How to have a ton of debt and still pay yourself first.....

Every financial planner will tell you to pay yourself first.  I know, I know..... when you have a ton of debt it's enough to make you laugh and say "yea right".  But what if there was a way you could have a great big mortgage and some savings.

On of my favorite mortgage products is Scoitabank.  As a  mortgage broker I can go to any lender but if you get me to help you arrange your mortgage I will for sure be looking at this product because I am big believer in paying yourself first.  Confused?  Stick with me.

Scotiabank has a prepayment privilege they call  15% + 15% and double up.  You can make lump sum payments to your mortgage up to 15% of the original amount you borrowed during a 12 month period, you can also increase your monthly payment by 15% in a 12 month period, and you can double up any payment on your mortgage.  Any extra money you can "lump" down on your mortgage will save you buckets of interest because it is coming right off the principal.  But here's the best part. For every payment you double up you can skip a payment later on.

I encourage my clients to take full advantage of the "double up" feature.  Think of it as a reverse savings account.  If you double up a payment the "double up" portion is your emergency savings acct.  It will decrease the amount of your principal so you are not paying interest on the funds.  Try to get at least 3 months under your belt and then you will have a secure little nest egg for a rainy day.  If life hits a bump in the road you can contact your branch and request to skip payments that you have built up in your account. 

This is a simple way to accomplish getting out of debt and paying yourself first.  I am very big fan of the tax free savings accounts but a lot of people focus on being in debt and never get around to saving for a rainy day.

If you already have a Scotiabank mortgage you might want to look into this feature.   If your mortgage is up for renewal and you would like to explore this idea as part of your financial plan I would be only too happy to help you.  You can email for details. 

Is your mortgage moveable?

Amidst the excitement of buying your first home, you may not realize the repercussions the mortgage choices you make today will have on your future relocation flexibility.

 

Many banks and lenders charge some hefty fees for mortgage agreements that are broken before the allotted term is up. If you'd like to get into the housing market today, but aren't sure whether you're going to stay in one residence for the next five years, pay close attention to the following mortgage options:

  Term

A five-year term isn't the only available option out there. In fact, there are plenty of one, two, three and four-year terms that offer even lower rates. If you know for a fact that you're going to need to move within a specific time frame, it might make sense to take the lower term - and the lower rate.

 Open vs. Closed

While closed mortgages often offer better rates, they offer little flexibility. An open mortgage allows you to pay down a mortgage at any time, while a completely closed mortgage does not. In many cases, lenders offer a sort of hybrid of the two - where you can prepay a certain percentage of the loan per year, but if you want to pay off the whole thing, you'll have to pay a fee.

 

In this case, if you choose to move before the mortgage term is up, make sure your mortgage has a good portability option so that you can transfer it from your existing home to your new home. If there's a chance you may sell your home and not purchase a new one, you should be going for an open mortgage.

 Portability

This feature is an absolute must if you might be moving within the term of your mortgage. It allows you to 'port' your mortgage - or move it - to your new home without any fees. If your new home is of a greater value than your previous home, the difference in the cost will be offered at the current rate, and the two rates will be proportionally blended into one rate. This saves the complications of acquiring a second mortgage for the remaining portion.

 

Many lenders do, however, have certain requirements on how a mortgage can be ported. To avoid any hidden fees, make sure you understand the guidelines before signing on the dotted line.

Oprah Moments....

I'm not sure what it feels like to be Oprah but this has to be close.  Last week we had our client appreciation event and because of these two guys were able to arrange a very special couple of nights at the Bon Jovi concert.

If we did your mortgage and it closed before Feb 14th you were given a couple of tickets and then we had a draw for all our referral sources and supporters.  And yes we gave a few away for charity.  Since the tickets are free we always expect someone will cancel at the last minute.  And this time was no different.  I was at will call waiting for everyone to show up and got a few calls from no shows.  I was standing there thinking of all the people I knew that would have loved to be at the show when I noticed a girl walking away from the ticket counter crying.  I chased her through the crowd and found out she had bought tickets off a web site and they turned out to be fraud.  She was so upset. I grabbed the extra tickets we had and told her she was going to the show.  In one moment she was crying and hugging me and kept asking if I was sure.  She had me crying and I was so thankful I could it for her.  I was really taken back what a small gesture can do for someone.  One of the girls going to the show told me it was an Oprah moment.  Yes we were all crying but the best part.......

 The second night of the show there were quite a few people from twitter coming so one of the people organized a tweet up before the show at Real Sports.  Did I tell you these two tweeters are probably the best thing that ever happened to me and I live in hope they will come and work for me full time. 

One of my clients coming to the show had a big surprise in store.  If you follow this blog you will know this person has had a few ups and downs.  One thing I know for sure is she's a really big Bon Jovi fan.  She insisted on coming to Toronto for the show so we could meet in person and it was wonderful to connect in person.  Like most people you meet on twitter the moment we met it felt like we'd known each other forever.  She joined us at the tweet up and when we went to pick up the tickets I handed them out and told her she wasn't sitting with us.  She was sitting in the front row!  And you know what she said? ......

Yes we were all in tears over her reaction. 

So I don't know what it feels  like to be Oprah but those two events made me very happy.  It was so wonderful to see someone that excited and know you made it happen.  I can't change the world and I can't make endless dreams come true but I could do this.  And I learned a lesson..... if you can make a difference for someone you must.  After all, isn't that what makes the world go around? 

"Finlit", the new buzz word

This weekend there was a great article published in the National Post about Financial Literacy. If you haven't read it may I suggest you do?  I love what author, Jonathan Chevreau,  had to say about the new legislation and reading between the lines.

The new proposal was written by a bunch of men (and maybe one woman) who basically are in charge of companies that profit from your lack of understanding about their products.  Not one of these men have ever sat in an office and conversed with the average wage earner on a day to day basis at least not in a very long time.  Mr. Flaherty has accepted their proposal and in fact praises it.

In my opinion this report is like putting the fox in charge of the hen house.  And how do the banks get their message to you?  Well here's one banks idea of a good deal.  They contacted me and "offered" me a deal where they would send me their information and I would write and blog about how wonderful they were.  And what were they going to do for me?  This is beyond generous.  They were going to make sure I got a lead on their news releases and statistics on their studies before they became main stream!  Oh and did I tell you they were also going to make someone available to answer my questions.  A real spin Doctor. I'm sure.

Oh yes, everyone is on the "Finlit" bandwagon.  If you're looking to improve your own personal financial literacy level, below are a few tips to get you started:

1. Establish your goals.
When it comes to financial literacy, where do you want to improve? Do you want to start investing? Saving? Learning more about certain financial topics that currently intimidate you?
2. Immerse yourself in the online community.
There are a plethora of blogs and Twitter accounts out there designed to offer tips and tricks for individuals who are looking to improve their financial literacy. Bank Nerd, Rob Carrick of the Globe and Mail  and Gail Vaz-Oxlade's Making Money Make Sense are three good places to start.
3. Start reading the business section.
And more specifically stories that relate to personal finance. Many newspaper articles and columns will address complicated financial topics in a simplified manner. They'll also talk about new government programs and rebates as they arise.
4. Talk to people.
If you have a friend who is an investing wiz, talk to him or her! They'll probably be able to point you in the direction of interesting books, trusted professionals or other resources that can help you along your journey.

All of this will do more for your "FinLit" than any government proposal adopted from the very corporations that make tons of money off your lack of understanding.

Here comes the new spring line.....

Even though we're knee deep in snow spring is in the air.  The first sign of spring in my world is not a robin but the mortgage lender's race to come up with a new line of mortgage products that will be just "the thing" you may  or may not  be  looking for.

This week I have started to see the lenders fill up my in box with the spring line of mortgages.  What was most interesting were the recurring themes in the new spring lines.  This is the first year in a long time the new spring line of mortgages has been weighted to the "renewing" client and not reserved for purchases.  I think this is a sign of the times.  Lenders are not expecting the market to be so "red hot" but drifting more into the cooler shades.

I for one am particularly excited about the new lines.  It's been a long time since we've seen such an offering for the "seasoned", "mature" borrower.  So if your mortgage is coming up for renewal in the next few months then baby you've got legs!  It's time to go shopping!  Don't wait until you hear from your lender to start looking into what's out there.   Before you head out don't forget to arm yourself with some information that I have written about in a previous blog post.

Of course if you want my help you know where to find me.  I would be only to happy to help you find a new lender for your mortgage.  Consider me your image consultant who has some expertise to find you the "right look".  Remember, Switches should be free but if you take the opportunity to refinance you will incur some extra expense.  You can also watch this blog for more information.  Happy Shopping! 

With the recent Rate hike we should visit that age old Question - Fixed or Variable?

This is probably one of the most common questions asked by potential and existing homeowners. With so many factors to consider - from personal finances to the economy - the answer can change from year to year, and mortgage to mortgage.




Right now, if you're looking at a 5-year mortgage, chances are if you go variable, you're likely going to see some rate increases in the coming years. That being said, the global economy can shift at any given second, and something unexpected could occur that would force the government to stand pat when it comes to interest rates. The thing is, you never know!



What you do know is how much your household can safely afford - and how much risk you're likely to tolerate. The new mortgage rules state that, to qualify for a variable rate mortgage, you have to be able to afford the current 5-year fixed rate. So right away that should give you a little bit of breathing room. The lowest 5-year fixed rate available right now is 3.65%. With that rate, the monthly payment on a $100,000 mortgage would be $507.22.



With the Bank of Canada's overnight rate sitting at a record-low 1% right now, variable 5-year interest rates are sitting at 2.25%. The monthly interest rate on a $100,000 mortgage at that rate would be $435.61. Many economists predict that between now and the end of 2012, variable rates will increase to about 4.75%, which equals a monthly payment of $567.46.



The thing is, nobody knows for sure if or when a rate hike will happen - so either way, you're taking a gamble. You could be missing out on months of a 2.25% interest rate or, if rates start to hike right away, you could come out ahead with a 3.65% fixed. In the end, you have to make the decision that makes the most sense to you - and that you feel most comfortable with.

The Business of Divorce

The first firm and legal binding contract most of us will ever sign is the day we get married.  Thank goodness for all the happiness that comes with a marriage or most of us would never consider it.  Oh wait - we don't.  Who amongst us buys an hour of a lawyer's time to review the ins and outs of family law?  The second biggest firm and legal binding contract most of us will ever sign is when we buy a home. 

January is the time when I see a lot of people who made it through the holidays and now want out of the marriage.   The assets will be split and they want to buy a home of their own.  But wait - there's the business of Divorce that needs attention. 

If you were legally married you are married until the court recognizes otherwise.  To undo a legal contract you need another legal contract that recognizes your intent.  Without this separation agreement or divorce you are married.  If you are married and you buy a home you need your spouses permission.  As Draconian as that sounds it's the law.  Don't believe me?  Check the deed of your home.  You will see on the front page you made a declaration that you are or are not a spouse.  If you are a spouse your spouse also needs to sign the deed acknowledging you own property. 

For this reason a lender requires a copy of your separation agreement before they can lend you money for a mortgage.  It's for no other reason than family and property law.  I can't tell you how many times I see people in my office shocked to find this out.  Yes there are options but after you've said or heard  "Honey I'm leaving" it's not a great time for a collaborative conversation. 

If you're thinking that your marriage is coming to an end please do your homework.  Working with a Divorce Financial Analyst is one way to plan ahead.  I have seen very good results with this service.  If having a home of your own is part of your plan make sure you consider the following:

1. Value of your home - this asset will most likely be split with your spouse but the formula for the division of assets is clearly set out by the courts. 
2. Penalties - call your lender and see what the penalty is to get out of your mortgage.  If your taking a spouse off title you will need to redo your contract with your lender and you will need to qualify.
3. Real Estate Fees - what will it cost you to sell the house?  Don't forget to add the cost of the lawyer.
4. Pre-Qualify - what will you be able to afford on a new mortgage?  What income are you planning to use to qualify for the mortgage? (If using alimony or child support most lenders would like to see three months of payments deposited to your bank account before they will consider them)

A divorce is very emotional.  You need to gather information and as I always say "organize your paper work".  There is a lot of help available.  If you need any information please email in confidence.  I would be only too happy to answer your questions or refer you someone who can.  Please note I am not a lawyer and my advise is limited to my understanding of mortgages. 

Pass this message on to anyone you know who is in the middle or struggling with the decision to end their marriage.

Here's how we pick a lender Academy Awards style.

So you've seen the ads from Mortgage Brokers "Over 30, 35, 40 (whatever) lenders to choose from" and you think "wow, I can't name 5".  Images of a broker looking over your deal and going to however many lenders they claim to deal with and getting you the best rate are probably rushing through your mind.  Well here's the reality.  We all have our favorite lenders and that's probably the biggest difference between us.  So to make it clear here is how our office narrows down the selection to a few contenders.

1. PRODUCT:  Every lender that comes knocking on our door for your business is looked at very carefully.  We look at the product and scrutinize for details.   There are the standard, prepayment, payment frequency etc and there's the fine print.  What does the penalty look like and how is calculated, is it an "MBS" product?  What is the flexibility on changes?  If we change the amount will it change the rate etc.... These are the kinds of details you would never know about if you didn't work in the business. 
2. POLICY:  What is their policy for underwriting?  Some are more rigid than others and can leave a client in the cold is something happens between the offer and the closing.  We look for the quality of the underwriting staff.  It's not a good thing if a lender goes through a lot of underwriters.  We look for lenders that trust their team to make safe and sound decisions on their behalf. 
3. PROCESS:   Extremely important to us!  No matter how good the product, if the process is ridiculous and drags our client through knot holes to get mortgages closed then what's the point?  We recently parted ways with a lender we thought had a great product but the underwriting was done locally and the "closing" person was in another time zone.  I won't get into the details of what that looked like but needless to say there are benefits to closers being able to walk over and talk to an underwriter.
4. AFTER SALE SERVICE:  We check in on our clients from time to time and find out how they are doing.  If we consistently hear complaints about a lender we will drop them.  How they treat you once your mortgage is closed is very important to us. 
5. RATE:  Yes this is important however it's also very tricky.  When we look at the rate the lender's offer we are also mindful of how it compounds (there is a big difference between semi-annually and monthly).  Also, we beleive that our clients don't mind giving up the lowest rate if it means giving up on a terrible product.  What good is a low rate if you can expect a big penalty later on. 

Once we take your application we can pretty much tell which lenders will be the best fit for you and we like to give you an option that will include a major bank and an off market lender.  I have blogged before why I think non-bank lenders are so important to the financial services industry.  They keep the market competitive.   Armed with the options, you, the academy, will vote with your dollar to determine the winner. 

Your Credit Score Decoded

While credit scores seem to be arbitrary, they're actually determined according to a rigid mathematical formula. Every debt, credit card and late payment is weighed differently -- and these weights differ between TransUnion and Equifax. In general, Equifax Canada weighs its components something like this:
Payment History -- 35%This typically involves recent payments that are more than 30 days late, as well as any collections, judgements or bankruptcies

Outstanding Debt -- 35%This includes the number of creditors owed, credit card balances and allocated limits. A maxed out credit card will have a deeper impact on your credit score than a card with a $200 balance

Credit Account History -- 15%This refers to the length of time your accounts have been open. If you've been using a credit card for ten years and have been paying it off on a regular basis, this actually has a positive effect on your overall credit rating

Recent Inquiries -- 10%Every time you apply for a loan or credit card, lenders have to access your credit report to see your score and assess your credit worthiness. Too many of these in a 12 month period -- say, if you were shopping around for a mortgage -- can reduce your rating.

Types of Credit -- 10%If you have a mix of different types of credit -- including revolving credit, such as credit cards and lines of credit, and installment loans that you pay monthly, such as student loans -- the better your credit picture will be.