All posts by Financial Independence Hub

What to consider when Selecting a Mortgage Broker

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By Matt Guenther

For Financial Independence Hub

Your long-term financial security and quality of life may significantly affect your mortgage choice, which is a crucial financial decision. The mortgage broker is a significant factor in this process. You may negotiate the complicated world of home loans with mortgage brokers, who act as an intermediary between borrowers and lenders. They can be beneficial, but not all mortgage brokers are alike. To make the best decision possible for your needs, you must consider a number of crucial aspects. This extensive guide covers everything you should consider when choosing a mortgage broker, from identifying your mortgage needs to assessing the broker’s qualifications and working methods.

Understanding your Mortgage Needs

Understanding your mortgage needs is the foundational step in the home loan journey. It entails clarifying your specific requirements and financial situation, which are instrumental in choosing the right mortgage product. First and foremost, consider the type of property you intend to purchase, as this will dictate the kind of loan you should seek. Each has unique financing options, whether it’s a single-family home, condo, or multifamily property.

Next, assess your budget and affordability. By comprehensively examining your income, expenses, and outstanding debts, you can determine the maximum monthly payment you can comfortably afford. This budgetary framework will guide your choice between fixed-rate and adjustable-rate mortgages, with fixed-rate mortgages offering stability and predictable costs. In contrast, adjustable-rate mortgages might provide lower initial rates but have the potential for future fluctuations. Moreover, the duration of your loan, the down payment amount, and your anticipated length of stay in the home should be carefully considered, as these factors play a significant role in shaping your mortgage needs and goals.

Things to Consider when Selecting a Mortgage Broker

When you’re in the market for a mortgage broker, there are several key considerations to remember. You can use these elements to determine which broker best suits your financial needs and home-buying objectives.

a) Do they have Past Reviews?

One of the best ways to assess a mortgage broker’s competence and reliability is by checking their past reviews and testimonials. Online platforms, like Yelp and Google, often feature customer reviews. Reading these reviews can provide insight into the broker’s track record. Look for brokers with consistently positive feedback and satisfied clients.

b) How many Lenders do they have Relationships with?

Mortgage brokers work as intermediaries, connecting borrowers with lenders. The more lenders a broker has relationships with, the greater your chances of finding the most favorable terms and rates. Brokers with extensive lender networks can help you access more loan options.

The number of lenders a mortgage broker has relationships with can significantly impact your loan options and terms. Here’s why it matters:

Diverse Loan Options: Brokers with a vast network of lenders can present you with a broader range of loan options. This increases the likelihood of finding a mortgage that aligns with your specific needs and financial situation.

Competitive Rates: A broker with access to multiple lenders can help you secure more competitive interest rates and terms. They can negotiate on your behalf, potentially saving you money over the life of your loan.

Specialized Lenders: If you have unique financial circumstances or require a technical loan product, a broker with connections to niche or specialized lenders is invaluable.

When discussing a broker’s lender network, please inquire about the types of lenders they work with and whether they have access to both traditional and alternative financing sources. A diverse network can provide more flexibility in finding the right loan for you.

c) Comparing Mortgage Broker Offers

Shopping around and comparing offers from various mortgage brokers is crucial. Ask for estimates from many brokers and thoroughly read the details, such as interest rates, closing expenses, and any other fees. Using this procedure, you can find a broker to give you the best overall bargain.

Request Quotes: Contact multiple mortgage brokers and request detailed quotes. Ensure the quotes include essential information such as interest rates, loan terms, closing costs, and any additional fees.

Apples-to-Apples Comparison: When comparing offers, ensure you’re comparing similar loan products. For example, compare fixed-rate offers to fixed-rate offers and adjustable-rate offers to adjustable-rate offers. Continue Reading…

Dividend-Payers: The Volvo of Equities

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Image from Outcome/Shutterstock

By Noah Solomon

Special to Financial Independence Hub

Crazy People is a 1990 American comedy starring Dudley Moore and Daryl Hannah. Moore plays advertising executive Emory Leeson. Leeson experiences a nervous breakdown, which causes him to design a series of “truthful” advertisements that are blunt and bawdy.

By mistake, his ads get printed and turn out to be a tremendous success. One of Leeson’s more memorable campaigns is for Volvos, which includes the tagline “Volvo — they’re boxy but they’re good.”

Dividend-paying stocks are like the Volvos of the investing world. They are not fancy or exciting, nor do they produce windfall profits over the short term. However, they have a lot going for them when you take a deeper look under the hood.

This month, I explore the historical performance of dividend-paying stocks, including the conditions under which they have tended to outperform their non-dividend-paying counterparts. Relatedly I will also discuss whether the current market environment is supportive of future outperformance.

A Caveat to the Volvo Analogy: Having your Cake and Eating it Too

The “Volvo — they’re boxy but they’re good” tagline implies a clear tradeoff: the suggestion being that one needs to sacrifice performance for reliability. However, the historical data imply that this has not been the case with dividend-paying stocks. Not only have they exhibited greater stability than their non-dividend-paying counterparts, but they have also produced higher returns, thereby providing investors with a “have your cake and eat it too” proposition.

S&P 500 Index vs. S&P 500 Dividend Aristocrats Index (1990 – Present)

Since the beginning of 1990, the S&P 500 Index Dividend Aristocrats Index has produced an annualized total return of 11.7% vs. 10.1% for the S&P 500 Index. This difference in annualized performance has amounted to a tremendous difference in cumulative long-term returns, with the S&P 500 Dividend Aristocrats Index producing a cumulative return of 4,083% vs. a far less impressive 2,459% for the S&P 500 Index. In dollar terms, a $10 million investment in the S&P Dividend Aristocrats Index would have produced $408,334,999 in returns, which is 1.66 times more than the corresponding figure of $245,915,810 for the S&P 500 Index.

TSX Composite Index vs. TSX Dividend Aristocrats Index (2002 – Present)

The numbers for Canada tell a similar story, albeit over a shorter period due to historical data limitations for the TSX Dividend Aristocrats Index. Since 2002, the TSX Dividend Aristocrats Index has produced an annualized total return of 9.7% vs. 7.5% for the TSX Composite Index. In terms of cumulative performance, the TSX Dividend Aristocrats has produced a total return of 647.9% vs. 376.4% for the TSX Composite Index. In dollar terms, a $10 million investment in the TSX Dividend Aristocrats Index would have produced $64,790,379 in returns, which is 1.72 times more than the corresponding figure of $37,636,301 for the TSX Composite Index.

As an aside, the tremendous difference from 1990 to the present in the 2,459% cumulative return for the S&P 500 Index and that of 1,120% for the TSX Composite Index is largely attributable to the former’s far larger weighting in technology stocks. Between 1990 and 2010, the two markets were neck and neck, with the S&P 500 delivering a total return of 457% vs. 453% for the TSX. Since then, the S&P 500 went on to crush its northern neighbour, with a total return of 359% vs. 120%. During the same period, the mega-cap tech-heavy Nasdaq 100 knocked the lights out, returning 675%.

Tech stocks, and in particular mega-caps, have experienced tremendous earnings growth and trade at premium valuations. Whether their rates of growth continue, or premium multiples will persist, is beyond the scope of this commentary. That being said, there is no guarantee that these trends will persist, and relatedly whether the U.S. stocks will continue to outperform their Canadian counterparts.

Nice to Have in Strong Markets and Essential in Others

Dividends have historically been an integral part of equity market returns. Going back to 1990, a full 52.2% of the total return of the S&P 500 Index since 1990 can be attributed to the power of compounding reinvested dividends. On a relative basis, Canadian dividends have been even more prominent than U.S. ones, with reinvested dividends responsible for an astounding 63.3% of the total returns of the TSX Composite index.

Although dividends’ contributions to total market returns have been substantial over the past several decades, this contribution has tended to vary substantially over shorter sub-periods. As the table below demonstrates, dividends tend to play a smaller role in times of strong price appreciation. By contrast, during periods when capital gains have been muted, dividends play a far more substantial role in overall returns.

Contribution of Dividends to Total Returns: Rolling 12-Month Periods (1990 – Present)

Taking all 12-month rolling periods since 1990 in which the S&P 500 experienced price appreciation, dividends on average accounted for 18.8% of total returns. However, in periods where prices rose by 7% or more, dividends were responsible for only 13.6% of the total return pie vs. 38.9% when prices rose between 0% and 7%.

In Canada, the relative importance of dividends has also varied with capital gains. In all rolling 12-month periods since 1990 in which the TSX Composite Index experienced price appreciation, dividends were on average responsible for 25% of total returns. In those periods where prices rose by more than 7%, dividends’ share of total returns was only 15.6% as compared to 52.1% when prices rose between 0% and 7%. Continue Reading…

The Art of Frugal Family Living: Balancing Quality and Budget

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Image Pexels/Alex Green

By Beau Peters

Special to Financial Independence Hub

Living frugally has become a necessity for many families as of late. Uncertain economic conditions and inflation may well have led you to take a long, hard look at your finances. While the situation may not necessarily be bleak, being a little more mindful about your family budget can be a wise precaution.

The good news is that living on a budget doesn’t have to mean sacrificing quality. There are steps you can take to live frugally while ensuring your family still has the support and personal enrichment they need.

Enhancing Meals

Cutting down on food spending is considered a key way to live frugally. Yet, frugal eating has something of a reputation for resulting in bland meals or lower-quality ingredients. This doesn’t have to be the case, though. It can take a little extra creativity and planning, but you can provide nutritious and delicious food options for your family without breaking the bank.

It’s important to recognize that lower-cost high-quality meals tend not to come from improvisation. You’ll find you get the best results by arranging meals in advance. Take a little time each week or even every month to make a meal plan. Start by considering the ingredients you already have at home and what additional ingredients could be added to these to make good meals. If possible, collect coupons or online codes from local stores and find ways to utilize these in your meal plan.

When you’re at the grocery store or shopping online, try to make strategic decisions. Purchase in bulk wherever possible and focus on a good selection of less-perishable items, such as canned goods, rice, and pasta, among others. This doesn’t mean you have to solely rely on these for all your meals. However, these elements do provide you with a frugal and adaptable foundation on which to build your meals.

Another important component is batch cooking and freezing. Meals such as soups and stews can be produced cost-effectively in large amounts. You can then divide these into individual meal-sized portions and freeze them. This ensures that your family has quick, nutritious, and cheap meals on days that you don’t have time to cook, rather than resorting to more expensive takeouts.

Enjoying Vacations

Living frugally shouldn’t mean that you have to sacrifice vacations. Everybody needs and deserves a break from the stresses of everyday life occasionally. Travel can also have a range of benefits for all members of the family. While you may not necessarily be able to afford luxury getaways, you can provide your family with enriching opportunities for fun and bonding. Continue Reading…

Were you nervous before you Retired?

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By Fritz Gilbert, TheRetirementManifesto

Special to the Financial Independence Hub

“Were you nervous before you retired?”

I was recently asked that question, and it brought back a flood of memories from my “near-retirement” days.

I suspect most of us were nervous before we retired, but it’s not something we talk about.  I believe there’s value in sharing the psychological journey in those final days before retirement.  For folks nearing retirement, it’s reassuring to know they’re not alone.

Recently I had the opportunity to talk about it with a reader who is on the cusp of retirement. We had a wide-ranging discussion and the conversation became the trigger for today’s post.  I suspect many of the questions he asked are also on the minds of other readers who are approaching retirement.

This one’s for you, Mike.  Thanks for letting me share our discussion with the readers of this blog.  I trust they’ll all benefit from our discussion…

 

Were you nervous before you Retired?

That’s one of the questions a reader, Mike, asked me on a recent phone call.  Mike’s a month away from retirement and reached out to me a few weeks ago.  I typically decline reader requests for phone calls (unfortunately, a downside of writing a blog with a large following).  If I said yes to every request, I’d be spending far too much of my time helping folks on a one-on-one basis, time that could otherwise be spent writing and reaching thousands of people with the same effort. It’s a “scalability” thing, and I trust you understand.

However…there was something about Mike.

His initial email hit a chord with me.  Here’s what he said:

Good morning Fritz,

Have heard you on several podcasts and just finished your latest discussion with Jason Parker.  I will be retiring in January and your point about helping others hit a cord.  I would love the opportunity to speak with you about your blog.  I’m currently a financial advisor and feel there is a huge need for financial literacy for just about everyone.  As a former teacher, my passion is teaching/sharing.  Would like to understand better how you got started with your blog, what are some of the watch outs, and any other insights you could provide.

Thanks for your consideration and congratulations on living your best life!

What caught my attention?  The fact that he didn’t ask a single financial question and was focused on helping others. He had some ideas about teaching/sharing and he was considering starting a blog.  I appreciate readers applying the lessons I’m sharing in their lives and searching for Purpose in retirement.  I also had a bit more free time than I usually do, so I agreed to a phone call.

Following are some of the highlights of our discussion, in no particular order.  I trust you’ll find them of interest.

how do I retire

Questions From A Soon To Be Retiree

Should I start a Blog In Retirement?

My first reaction to any question that says “Should I start…” is to say yes.  It’s critical, especially in early retirement, to foster your creative curiosity and try anything that interests you.  Many won’t “stick,” but you’ll likely find a few that do.  Once you’ve found one or two, you’re on your way to a great retirement.

Mike has a passion for teaching and is exploring various avenues to reach others.  I strongly encourage anyone who has an interest in starting a blog to give it a try.  7 years ago, I started this blog on a whim.  I’m 100% self-taught and technically inept.  It’s easy to start a blog these days, with Bluehost and WordPress both designed for folks who have never built a website.  Starting this blog is one of the best things I’ve ever done and has become a Purpose of mine in retirement. I hope it works out as well for others who are considering it.

That said, it’s important to consider your motives.  If you’re doing it to make money, I suspect you’ll fail.  For 3 years, I wrote every week without making a dime and only started adding those annoying ads when I retired.  I get some complaints about them but believe I shouldn’t have to incur costs when there’s an option of generating some revenue for my “work.” As blogs grow, the costs increase (Mailchimp costs me $220/month based on my ~13k subscribers), and I felt it was time to at least cover my costs.  Making money has never been my motive, and it shouldn’t be yours.  Even now, after 7 years, the income from this blog basically pays my health insurance.  Nice to have, but not enough to change our life. Unless you’re in the 0.1%, you won’t get rich writing a blog. Continue Reading…

How to keep your business solvent

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Image courtesy BDO Canada

By Matthew Marchand

Special to Financial Independence Hub

More Canadian businesses are failing this year.

In the second quarter of 2023, the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) noted that there were 1,090 business insolvencies — an increase of 36.9% compared to the same period in last year. It was also the highest volume since 2014.

There are two main reasons why this is occurring.

First, the combination of rising interest rates and high debt levels has resulted in slower consumer demand and increased debt servicing costs for both businesses and consumers. The prime rate has risen 475 basis points since early 2022 and now sits at 7.2%.

Second, the loss of government financial aid plus the need to repay a portion of the aid received — along with tightening credit conditions — are making it more challenging to obtain new financing or to refinance existing debt.

During the height of the COVID-19 pandemic, government financial aid helped limit insolvencies during those challenging times. What we’re seeing now is a normalization after an abnormal period.

It should also be noted that many businesses were beginning to experience financial difficulties prior to the pandemic and the financial aid acted as a buoy to some degree. We’ve seen many instances of businesses being unprofitable prior to the pandemic that became profitable during the pandemic, with much or all the profits being derived from government financial aid.

Now that the financial aid is no longer available and may need to be repaid in the future (depending on the support received), businesses are feeling the challenges of this economic reality.

Ways businesses can survive

Many businesses may think a wind-down of operations is the only option, but that’s not the case. In fact, there are other options:

  • A restructuring or compromise of debt (payments to creditors accepted as a settlement of the debts)
  • Turnaround initiatives, such as lease disclaimers, labour force reductions or the sale of non-core assets

For businesses that are facing financial challenges now, they should expect interest rates will remain elevated for the foreseeable future. While the Bank of Canada left the overnight rate unchanged at 5% in September, it says it “remains concerned about the persistence of underlying inflationary pressures, and is prepared to increase the policy interest rate further if needed.”

Your organization should update its business plans and financial projections accordingly. If your business doesn’t have a detailed cash flow projection, make one.

You should also conduct a stress test on your financial projections to determine potential financial scenarios and what proactive efforts may need to be taken to avoid worst case outcomes. For example, if sales fall 10% or 15%, how will it affect the financial performance of the business? Will the business be able to meet its debt servicing obligations and other critical payments as they become due, and if so, for how long? Continue Reading…