June 21, 2018

Which Debt Should You Eliminate First!

It has always been a dilemma of whether you should use any excess cash to contribute to your RRSP or pay down your mortgage.  The current economic equation has recently tilted in favour of paying down debts vs. building up assets.  The current interest earned from GICs, term deposits and government bonds remains pathetically low.  At current deposit rates of less than 1%, it takes 72 years to double your retirement nest egg.

Here is how to think about the trade off between paying down your mortgage versus saving in your RRSP.  Every dollar you don’t contribute to your investment portfolio will earn the mortgage rate you are paying on that dollar.  If your mortgage is costing you 3%, then every dollar you don’t invest but instead use the money to pay-down debt will earn the said 3%.  If you are paying 10-23% like on many credit cards, the argument to eliminate the debt is even stronger.

Of course, if your investments are invested aggressively under the expectation that they will earn more than the mortgage rate you are paying, then you can justify not paying down your mortgage.  After all, borrowing at 3% makes sense if you expect to earn much more.

To quote the Review of Financial Studies “Households with high interest debt have a reduced benefit to equity participation and in many cases should not own any stocks…repayment of outstanding debt almost always yields a higher rate of return than many of the safe (investment) assets.”

As our mortgage interest is not tax deductible, it means that your Canadian debt is costing you even more compared to the U.S. consumer.  The i.e. 3% you are paying on your mortgage is 3% after taxes.  Many Canadians might be better off forgoing the tax deduction from the RRSP, which will eventually have to be paid back, instead paying down their high interest debt.

Look at both sides of your balance sheet at the same time.  Add up all your debts and compare the interest cost of all your liabilities against the interest you will be earning on your retirement investments.  If the former is greater than the latter, it is time to pay down some debt and forgo the investment plan contribution.  Oddly enough, not contributing to your RRSP might make you wealthier in the long run.

Colleen Saunders is a 25 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406

10 Tips To Help You Get Out Of Debt

Income inequality is the great domestic crisis facing Western society.  There is a huge gap between rich and poor and the strains on our middle class.  The weakening of the 1950s-70s social contract between employer and employee, by which workers were rewarded with decent pay and benefits for their dedication and loyalty is so prevalent today.

This crisis also derives from the financial illiteracy among individual Canadians today.  Fortunately, this is a shortcoming each of us can address.  Many Canadians work 2 jobs just to make ends meet.  How can we help ourselves?  We need to adjust our lifestyles and rethink our outsized materialism.  The average Canadian spends approximately $1.71 for every $1 that is earned.  Does the “starter home” need to be twice the floor space of the house we grew up in?  Do we need 2+ large screen TV’s and every person in the house have a laptop and an smart phone?  Many Canadians take out 2nd mortgages just to finance affluent behaviours that our income can no longer support.  Borrowers need to think about the pit they might be digging for themselves and it is only common sense to trim one’s budget to fit new circumstances, until they improve.

10 tips to get yourself of debt:

1-  Pay yourself first

2-  Pay in full for depreciating goods and services

3-  Borrow only for goods that appreciate in value

4-  Make the biggest possible down payment on your house purchase

5-  Probably your best investment is to pay down your mortgage

6-  Probably your second best investment is investment into your retirement

7-  Consider the cost of keeping a vehicle on the road

8-  Check out “future preference” and “deferred gratification”

9-  Practice self control in your spending

10-  Never shop for groceries on an empty stomach!!

Something to think about!

Colleen Saunders is a 25 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406

For more info:  Toronto Star:  How to get out of the poorhouse

Mortgages From Alternative Lenders

You have been turned down by your bank for mortgage financing, is there no other alternative?  What are you supposed to do?  Not consolidate your debts or complete your renovations or purchase that investment property or cottage?  Not to be concerned, there are other options.

Maybe you own your own business or you have had credit problems in the past, just because your bank cannot do the financing, there are what they call Alternative Lenders available and I deal with them all the time.  Some of these alternative lenders are actually Schedule B banks.

It will most likely cost you a higher interest rate and there may be some fees charged to arrange the financing but sometimes, the rates are as good as what your bank was offering.  More importantly, you can still get the funds you need.  There is a saying in the industry, ‘the higher the risk, the higher the rate’ and this is definitely true if you don’t show enough income or have had credit problems, you are classed as a higher risk.

While alternative lenders can provide a lifeline for Canadians who have run out of other financing options, it’s important to read the fine print.  i.e. on the extreme end, some alternative lenders have a full prepayment penalty when you want to payout your mortgage or if you are 15 days late on your payment, they may start a power of sale on your home.

If you need a mortgage with an alternative lender, they are typically taking on a client with a higher risk therefore it is important that your payments always be made on time but if you have an issue, make sure you keep them apprised of what is happening and they should work with you.  They don’t want mortgage arrears either!

 You can make sure you are getting the best alternative lender by working with a Mortgage Agent, like myself because I am working for you.  I make sure I get you the most reputable lender available!

Colleen Saunders is a 25 year veteran in the mortgage industry serving Oakville, Burlington, Mississauga and Toronto and offering all mortgage related services such as 1st & 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406

Are You Ready For Higher Interest Rates On Renewal?

Is your mortgage coming up for renewal?  Are you ready for increased payments based on today’s interest rates?  Your current interest rate is probably in the range of 2.5-2.7% for a 5 year fixed term.

We went through years of interest rate decreases and got used to lower interest rates and lower payments when renewing our mortgages but that trend appears to be over.  Competitively discounted fixed five-year mortgage rates today run from 3.19 per cent to 3.69 per cent.

Increased rates are only a piece of the puzzle.  New mortgage-industry rules are complicating the process of taking your mortgage elsewhere if you don’t like the rate offered by your current lender.  You will have to pass the ‘stress test’ if you want to switch your mortgage to another lender.  Unfortunately some lenders, notably the banks, may use this as an opportunity to become less competitive in the renewal rates for clients that are less creditworthy.

The reason for the range of interest rates offered on renewal will depend if your mortgage was previously an insured high ratio mortgage or whether you purchased with 20% down payment.  This insurance makes a mortgage more attractive to lenders due to how they can trade mortgages on the investment market.

You should expect your mortgage renewal 30-60 days before your maturity date.  If you feel your interest rate is unsatisfactory, I would be happy to help you find a more competitive rate.  We anticipate more people will be looking to see what other options are available!

Colleen Saunders is a 25 year veteran in the mortgage industry serving Oakville, Burlington, Mississauga and Toronto and offering all mortgage related services such as 1st & 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406

Have You Heard About The ‘Textalyzer’?

Apparently drunk driving no longer constitutes the greatest threat on our roads, it is distracted driving!  According to the OPP, as of the beginning of September, 32 deaths were due to impaired driving compared to 47 due to distracted driving with texting being the most deadly distraction.  Experiments have shown drivers who are actively texting have reaction times substantially slower than someone who is legally impaired, scary!!

Decades of effort by groups in government, police, and lobbying organizations such as Mothers Against Drunk Driving Canada (MADD) have caused a dramatic decline in the rate of deaths caused by impaired driving since the 1980s.

Now safety groups are refocusing their efforts to address distracted driving with the help of new technology.  Meet the “textalyzer”, a device which is able to determine whether drivers have been using their phone at the time of a car accident.  This is a roadside device that specializes in data extraction.  It would require drivers who have recently been in a car accident to submit their cell phones for police testing.

The jury is still out on its use because it is unclear whether the textalyzer will detect and differentiate between active and ambient phone use – legally acceptable examples include speech-to-text, hands-free calling, maps, and music applications.

While privacy issues still need to be resolved, this textalyzer may be a welcome and useful tool to make Ontario roads safer.  Distracted driving is a grave public safety concern impacting us all!

Colleen Saunders is a 25 year veteran in the mortgage industry serving Oakville, Burlington, Mississauga and Toronto and offering all mortgage related services such as 1st & 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406

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