4 Ways to Measure your Financial Health

So you finally paid off your credit cards and you have a bit of money in the bank - but are you financially healthy? If you want a true reading of your financial health, you have to look beyond the obvious and dig a little deeper. Here are four numbers that can help you determine where you stand:

Credit Score
In Canada, a Credit Score over 600 is considered "good", while anything over 750 is considered "excellent". To uncover your score, you can purchase an online report from one of Canada's credit bureaus, Equifax or TransUnion.

Retirement Savings
Your retirement nest egg obviously depends on the type of retirement you hope to have. There are plenty of retirement calculators and articles out there to help you determine what your end number should be. Work backwards from there to see if you're on the right track.

Emergency Savings
Anything you put aside in an emergency savings fund is better than nothing, but most experts suggest saving between three and six months' worth of living expenses to safeguard your household against such factors as unemployment, injury or illness.

Net Worth
When you take your assets and subtract your debts, what are you left with? If the answer is "nothing", this is an area to work on!

If, after looking at these numbers, you're lacking in a few areas—that's okay! This exercise is simply to determine where you stand, and help you devise a plan of action for improvement. Sometimes your home can speed up this plan of action. Feel free to give me a call to see how you can use your home to improve your financial health.

Flaherty Targets CMHC

Earlier this month, the Federal government announced that, in an effort to further curb mortgage lending and prevent a housing bubble, it will now charge Canada Mortgage and Housing Corporation (CMHC) a "risk fee" on the insurance it writes.

 

CMHC offers mortgage default insurance for homebuyers who have less than 20% down. This insurance protects lenders if you can't fulfill your mortgage obligation - but the homebuyer is actually the one who pays the premium.

Unlike private insurers Genworth and Canada Guaranty, however, CMHC is a Crown corporation. If lenders are forced to use their CMHC insurance, it's actually the tax payer who's going to be picking up the tab. To add to the CMHC controversy, the Crown Corporation is backed 100% by the Federal government. If it gets into trouble, the government will completely bail it out. The other default insurers are only backed 90%.

To limit its exposure, as of January 1 the government will be charging CMHC a "risk fee" of 3.25% on all its insurance (a rate that is higher than the one already paid by private insurers), as well as capping the amount of insurance CMHC can issue at $600 billion.

Despite the steps to reign in CMHC's business, most experts believe the average consumer won't notice a difference. If you have any questions or concerns about your ability to qualify for a loan -- or any other mortgage-related questions -- please don't hesitate to drop us a line.

 

Happy People Live in Small Houses

If you've felt stressed and short on time lately, maybe your house is to blame - at least that's what Joshua Becker at Becoming Minimalist believes.

After visiting his parents' new downsized home, he sat down with his mom to figure out why they were so much happier living in less square footage. She came up with 12 reasons. Here are some of our faves:

Less time spent cleaning. 'Nuf said.

Less expensive. Smaller homes are less expensive to purchase and less expensive to keep (mortgage, insurance, taxes, heating, cooling, electricity, etc.).

More time. Many of the benefits above (less cleaning, less maintaining, mental freedom) result in the freeing up of our schedule to pursue the things in life that really matter - whatever you want that to be.

Less temptation to accumulate. If you don't have any room in your house for that new treadmill, you?ll be less tempted to buy it in the first place (no offense to those of you who own a treadmill? and actually use it).

Wider market to sell. By its very definition, a smaller, more affordable house is affordable to a larger percentage of the population than a more expensive, less affordable one.

Have you downsized recently? What do you love most (or least) about your new smaller home?

How to make money off your home.

One of the reasons you likely got into home ownership in the first place is because you saw it as a good investment. But real estate appreciation isn't the only way owning a home can make you money. This article in Canadian Living magazine does a great job of highlighting 7 Ways your Home can Make you Money.

In addition to the obvious (i.e. renting out your basement), the article highlights a few less common ways to make money from your home - like running a bed and breakfast (definitely not for everyone) or renting your home out to a television or film company.

Depending on where you live, you may also want to look into making some green renovations. Not only will this save you money in energy costs (which is essentially the same as making money, isn't it?), but some jurisdictions allow you to sell additional energy (like that generated from the installation of solar panels) back to the grid.

Starting your own backyard vegetable and fruit garden may also be an option for you. Not only will this save you money on your grocery bill, but if your garden is big enough - and productive enough - you may also want to look into selling some of your homegrown food at a local farmers' market.

Has your home helped you earn additional income? If so, we'd love to hear how!

Costs up upsizing your home.

Very few people stay in their starter home forever. Most of the time - whether it's because of a growing family or a growing income that allows you to purchase something better - homeowners opt to move to a larger abode. If you're finding yourself in this situation, keep in mind that with a larger home comes larger costs. Below are just a few things to consider when you're determining how much more house you can afford: 1. Mortgage Unless you're moving to a significantly less expensive area, chances are you're going to require a larger mortgage as your home's square footage increases. You can opt for a higher amortization to keep your monthly payments low (think 25 years), but this will also increase the amount of mortgage-paying years you have left. 2. Regular Maintenance (lawns, cleaning, snow removal) This will be a particular shock if you're moving from a condo to a house. Lawns, gardens, snowy driveways - these all need to be maintained. Also, the bigger the house, the more you're going to have to clean (if you're into that sort of thing). Whether you hire people to perform these tasks or you opt to do them yourself, you're either looking at more money or more time spent on them. 3. Property taxes Again, unless you're moving to an area that has lower taxes, chances are you're going to be paying more for a larger home. Find out from your Realtor roughly what the taxes are in your ideal neighbourhoods, and factor this into your budgeting before you start looking. 4. Utilities Bigger house means more rooms to heat - and cool. You may also have to pay for water, sewage and other costs such as water heater rentals. 5. Emergencies If you're already living in a house, this likely won't be an issue because you're used to the threat of unforeseen maintenance issues. If you're moving from a condo, however, it's important to note that you're no longer paying maintenance fees for a reason. If something goes wrong, you have to foot the bill yourself. Make sure you have a reserve fund ready. 6. Home insurance With a bigger home comes a bigger home insurance payment. 'Nuf said. Depending on where you're moving to, some of these costs might be offset. Particularly if you're moving closer to work - which will likely lead to lower gas bills and car insurance. If your new home is newer, and more energy efficient, you may not notice a huge difference in utility bills. And if you're moving out of a larger city, your cost of living might decrease all around. Make sure you figure out roughly how much new house you can afford before you start looking. There's nothing worse than finding your dream home only to realize it's going to make you house poor.

Is home buying about to become more difficult?

Just when you thought mortgage rules couldn't be tightened any more, the Office of the Superintendent of Financial Institutions Canada (OSFI) said it's "looking into" doing just that, by potentially eliminating amortizations over 25 years.

Thanks to last year's mortgage rule changes, amortizations over 25 years are no longer available to high ratio buyers - or those with less than 20% down. But individuals with larger down payments can still access 30- and 35-year amortizations.

That's what OSFI is looking to potentially stop. It's currently consulting with financial institutions on the matter to see if this solution is something that makes sense, and if it could potentially help stabilize the housing market (and its ever-rising prices), curb consumer debt levels and reduce the risk of exposure to rising rates.

It's a shame that the government is looking to eliminate this mortgage tool as a means of curbing household debt. Individuals already have to qualify for the five-year posted rate at a 25-year amortization - you'd think that would be enough.

That being said, interest rates have been extremely low for quite a while, and the housing market seems to have resisted previous attempts to cool it down. Finance Minister Jim Flaherty - along with the Bank of Canada - have repeatedly expressed concern over the housing market. They'd rather see a soft landing than a bust - and really, who can blame them?

If you're in the market for a new home or refinance, and were hoping for an amortization longer than 25 years, you may want to give us a call sooner rather than later. You never know when the rules are going to change again!

What don't you miss about renting?

In this day of low interest rates, the temptation to buy a home versus renting one is higher than ever. This article in the Globe offers some great insight into the buying versus renting debate, and how to determine what's right for you.  While it's true that homeownership isn't an ideal choice if it's going to leave your house poor, or if you're not ready to settle down in one location, there are definitely a lot of positives involved for those willing to take the plunge. Below are some things our clients appreciate most about home ownership. 

1.      Forced savings

While some people are good at saving their extra income, others are not. For the less-than-savvy savers among us, home ownership can be a great thing, as it's forcing you to sock away money every month. Instead of paying someone else's mortgage, you're paying off your own - and building equity in the process.

2.     The freedom to make the place "yours"

When you own your own home, you're not stuck with someone else's choice of paint colours, flooring or fixtures. How you customize your home is only limited by your imagination - and, maybe, your savings account.

3.       The desire to keep your place nice

Even though you live there, when you rent a place it's never really quite yours. While you may want to keep it nice and presentable, if something major goes wrong - or if you crack a tile here or there - it's not that big of a deal because someone else will pay to get it fixed and, if they don't, you can always move into a nicer place without much of a hassle. When you own, you always have resale in the back of your mind. This motivates you to deal with potential issues before they become major (costly) problems, and upkeep your home so you have less headaches should you eventually decide to move.

4.     Freedom from crazy landlords

If you've rented for a while, you've likely come into contact with a landlord or two who wasn't quite, well, ideal. One of the biggest perks to owning your place is you don't have to answer to anyone - but, on the flip side, you have to handle all of those household issues on your own. Still, it's a small price to pay for freedom.