!

What are your personal goals? Your health goals? Your financial goals. Do you know what you want to achieve today, this week, this month and this year that will help you come closer to their achievement. Don’t get caught up in the day to day rat race of doing the same old things. Have a clear vision of where you want to go, and sit down and create a step by step plan for it’s achievement.

Weather you want to pay off all your debts, lose 30 lbs, run 5K, pass the bar exam or find your soul mate, it doesn’t matter the goal, you can do it. Just write it down as if you have already achieved it. Now ask yourself what can you do today to move you in the right direction. Start before you are ready, the perfect time is now.

The hamster’s view from his treadmill never changes as he never goes anywhere. Change your view of where you want to go, believe that you can do it, take daily small actions toward it’s achievement but always keep in mind where you want to go.

I look forward to hearing about your journey.

Sincerely,

Pat

P.S- if paying off your debt is one of your goals, you should give YNAB a try. I have a coupon code that you can use as well to save some money on the purchase of the software.

 

The 5 C’s of credit and how they impact your buying decision.

You have scrimped and saved and with the help of your Realtor you have picked out your house. Now comes the fun part, getting you approved for your mortgage. With the help from a experienced mortgage broker, you will be able to put your best foot forward and get approved for your purchase.  This involves telling the facts about who you are and where you work and how much you make, but it also involves telling a story about why you deserve and are able to pay back this loan. The right broker will help you do this.

It is like the old tale of a group of blind men (or men in the dark) touching an elephant to learn what it is like. Each one feels a different part, but only one part, such as the trunk or the tail. None of them get the complete picture. The 5 C’s of credit is the way lenders use to get a complete picture. Individually they only tell one part of the story, but together they help paint the complete picture of your financial situation.

Character:

What determines strong character in the lender’s eyes are things like how long you have been at the same employer and at the same address. The longer you have been at the same places shows stability to the lender.

Credit;

The credit bureau stores your credit repayment history from the past 7 years. This shows how well or how poorly that you have paid your bills. Creditors that report to the credit agencies ( Equifax & Transunion in Canada) are auto loans, lines of credit, student loans, credit cards, mortgages and now mobility providers. Your repayment history shows how well live within your means and is a good predictor toward future repayment.

Capacity:

This is normally the 1st thing that the lender looks at, as it determines your ability to afford the payments. In other words this is all about debt service ratio. Lender are looking for the potential loan to be less than 40% of your total income. This would make the probability of you repaying the loan would be fairly high.

Collateral:

This has everything to do with the security being pledged for the loan. In this case the real estate, where it’s located, what it looks like and how much it’s worth. The important part here is the loan to value, or how much your are borrowing in relation to how much the property is worth. It’s important to note here that the most expensive home in an area surrounded by lesser quality homes will hurt the perceived value of your home in the lenders eyes.

Capital:

Is the money you have invested in the purchase also know as your downpayment.  The more of your own money invested in a property means that you are more likely to do all you can to maintain your payment obligations. Another side of capital is shown as your ability to save money and accumulate assets.  The higher net worth a person, the more of a cushion they have for repayment if they are hit with a financial set back.

So to sum this all up, as a  knowable broker I  tie these all together in the submission to get your financing approved. Your story is important, make sure the proper person is on your side to tell it for you. I look forward to hearing from you.

Sincerely,

Pat

All you wanted to know about mortgages but were afraid to ask, part I

 

Not that it’s keeping you up at night, but I thought you should know

To some the idea of financing your first home may be daunting. Really it shouldn’t be. It’s just that the banks and other brokers or lenders may use finance terms that you don’t know what the heck they mean.

Downpayment: This is the cash that you have saved up to buy your home. This can come from your savings, your RRSP’s or from your family. Some situations as I have discussed in a previous article allow you to borrow it from your own existing credit, however this does not apply to all situations and all lenders.

LTV: Also know as loan to value. This one gets a lot of people confused if you are new to the game. It is the amount of your mortgage loan in relations to the value of the property. For example the house you want to buy is worth 100K and you have 5K of your own money to use as downpayment, and you will need a 95K mortgage. So the bank looks at it as 5% down on a 95% LTV.

Default Insurance: This is insurance provided to the lenders ( sorry not you) to protect them in case of default. It is provided by Canada Mortgage & Housing (CMHC), Genworth and Canada Guaranty. This allows us to purchase properties with as little as 5% of the purchase price. It can be avoided in most cases if you put down more than 20% of the purchase price. However ultimately it is the lender who decides if they will charge it when you put more then 20% down.

Term: This is the length of time that you lock in your current interest rate, or discount to prime rate if you chose to go with the variable rate. Terms are available from 6 months to 10 years. If you feel that rates may go up in the future then go longer term, and shorter if you feel they may go down. Most consumers have tended to go with the 5 year term when choosing their mortgage.

Amortization: Just a fancy way of saying how long it will take to pay off your mortgage. Most residential mortgages in Canada are provided with 25 year amortizations.  30 year amortizations are still available for those with down payments greater that 20% and who do not require default insurance. One simple method for paying off your mortgage faster is to pay it bi-weekly accelerated. This is because you end up paying 26 times a year versus 24 times if you chose semi monthly, and it amounts to an extra mortgage payment a year. You end up paying off your mortgage in just over 21 years instead of 25.

Tune in soon and I will tell you about the 5C’s of credit and how they impact you.

As always let me know if you have any questions,

Cheers,

Pat

How to buy a house with none of your own money

More commonly referred to as creative down payment options.

teeter_home_money

Did you know that you can still buy a house in 2015 with no down payment (of your own money), cause sadly the days are gone where the zero down payment was available. So here are all the options including the one where you have spilled blood, sweat & tears and saved it yourself.

1) 5% saved from your own resources. You have worked long and hard and you have been able to put away a few dollars. If this is you I must congratulate you and say that you have job well done. However before you pat yourself on the back there are a few things you should know. The lender will ask for confirmation that you have had the funds in your position for at least 3 months. To do this you just simply have to provide bank statements that show your name, your account number and the balance. This is to prove that you did not borrow it, but we will get to that later.

2) RRSP Home Buyers Plan. You can borrow up to 25,000 from your registered retirement savings plan ( tax free) and have 15 years to pay it back as it is considered a loan. If you buying the home with someone else who is buying for the 1st time then you can borrow up to 50,000.  This is a great way of doing it as you most likely did not miss the automatic deduction off your pay check the past few years anyway.

3) Gift letter. As in it’s all in the family, borrowing the downpayment from a blood relative. Like Mom, Dad, Sister or Brother. This is a true gift and not a loan, and the mortgage lender is some cases will ask to see confirmation that the funds are in your position before giving you an approval. They also require a signed gift letter by all parties as well.

4) From Peter to pay Paul. This is the one that most people are not aware of, where you can borrow from existing credit to make up your required downpayment. However here is the kicker, you must be able to debt service both the mortgage and the borrowed downpayment to make this happen. It can come from your credit card, line of credit or existing mortgage. You should also know that not every lender allows this type of downpayment, but for those that do it makes an excellent way to make the leap into home ownership.

This concludes our lesson for the day. However don’t forget that will need more than the minimum required down payment to close your transaction. You will also need deed transfer tax ( 1.5% of the purchase price) plus legal fees. The lender will need confirmation of the former along with your deposit.

Feel free to contact me if you have any questions.

Cheers,

Pat

Ma & Pa say it’s time to move out

Also known as yes you can afford your own place.

They think you’re ready, your significant other thinks your ready, heck even the family dog thinks your ready. Here is why they know that.

1) You have a good job and are getting a steady pay check.

2) You have credit established and pay all your bills on time.

3) You plan on buying something that should increase in value over time, unlike that Xbox you bought a few years ago.

4) You have put away enough to cover your downpayment.

That covers a few of the major C’s of mortgage borrowing right there, so you’re heading in the right direction. In case you were wondering the 5 C’s of credit are Collateral, Credit, Capacity, Character and Capital.

Now you should find out how much you can afford to buy. To do this the lender is going ask you some questions like the following:

  • Name, date of birth, SIN, current and past address.
  • Where you work.
  • How long you have worked there.
  • Employment status.
  • Income level.

And lastly info about your assets and liabilities. All of these are important to determine your credit worthiness and to calculate your debt service ratio’s to prove your ability to carry the loan.

You should be able to so most of this on your own to prepare for your meeting. For a small fee you can log on to Equifax Canada website and pull your credit to see where you stand. Once you have that you should sit down with a pen, paper and calculator to figure out your debt service ratio’s.

Ok you found out by visiting CMHC’s website that they require that you meet the debt service ratio’s of 32% Gross Debt Service (GDS) and 40% Total Debt Service (TDS).  I know at this point you may be a little confused so I’ll explain some of the jargon. GDS is a percentage of your gross income to support house hold expenses and TDS is a percentage of your income to support all your debts.

Ok now comes the fun part. Let’s write down some numbers so we can calculate your ratio’s. Your engineering job pays you 65K a year, your car payment is 248 a month, your credit cards are paid in full every month and you have been able to save 30K to use as a downpayment thanks to hotel Ma & Pa.

So here we go. Let’s look at GDS first. 65,000 /12=5,416.66 X 0.32=1,733.33 this is the maximum mortgage payment for GDSR before house hold expenses. You calculate that the 250K house you  like will cost $2,485  (12/2485=207.08 monthly)per year in property tax and you were told that the monthly heating bill would be $125. Now take 1,733 – 207 ( taxes) – 125 ( heat) and you get 1,401.33 which is your maximum mortgage payment for GDS

Now for the TDS. 65,000 / 12= 5,416.66 X 0.40= 2,166.67, this is your maximum mortgage payment for TDSR before house hold and debt payments. So to finish the ratio we take 2,166.67-207 (tax) – 125 ( heat) – 248 ( car pmt) =1,586.76. This is your maximum monthly mortgage payment for TDSR.

Hope your are still with me cause we are almost done. Now we take the lower of the two maximum ratio’s, in this case that’s 1,401.33 and divide that by the 5 year posted mortgage rate of 4.74% and multiply by 1,000, and now we find out your maximum mortgage you can afford is 295K based on the info provided.

If math is not your favourite past time, I would be happy to act as your personal mortgage calculator. I look forward to hearing from y0u.

Cheers,

Pat

P.S- Now that you know how to do it on your own, you can use CMHC calculator for the next time. Playing with the downpayment amount will also effect how much you can afford to buy.

Getting with the times

I know that it has been a very long time since I have last written a blog article. I have no excuse other than “stuff” got in the way. Anyway I am back with a new and improved website thanks to my good friends at Kim Squared.

Please take a tour and let me know your thoughts. I welcome any and all feedback. The new site is now able to be viewed on your mobile device of choice and as well as your computer.

I did a short test with a Facebook ad for my company fan page last month and discovered that over 92% of people viewed the ad on their mobile device. Yet at the same time my site and many others in the industry were only designed to be viewed on a computer.

I hope you enjoy it and I look forward to hear from you.

Cheers,

Pat

First Time Home Buyer

Should you grow your nest egg or pay off your mortgage?

Sometimes the question arises that what is best option between growing on investment and paying off mortgage. Here I would like to suggest that one should take his own financial decision as per his or her circumstance. But, I will put my opinion in my own way as I see that staying out of debt has potential impact on anything I can do.

Somebody may speak rubbish when they tell you to stop paying mortgage since you forfeit your tax benefits on your mortgage. On the other side, some may suggest you to stop paying mortgage because you could utilize it for any high growth investment. This way, they suggest you the way to benefit from compounding interest. Instead of paying at low interest mortgage, you can invest in high return investment tools. This point of argument sounds good. But, you must understand that you will still be in debt. Therefore, it seems as if not having a mortgage is profitable than having one.

It is always wise to have sound resources of savings funds at your possession and pension plan like CPP. It could be risky sometimes when you undertake a long term mortgage taking it granted that nothing unpredictable would happen to force you take a big slice out of your savings fund. Therefore, what’s greater than having absolutely debt free? If you stay in a debt free status, you can build your wealth faster than ever. Otherwise, if any unavoidable circumstances arise, you may lose your house. A paid off house is an asset and a source of strength for you in time of economic crisis. You stay in control with it no matter what economic hard time goes on around you.

Nothing is better than owning a house without a mortgage. But, for most of us, the possibility is slim to none because we don’t have the patience and guts to think the other way. If anyone can sacrifice for a span of time, he can save up a lot to purchase a house without mortgage. Personal finance is always a mater of individual choice and mindset. There is no rigid guideline. So, one has to take up a way what he would feel comfortable to own his house.

This guest article was written by Patricia Briggs.

Author’s Bio:Patricia is a guest columnist, blogger, author for various websites and communities. She has completed her Post Graduation in Social Welfare from California University. She loves to write articles especially on topics like mortgage, loan, investment opportunities, monetary policies, etc.

Demystifying the 5 year fixed rate mortgage

If this title alone does not get you I don’t know what will. Most people opt for the 5 year fixed rate mortgage because of the security of knowing what your payment will be from month to month over the next 5 years. However how do you know if you got the best 5 year product. In case you did not know there is more than one out there.

Lender’s price their fixed rate products based on how long that they have to guarantee the rate. These rate guarantee’s range from 30 days all the way up to 120 days. So as a result the quicker you can close the more likely you will get the best rate in town.

Here are a few examples. Read more

5 Ways to Avoid a Personal Financial Crisis

Here are some tips on what you should do to avoid a personal financial crisis:

1) Have an emergency slush fund

You should have at least 3 months of living expenses put away in case the worst happens. I am not talking about putting it in your mattress or in a coffee can. These funds should be liquid and fairly easy to access quickly but not so that you can dip into them & buy something if the whim strikes you. My wife and I have used an ING investment savings account, you could do something similar or open a Tax Free Savings account, that way your emergency fund is tax protected.

2) Know your income and expenses

Most people might know how much they make but have no idea how much they are spending. When I got out of University I worked as a personal trainer for a few years. When I took on a new client, I would have them keep track of what and when they ate for a week to give them a better idea of what is really going on in regards to their health. Your finances are no different, take a 30 day period, create an excel spreadsheet for example and track all income and expenses. Then sit down and take a real good look at it and decided if it is needed or not. Trim the fat and put the saving’s into your newly developed emergency fund.

3) Diversify your income

What I mean by this is don’t put all your eggs into one basket. Develop a secondary income stream incase something were to happen to your day job. Turn that passion or hobby into a business. Invest in real estate. Build a residual income stream by joining a network marketing or direct selling company. Make sure that what ever you do, it’s something that you are passionate about and will allow you to add to your bottom line. The other advantage is that your new business could become a great tax deduction, check with your accountant to make sure that it is structured properly.

4) Give your self an immediate 18-20% return!

How is this possible you may ask? It’s easier than you may think. Do it by paying off your debt. Start with your higher interest debt, your credit cards which are anywhere from 12%-18%, or if it is a department store card, it could be as high as 24%. Next your car payment, unless you have a 0% loan, you are probally paying 7-9%. Lastly your mortgage 3-7%. If you need a detailed plan on how to do this quickly, let me know I have designed quite a few of them.

5) Lastly make sure that your affairs are in order.

I am not trying to sound morbid, but we don’t live forever. Have a proper estate plan, have health insurance for your and your loved ones, and have an insurance policy big enough so that the one’s you leave behind are not faced with an immediate financial crisis. For this point I suggest consulting with your personal estate lawyer as well as your financial planner. If you don’t have one I can suggest for legal advice or here are two good options for financial planning.

Bonus point….and this should be a no brainer.

To achieve anything on this list, you should have a plan. Start with a clear picture of the current state of your finances. How much time do you have between where you are now and where you want to be? With the help of one of the financial planners above or your own, develop your plan and work your plan. Remember to be flexible in your approach, know what’s working or not, and be willing to make the necessary changes to insure that you achieve your goal.

*Note that I receive no gain monetary or other wise from promoting the services or products in this post.

As always, feel free to contact me if you have any questions and I look forward to hearing from you.

Cheers,

Pat

p.s- You can find me on Twitter,Linkedin, Facebookand friendfeed.