Tag Archive for: mortgage refinance

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.

To break or not to break?

Well that is the question. Wondering whether to break your current mortgage to take advantage of the lower rates that are currently offered. Well here is an example that you can apply to your situation to see if now is a good time to take advantage of the lower rates.

Interest Rate Differentials (IRD)

Often a client needs an “idea” of how much their existing mortgage penalty might be before he decides to refinance or do an “early switch” with pre-payment penalty.

If the penalty is based on a rate differential, here is a BASIC calculation to figure out a close amount…..

Based on a:

$200,000 with 3 years remaining on a 5 year term of 5.70%….

…because there are 3 years remaining, the current 3 year rate is used to calculate the differential.

If the lenders current 3 year rate is 4%, there is a difference of 1.7%. Because there’s still 3 years left, the principal is also multiplied by 3

$200,000        x      1.7%      x       3     =       $10,200 penalty

(remaining principle)(Difference btw rates) (# yrs remaining)

**This is an estimate and will change every time rates change. If the differential increases, the penalty will also increase.

Now next you have to determine if the savings will exceed the penalty, and make the refinance worth while so here is another example. Interest rate in the before example is 5.7% and after is 3.99. Both with a 20 year amortization and a $2,400 annual tax bill included in with the mortgage payment, and house value of 400,000.

Before
After
Creditor
Balance
Payment
Creditor
Balance
Payment
Mortgage
$200,000
$1,590.89
Mortgage
$280,200
$1,681.02
Credit Line
$10,000
$300.00
Credit Line
0
0
Bank Loan
$20,000
$405.53
Bank Loan
0
0
Credit Cards
$40,000
$1,200.00
Credit Cards
0
0
Total Owing
$270,000
$3,496.42
Total Owing
$280,200
$1,891.65
Your Savings
$1,604.77

So as you can see in this case you will save $1,604.77 in monthly payments. Here is the big picture, by paying the $10,200 penalty, you will save $57,771.72 in payments over the next 3 years.

Please contact me for your personal analysis of your debts as every situation is different.

Cheers,

Pat

Thanks to Rachelle Gregory-Marshall my business development manager with Merix Financial for this great example of how to calculate our IRD penalties.

* Penalties in every mortgage are different. Please contact me to see if you are able to break with a lower penalty.

Half assed?

Or complete ass? Unfortunately that is how most people approach the majority of the tasks that they do on a day in day out basis. At the end of the day the only person who you are really accountable to is yourself. Ask yourself how you think you really did? Did you give it your 100%, a half assed effort or were you just a complete ass about your responsibilities. If you are not happy with your current results, you only have to look back to the effort that you put into the task that you did.

Begin tomorrow with the end in mind. With that I mean, remain focused on your stated goal or outcome. Having a clear image of where you want to go is the 1st step. Next you must take massive action to make sure that you get going in the right direction. For example, if your goal is to improve your level of fitness, then sleeping through your workout is not the best way to start the day. Give each chosen (yes I said chosen because we are all given the ability to decide) task your full out 100% honest effort.

Also be flexible in your approach, notice what is working or not and keep changing till you find what works. Lastly stick to it until you reach your goal. These can also be applied to the goal of improving your personal financial situation. Sit down, take stock of where you are right now (know your income and expenses). See if there is opportunities to improve both. Decide where you want to go, income, expenses, trips, toys etc. Take massive action right away and notice what is working or not and keep going until you reach your objective. If you find that you need some help along the way, feel free and contact my office. I look forward to hearing from you.

Cheers,

Pat

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

Daily Grind

Not the coffee and magazine shop in Halifax, which is a great place to kill some time between appointments. What I mean here is what you do on a day in day out basis. Are your daily routines helping you get ahead, tread water, or allowing you to fall further and further behind? This should not take you that long to figure out. Are you paying your bills down and saving money, just keeping up with your bills or falling behind. if you fall into the last two options, now may be time to do something about the direction you are heading.

Have you explored any and all options to increase your income? Do you know accurately how much money is coming in and out each month? Most important of all, are you willing to do what ever (legally of course) to improve your lot in life?

Assuming you answered an affirmative to the last questions, keep reading, if not no one can do it for you, come back when you are ready. What ever the endeavor, you first need a plan. By this I mean, you need to know your objective, what you want to accomplish. It must be crystal clear, and you should see yourself as already having achieved it.  Next take massive action, act as if you could never fail, in fact you can only fail if you stop trying. Notice what is working and what is not and persist until you succeed.

Actually it sounds a whole lot easier that it is. Everyday you are pulled in a thousand different directions. This mainly happens if you are living without a compelling or dominating goal in life. Keep focused on where you want to go, and everything else will come into place. Decide right now where you want to be physically, financially, spiritually or emotionally. Write out your goals as clearly and as concisely as possible, hold them in the forefront of your mind and get going.

If one of your goals involves improving your current financial state, then take some action now and contact my office right away. We will take an in-depth analysis of your current situation and help you develop a plan to eliminate all your debs as quickly as possible. I look forward to hearing from you.

Cheers,

Pat

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

Desperate Times!

Call for desperate measures. What if a tragic event happened in your life (like death of a spouse, loss of employment or divorce) how would you handle it? Are you prepared for it financially. Would you have enough money? Would you have to borrow from the bank, friends or family, or have to liquidate assets. Something tells me that you would just find a way. It’s because in those moments of great need we develop a very strong sense of urgency. If you needed 5K by Friday to fly to Germany to be with a loved one who was terminally ill then you would just find a way to make it happen. Then why are we lacking this same sense of urgency in the running of our everyday lives? If it is not important, then why are we doing it?

Wouldn’t it just make us more effective and productive people? Success at all costs attitude! You have met those people and aren’t they fun to be around.

I remember watching a documentary a few years ago about a experimental cancer treatment. The physician running the trial told the patients (who had stage 4 cancer and had tried every conceivable treatment) to follow a very specific diet and cut out certain things like chocolate, coffee and alcohol. Some of the patients were making very good results, however a few were discovered upon follow up to not to have given it an honest try. If you were faced with certain death, wouldn’t you want to pull out all the stops. I lost my mother to breast cancer a few years ago and right up to the final 2 weeks, she fought with all her might.

Just think of how different your life could be if you adopted a sense of urgency and applied it on a daily basis. The world would be your oyster as they say and anything would be possible. Ask yourself when you wake up each day this question ” What would you like to see happen? Then start your day with the expectation of achieving your goal. You will be surprised at just how quickly your whole world changes. If you would like to make some drastic changes to your finances, please feel free to give my office a call.

Cheers,

Pat

p.s- You can find me on Twitter,Linkedin, Facebookand friendfeed.
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Don't look a gift horse in the mouth!

Ok I am not asking you to kiss your sister. There is nothing unpleasant here (for you or your sister). Heck it’s practically free. I am going to break with one of my golden rules and talk to you about mortgage rates. Now before you get too excited, I am doing it to illustrate an opportunity rather than as a price comparison tool.

In the 7 plus years that I have been a mortgage broker, I have seen rates go up an down. I have seen 5 year fixed rates as low as 4.5% to as high as 6.2% for the discounted AAA rated clients. The current turmoil in our financial markets has caused a liquidity crisis for many major lenders ( specifically in the US). This has made it necessary for the US government to inject Billions into the capital markets and to the banks them selves. Our Canadian government, thanks to our stronger banks, only had to inject money directly into the capital market. Anyway back to my point, these injections of large sums of cash are now finely finding their way into a position to benefit the consumer. As a result rates are at all time lows. Current 5 year discounted AAA money is at 3.95% and this is unheard of.

You are probably asking yourself, “well what’s in it for me?”. Let me tell you, if you are a home owner and you currently have debt outside your mortgage, like credit cards ( interest rates of 17.99% or more), Car loans (6-9%), unsecured personal loans (at 20% or more), there may not be a better time than now to look at putting all your egg’s in one basket. Doing this will lower your overall cost of borrowing and possibly save as much as several hundred as month.

However I must tell you that there is a downside to these low interest rates. Yes you heard that right, and you deserve to know the truth. You may not know but mortgages are contracts, and if you are in the middle of your contract term and you go to break it, there will be penalties. If your banks says that they are not charging you a penalty that they are just giving you a blended rate, you are still paying the penalty but in the new rate. Unless you have a closed term you can get out of your current mortgage with either a 3 month interest penalty or an interest rate differential penalty. The banks will charge the greater of the 2 penalty’s.

I had a client call me recently about refinancing and they had just signed a new 5 year mortgage about a year ago at posted rates ( which are higher then discounted, today’s posted is 5.45). I did a calculation for them and found out that their penalty would be over 15K. Now don’t get caught up in the number, if you end up saving more over the 5 years than the penalty then it is worth it to pay the penalty. In this case it was not. Please contact my office today to find out if this makes sense for you.

Cheers,

Pat

p.s- You can find me on Twitter,Linkedin, Facebookand friendfeed.
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PatSawler@Craigburn.com

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