You get what you save for.

Home-buying pressure won’t always result in diamonds

May 15, 2012 – 4:42 am

These days I find myself glued to my inbox waiting with great anticipation for the dingle of my next property match email. Will it be ‘the one’?

I sold my house and officially have 45 days to be out. Given the short time frame, I feel a lot of pressure to buy. I’ve visited over 25 listings and still haven’t found the right place. But, I’m not going to cave and settle for a so-so property.

I find home hunting similar to selecting a life partner. You gather together your must-have criteria and begin the search. Under pressure, it’s tempting to compromise on certain aspects of your criteria, like price or square footage, but that’s rarely a good idea. A miscalculated choice can result in too much debt, unhappiness, a mediocre location or poor resale ability.

There are three home buying criteria that can have a particularly large financial impact.

Location is sited as the most important criteria for determining a home’s value. Consider the proximity to downtown, commute times, access to transit, schools, grocery stores, and bicycle paths. At a street specific level, avoid high traffic noisy roads or places that have awkward accessibility. Pick a desirable neighbourhood where homes sell at consistent fair prices and in reasonable timeframes.

House Price. Be realistic. Does your desired square footage, in a hot location, translate into a $2 million home when you can only afford $500,000? Overextending your borrowing will result in home poverty; not being able to afford anything but the mortgage payment. Compare prices in your desired location to ensure you don’t overpay and put your equity at risk.

Condition.  A proper home inspection can determine if the property is in rough shape. An inspector will look for cracks, mold, dampness, plumbing issues and other costly items that compromise the structural integrity of the property. Major issues tend to result in unforeseen expenses and can decrease the value of the home; so steer clear. If the aesthetic condition isn’t to your liking, determine whether there’s room to add value (for limited cost) by renovating the bathroom, kitchen, painting, updating fixtures or replacing flooring.

A house purchase, similar to a romantic partnership, is a huge financial commitment. Don’t settle second best. Stick to your criteria and find what’s right for you.

Published by Metro News May 15, 2012

http://metronews.ca/voices/fun-and-frugal-2/224246/home-buying-pressure-wont-always-result-in-diamonds/

By LesleyScorgie | Posted in Debt, Homes, Uncategorized, consumer, how to save money, personal finance |

If the fee is too big, don’t break your mortgage

May 8, 2012 – 5:46 am

Since selling my house and discovering my mortgage prepayment penalty would be a whopping $5,000, I’ve been hunting for ways to reduce the break fee.

The best idea is to avoid the fees in the first place by knowing the ins-and-outs of the mortgage before you sign the papers.

When you sign a mortgage, you are committing to a multi-year legal contract to re-pay money (with interest) in exchange for receiving an immediate benefit – the money with which to purchase a house. From a legal standpoint, the person who is wanting out of a mortgage is breaking a contract and has to pay up. Know your pre-payment penalty and ensure you have the flexibility to make lump sum or double up payments on the mortgage.

If you’re like me and have already sold your property, prepay the mortgage up to the allowable limit. Typically a borrower can pay a lump sum on the mortgage each year between 10 and 20% of the original value of the mortgage. You can do this through online banking or ask your lawyer to have the bank apply the allowable lump sum to the principle balance when the old mortgage is being paid out. The penalty is then applied only to the remaining balance of the mortgage which could reduce the fee by thousands of dollars.

Using RBC’s mortgage pre-payment calculator, I know that by paying an extra 10% in principle on my mortgage balance, I can save $600 in break fees.

Coming up with the funds to pre-pay a mortgage can be a challenge.  Some turn to their home equity line of credit, which doesn’t have a prepayment fee. Others take out a traditional loan or borrow from a friend. If you’re going to pre-pay, ensure the benefits of the pre-payment (i.e. the savings on the penalty) are greater than the costs of borrowing funds.

Alternatively, negotiate with your existing lender to reduce or eliminate the fee in exchange for keeping your mortgage business with them.

Overall, if the fee is too great, don’t break your mortgage!

Published by Metro News May 8, 2012:

http://metronews.ca/voices/fun-and-frugal-2/215304/try-to-avoid-hefty-break-fees/

By LesleyScorgie | Posted in Debt, Homes, budget, consumer, financial goals, frugal living, how to save money, personal finance |

Give me a break on my mortgage break fee!

May 2, 2012 – 7:54 pm

I recently sold my house and have decided to get a new mortgage through a mortgage broker rather than my bank. So, I met with my bank last week to discuss the transaction and learned that the cost to break my existing mortgage is nearly $5,000!

Hogwash! For $5,000 I could take a three week European vacation or contribute the annual maximum amount to my tax free savings account.

Mortgage prepayment charges are the costs to ‘break’ your existing fixed rate mortgage contract. They exist because the lender has to borrow the funds needed for the mortgage from the market. When a borrower ‘breaks’ a mortgage, the lender is charged a ‘breakage cost’ which is passed along to the borrow to offset the cost that the lender is charged.

Prepayment charges are typically calculated based on the greater of three months interest penalty or interest for the remainder of the term on the amount prepaid calculated using the interest rate differential.  The interest rate differential is the difference in the interest payable on your existing mortgage versus that payable on a replacement mortgage, calculated on the time remaining in your existing mortgage term.

To determine whether it’s worth switching lenders, I’ve followed these steps:

1)      Take emotion out of the equation and let math dictate the decision.

2)      Evaluate whether the new lender has a more attractive interest rate, term and a flexible repayment schedule; accelerated payments, double up payments, annual lump sum contributions up to 10%, etc.

3)      Using a free online banking mortgage calculator (available at any major bank or mortgage website), calculate the breakeven rate needed to make it worth switching.

4)      Confirm with the existing lender, by phone or in person, the exact fee. Present this information to the new lender and begin negotiating for either the fee to be lowered or to have the new lender pick up part of the tab.

Switching mortgage lenders only makes financial sense when a borrower can save money. In my case, I’ll save thousands of dollars (over the lifetime of the new mortgage) by making the switch, but I still have more negotiating to do before I can pull the pin on my existing mortgage.

Published May 1, 2012 by Metro News:

http://metronews.ca/voices/fun-and-frugal-2/125896/give-me-a-break-on-my-mortgage-break-fee/

By LesleyScorgie | Posted in Debt, Homes, consumer, financial goals, personal finance |

Buying a house? Talk to a mortgage broker

May 2, 2012 – 7:47 pm

I sold my property last week and I’m in a mad scramble to find a new home.  With my wish-list in hand and a pre-approved mortgage under my belt, I’m confident I’ll eventually find what I’m looking for. 

Much to the chagrin of my financial planner, a bank employee, I’ve decided to use an independent mortgage broker rather than getting my mortgage from the bank. Based on my research, mortgage brokers can have access to better rates and more flexible repayment terms.

Mike, my broker and old pal from university, walked me through the pre-approved application process and reviewed my commitments to the bank where my existing mortgage resides. He then shopped my application around to multiple vendors and came back less than twenty-four hours later with a rock-bottom rate.

An independent mortgage broker isn’t tied to any financial institution and instead works on behalf of you, the client, rather than the lender. Because they are not employees of a lending institution, mortgage brokers are not limited in the products they can offer you. They can seek out the best mortgage options to suit your specific situation, from a multitude of lenders – banks, trusts, private companies, or insurance firms. Their primary role is to provide unbiased mortgage options and advice to clients.

In most cases, mortgage brokers are free to use. When the broker matches a lender with a buyer and a mortgage is placed, the broker is paid by the lender based on size of the mortgage, not the rate.

If you’re thinking of using a mortgage broker, choose wisely. Get referrals from trusted friends or family members. Do your research in advance of meeting with them; know about current rates and structures. That way you’ll have some idea of what you’re hoping to achieve and can clearly communicate it.

I love saving money and based on my recent first-hand experience, using a mortgage brokers will save me tens of thousands of dollars!

Published by Metro News April 24, 2012

http://metronews.ca/voices/fun-and-frugal-2/116309/buying-a-house-dont-go-to-the-bank/

By LesleyScorgie | Posted in Debt, Homes, consumer, personal finance |

Finding value in home improvements

May 2, 2012 – 7:38 pm

After one week on the market and minimal negotiation, I sold my house Saturday night for the price and conditions I wanted.

When I purchased my home seven years ago, it was in rough shape; badly stained carpets, dreadful paint colours, rickety appliances and filthy. But the location was great, and the price point suited my small budget. I bought the house and began my journey of adding value through affordable home improvements.

Because of my limited budget, I couldn’t upgrade the house all at once. So I tackled my list of improvement ideas over three years.

I consulting home renovation blogs and kicked off my improvements with a hundred hours of thorough cleaning; cabinets, drapes, floors, walls, closets and more. This allowed me to determine whether I could repair, rather than replace, certain aspects of the home. I repaired my furnace and saved $4,000.

My floors, however, stunk of dog doo and bleach. I replaced them with high quality hard wood which was on sale because my local supplier was over-stocked. I negotiated a further discount in exchange for paying cash and taking the product that same day.

I coupled the floor installation with new paint, light fixtures, faucets, toilet seats, knobs on the cupboards and had my electrical outlets updated. Once completed, I hit up eBay, CraigsList and garage sales for gentle used furniture and appliances. I bought a new stove, still in its original wrapping, for $60.

According to Bankrate.com, you can add value to your home on a shoestring budget by focusing on:

-          Kitchen, bathrooms and appliances: upgrade faucets, appliances, paint, refinish cabinets, re-grout tiles, and replace knobs and toilet seats.

-          Storage:  reduce clutter by setting up well-designed storage spaces.

-          Mechanics and plumbing: hire an electrician and plumber to fix any issues and make improvements to the ‘nitty-gritty’ aspects of the home.

-          Lights and flooring: update light fixtures, carpets or refinishing worn-out hardwood.

Small improvements translated into a much better price for my property. Add value to your home through sweat equity and affordable upgrades.

Published by Metro News April 16, 2012

By LesleyScorgie | Posted in Debt, Homes, consumer, frugal living, how to save money, personal finance |

Sleepless in suburbia

May 2, 2012 – 7:35 pm

After two years of deliberation, I listed my house for sale this week. Though I love my place, I have been dreaming of inner city living for years – walking to work, biking to the grocery store, spending less time driving and more time enjoying life.

Listing my property was the easy part. But, my nerves are keeping me up at night. Will my property sell? Can I afford a more expensive home? To reduce my anxiety, I’ve adopted frugal home buying basics.

First, buying an affordable home starts with knowing what your budget can handle. I spent 3 hours last Monday running various budget scenarios addressing monthly mortgage payments, property taxes and more. Using an online banking calculator, I determined the maximum home value I can afford within my desired budget.

I sat down with my mortgage broker on Wednesday to get a pre-approved mortgage. Surprisingly, I was approved for over one hundred thousand dollars more than what I thought I could afford. But, I’m going to stick with my original budget and avoid home poverty.

On Thursday I started researching mortgage rates for two reasons; first was to fine tune my budget calculations and second was to prepare myself for an imminent interest rate negotiation when I’m ready to formalize a mortgage. Current mortgage rates are historically low making payments more affordable.

Friday was the first day I looked at new properties and the day my existing home became available for showings to potential buyers. Though I didn’t find my dream home, nor did my house sell, I found it valuable to see what’s available in the market.

Because of my moderate tolerance for risk, it’s become clear to me throughout this weekend that my personal preference is to sell my existing home before I make an offer on a new one. That way I won’t end up financially strapped; carrying two homes accidentally.

Getting organized and being frugal is calming my nerves and restoring my sleep.

Published by Metro News April 9, 2012

http://metronews.ca/news/canada/97272/sleepless-in-suburbia/

By LesleyScorgie | Posted in Debt, Homes, budget, consumer, frugal living, how to save money |

RRSP could be most powerful tool for saving money

February 29, 2012 – 6:19 pm

RRSP season is the only time of year I ever recommend stampeding to the bank as quickly as possible to set up an RRSP account or make a contribution. Each year you have until March 1 to contribute to your RRSP and have it count for the previous tax year.

Wondering what the big deal is with RRSPs? Simply put; the RRSP is the single most powerful tool Canadians have to save money for retirement.

Contributions are fully tax deductible and they grow tax-deferred until withdrawal; typically when you retire. The greater the amount you contribute, the more income you get to deduct from your tax return. Rather than forking over thousands of dollars in taxes to Revenue Canada, you can invest these saved dollars within your RRSP.  

The law of reinvested returns states that more money grows larger and faster than less money; when invested in a portfolio that is properly allocated based on your personal needs. Thus, keeping more of your money, rather than paying it out in taxes, significantly increases your nest egg.

When you’re starting out, perhaps a new career, purchasing a home, or raising a family, tax deferral is very valuable. It allows you to maximize your savings opportunities even though your budget might be tight.

Nearly anyone can have an RRSP. Individuals can contribute up to 18 per cent of their income, up to $22,450 for tax year 2011, and the limit can sometimes vary depending on your pension program at work[1]. If you can’t maximize your RRSP limit, you can carry-forward the contribution room indefinitely.

Start contributing regularly on pay-day and increase your contributions annually until you reach your maximum limits. Check whether your employer has an RRSP or pension plan you can participate in.

I know there are competing priorities for your money, but paying yourself first, using an RRSP, will save you thousands of dollars.

Published by Metro News February 21, 2012: http://www.metronews.ca/calgary/comment/article/1104302–rrsp-could-be-most-powerful-tool-for-saving-cash

[1] http://www.rbcroyalbank.com/products/rrsp/rrsp-rules.html

By LesleyScorgie | Posted in financial goals, investing, investment strategies, millionaire, personal finance |

An RRSP loan can boost your savings

February 29, 2012 – 6:16 pm

Short on contribution cash? Consider an RRSP loan.

Currently, RRSP loans have attractive interest rates, hovering near prime, and have flexible repayment plans. But, it only makes sense to take out an RRSP loan when the taxable benefit you receive from your RRSP contribution is greater than the amount of interest you’ll pay on the loan. To help figure out if it’s worth it, see an adviser or ask an accountant.

The largest benefit of an RRSP loan is that the more you contribute, the more you’ll earn through compounded returns. Let’s say you decide NOT to borrow $10,000 to maximize your RRSP at age thirty. That $10,000 compounded at 9 per cent for twenty-five years adds up to $86,000 before tax when you’re fifty-five. Thus, you would miss out on$76,000 of compounded returns. Meanwhile, your $10,000 RRSP loan at 6 per cent interest, paid off over 12 months, would cost you less than $350 in interest. Calculate your own borrowing scenario on bankrate.com.

You’re a good candidate for an RRSP loan if:

  • You don’t have enough cash to make an RRSP contribution by February 29, 2012
  • You have a job and can afford to pay the loan off within 12 months
  • You have left over contribution room within your RRSP
  • You don’t have significant consumer debt; in excess of $5,000.

 

Keep in mind that the credit applications for an RRSP loan are subject to meeting the financial institution’s lending criteria.

Using borrowed money to finance the purchase of investments within your RRSP is riskier than using cash. So make sure you’re comfortable with this risk. If you borrow to invest in your RRSP, negotiate for the best interest rate, read the fine print on the contract, and ensure you can afford the monthly payments.

Published by Metro News February 28, 2012: http://www.metronews.ca/calgary/comment/article/1110726–rrsp-contribution-loan-could-lead-to-long-term-savings

By LesleyScorgie | Posted in financial goals, how to save money, investing, investment strategies, millionaire |

Will you be mine for less than $25?

February 14, 2012 – 5:38 am

The spirit of Valentine’s Day is to show your special someone that you care about and value them. You don’t need lavish gifts and a racked up credit card to acknowledge your partner.

Just like a grade-schooler, sit down for twenty minutes and make a card. Using red and pink paper, cut out hearts and glue a picture of your honey in the middle. Somewhere within your home-made masterpiece, write out all the things you love about them. Who cares if you’re not Picasso or Shakespeare; it doesn’t matter. The thought is what counts.

Rather than booking a dinner out, try cooking a new recipe at home. Pick up fresh ingredients from your local grocer and a reasonably priced bottle of wine. If you culinary skills are sorely lacking, buy an online coupon to an inexpensive restaurant. If the corkage fee is low, bring your own wine. If you’re freaked out your partner might think you’re a cheapskate, secretly slip the coupon to your server en route to the washroom.

If you’re planning to exchange gifts, be frugal. Talk with your partner in advance and agree to set a limit on your spending. Turn it into a game; who can buy the best Valentine’s gift for less than $25. Take advantage of coupons, clearance and ‘end-of-season’ sales. If you’re into the great outdoors, give your partner a handmade ‘IOU’ to take them hiking, skating or skiing.

Turn off your computer and phones, fill up a thermos with hot chocolate and go for a romantic walk around your neighbourhood. Spend time talking or download an old movie.

Simply making time for your honey or helping them with a mundane task, like housework, means a lot.

Valentine’s Day is your opportunity to make your partner feel special and you don’t need a helicopter ride to prove you care.

Published by Metro News February 14, 2012: http://www.metronews.ca/calgary/comment/article/1097123–will-you-be-mine-for-less-than-25

By LesleyScorgie | Posted in Uncategorized |

Are your manners making you house poor?

February 7, 2012 – 5:47 am

According to a survey released last week by ComFree, 40 per cent of Canadians are very hesitant to talk about their personal financial situation because it isn’t ‘polite’; especially when it comes to home ownership. The majority stated that they’d prefer to maintain their current outward perception of net worth. Sadly, keeping up with the Jones’s is one of the major reasons Canadians wind up house poor.

Home poverty is when after paying a mortgage and household bills, there’s little money left over for other things like groceries, RRSP contributions, home maintenance, car repairs, and vacations. To get out of it, home owners must increase their cash flow by cutting back spending.

If you’re running a negative bank balance for more than three months because of your home, you’re in financial trouble and must make major cash flow adjustments.

March over to the bank immediately and consolidate your loans and credit cards to take advantage of low interest rates and more affordable monthly repayment options.

Cancel unnecessary monthly expenses like club or gym memberships, dinners out, souped-up cell phone and cable packages, iTune downloads and nail/hair appointments. If you’re guilty of splurging on your kids, stop and explain to them that you need to save money. Get a roommate and lease out your parking stall. If you’ve got two vehicles, sell one and share the other with your partner, or get rid of your car permanently.

If you can’t get out of the red, you may need to sell your home, buy a smaller more affordable one, or rent for a while.

The top three ways to save major money when selling a home are to price it correctly, negotiate to maximize the home’s value and consider selling through a commission free listing service like ComFree. The top three ways to save major money when buying a home are to recognize a good deal, buy within your means, and use a mortgage broker to get a rock-bottom interest rate.

Politeness and maintaining a perception of wealth have no place in healthy personal finances. By talking about our finances and getting advice from qualified professionals, Canadians can be more realistic about building their net worth which includes affordable home ownership.

Published by Metro News February 7, 2012: http://www.metronews.ca/calgary/comment/article/1090500–why-keep-up-with-the-joneses

By LesleyScorgie | Posted in Debt, Real Estate, budget, competition, consumer, financial goals, frugal living, how to save money, personal finance |

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