Tag Archive for: Financing

David Bowie said it best

It was very sad to get up this morning to read about the passing of a rock legend David Bowie. I have always loved his music. The news reports talked about the impact his life has had on rock music, fashion, art and even financial securities with Bowie bonds.

I don’t know how many hundreds if not thousands of times I have listened to his song changes. Singing along and not realizing until today that I ( like many) was singing it wrong. He talked about “time may change me, but I can’t trace ( not change) time. I did not really get what he meant till today, and his career summed it up perfectly. You can’t go back in time. Bowie was always changing, and that’s what made him interesting.

Change is the one constant that we have in our lives. It’s how we adapt to it that determines our fate. You don’t listen to the same music at 2 as you would at 15, sorry Raffi. You don’t work at the same type of job at 15 as you would at 30, sorry Mc’D’s. Your finances also change along each stage of your life. We must adapt to meet these changes.

Are you spending more that you are earning? Are you paying down your debt? Are you saving for retirement? Are you working just to make bill payments or are you truly designing your life? Time may change you, but you can’t change time.  The choice is yours, cause you can’t go back in time and change your decisions of the past. Make some better decisions today so that your future is one that you have designed.

Thanks for the memories and the inspiration Mr Bowie.

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