Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

When Women Succeed, we all Succeed. We just need to “Embrace Equity”

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By Christine Van Cauwenberghe

Special to Financial Independence Hub

Today is International Women’s Day (IWD), an opportunity to mark the social, political, economic, and cultural achievements of women.

The day also serves as a global call-to-action to promote gender parity. This year’s theme – embrace equity – is pertinent as equity is no longer a nice-to-have, but a must-have.

Over the years, we’ve come to better understand the impact of gender bias and discrimination, specifically in finance where women are traditionally overlooked and underrepresented – as advisors and as clients. By investing in gender equity, we can unlock economic growth and lay the groundwork for generations of women to take greater control of their financial futures.

Stereotypically and historically, financial planning has largely been viewed as a man’s job. While progress has been made to change this narrative, we need to see a greater shift away from monolithic thinking around traditional gender roles. Now more than ever, Canadians are seeking financial advice – this is creating an exciting opportunity for women to break the gender bias and get certified as a financial planner to catalyze representation in financial services. Relationship-building, intuitive insight, emotional intelligence, and trust are all traits that differentiate a good financial planner from a great one. These are skills that many women inherently hold and could further hone, making them well-suited to excel in an advisor role. They just need an entryway.

Canadian women will soon control half of accumulated financial wealth

Today, women are playing an active role in financial decision-making – for themselves and their households. Research shows that by 2026, women in Canada will control almost half of all accumulated financial wealth, pointing to a probable surge in demand for financial advice among females. Not to mention, women, on average, live longer than men, meaning that at some point in their lives they will take on the role of sole financial decision-maker. Despite this need, many women are unable to find a financial planner they connect with and 70 per cent change their advisor within one year following the death of their partner or spouse. Continue Reading…

Fixing your Credit for a Real Estate Purchase

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By Jessica Mohajer

Special to Financial Independence Hub

To purchase a home, having good credit is essential to be approved for mortgage financing.

If your credit needs some improvement, then there are steps you can take to fix it and make yourself more attractive to lenders when seeking approval for a real estate purchase.

What is the credit score, and why do you need it for real estate purchases?

Your credit score is a numerical value calculated using information from your credit report. It typically ranges from 300 to 850 and reflects how likely you are to repay debts based on factors like payment history, the total debt owed, length of credit history, and types of accounts used.

A good credit score can make it easier for you to get approved for a mortgage loan and secure favorable interest rates and terms. Conversely, a low credit score can result in higher borrowing costs and potentially even difficulty obtaining financing for a home. For this reason, it is vital to ensure that your credit score is in good shape before attempting to purchase real estate. It’s also a good idea to check your credit score regularly, as it can change based on any changes in your credit activity.

Enlist the Help of a Credit Repair Service

Enlisting the help of a credit repair service can be an effective way to improve your credit score for a real estate purchase. A reputable credit repair service can work with you to identify errors on your report, dispute information, and offer guidance on how best to handle any financial issues dragging down your score.

Look for a credit repair service that offers personalized services such as customized plans, detailed analysis of your credit report, and a team of certified professionals. It’s also important to check the credit repair service’s reputation: ensure they have good reviews from past clients and are licensed in your state.

Have a positive payment history

Your credit score is one of the key factors that lenders look at when evaluating your loan application, and a good payment history will help you get approved more quickly. Paying your bills on time every month is crucial because it shows that you are responsible for managing your finances. The longer and more consistently you can make your payments, the better. It’s also a good idea to keep track of late payments and rectify them as quickly as possible. If you have missed a payment or two in the past, work on building up your credit score by making timely payments in the future. This will show lenders that you are taking steps to repair your credit and are dedicated to staying on top of your finances.

Check for errors on your credit report

It is important to check for errors on your credit report before you start buying a home. Errors on your credit report can cause significant problems when trying to secure financing and result in delays or even denial of loan applications. While there are several ways to review your credit report, the most efficient method is to get a copy from each of the three major credit bureaus: Experian, Equifax, and TransUnion. By getting a copy from each bureau, you can compare results and make sure all information is accurate. Continue Reading…

Accelerating your Legacy Planning by Gifting In Advance

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LowrieFinancial.com

By Steve Lowrie, CFA

Special to the Financial Independence Hub

Most posts about legacy, wills, and estate planning focus on how to settle your estate after you pass: ensuring your intentions are met, your family is cared for, charitable gifts are fulfilled, taxes are minimized, and so on.

Estate planning is important; we help clients with it all the time. But today, I’d like to offer a valuable twist on the theme of estate, life, and legacy planning:

Instead of your excess wealth being distributed after you die, you may find even greater value in giving some of it away while you’re still around.

Properly managed, making gifts and charitable donations while you’re alive can offer solid tax-saving benefits to you and your estate financial planning. In particular, targeted charitable giving can be a powerful tool for business owners and similar professionals who are approaching retirement and facing high-tax events, such as selling their business, or exercising highly appreciated stock options.

As importantly, it can be incredibly rewarding to witness the results of your generosity. Don’t underestimate the value this intangible benefit can add to your life and legacy planning.

Legacy Planning for Quality Living

First, what is “excess wealth?” Is there such a thing as too much money??? Not really.

This is where legacy planning is essential. If you’re thinking about spending, gifting, or donating significant wealth, don’t just guess at the dollar amounts. Instead, you and your financial advisor should periodically crunch the numbers to determine how much you and your loved ones conservatively need to remain well-positioned, even under worst-case scenarios (such as, say, a global pandemic).

After that — if you and your loved ones are indeed set for life — any extra resources become the financial equivalent of gravy on your entrée. How will you use your excess wealth to add flavour to your life and to the lives of others so that you are leaving a legacy you can be proud of?

An anecdote about Lifetime Charitable Giving

To envision what it would be like to make one or more significant charitable donations during your lifetime, consider the story of “John and Jane,” an earnest couple in their 60s who came to me for advice a few years ago. John came from meager roots, but he was determined to make his own way. With a boost from some financial aid, he put himself through college, where he met Jane. Together, they worked hard, scrimped and saved, and raised two kids. Along the way, John started his own business, which prospered.

Fast forward to 2020, when John was able to sell his business for a substantial sum of money. After we ran all the numbers, it was clear he, Jane, and even their kids would be able to live comfortably for their remaining days. Both personally and in a holding company, the couple also owned some taxable investments that had appreciated nicely.

So far, so good. However, there was one challenge (even if it was a nice “problem” to have): even with extensive planning in the anticipation of an eventual sale (purified operating company, multiplying the lifetime capital gain exemption, etc.), the business buy-out would generate hundreds of thousands of dollars in taxes in the year of the sale. As the saying goes, when you’ve incurred taxable gains, you can choose who’s going to benefit the most from the taxable portion: the government, or your favorite charities. I suggested to John and Jane, they could reduce their taxes owed in the year of the sale by instead fulfilling some of their existing charitable intents that same year.

To manage the significant donation they had in mind, we established a Donor-Advised Fund (DAF) in their name. They then donated into their DAF an equal amount to the taxes incurred from the sale of John’s business. This helped them accomplish several goals:

  1. They were able to fully offset the taxable buy-out gains with their charitable contribution.
  2. John was able to fulfill a lifelong dream by using some of the DAF assets to establish a scholarship at his alma mater. By doing so during his lifetime, he has been able to see others benefiting from a solid education, just as he had when he was young. On a personal level, he and Jane have found the experience highly rewarding.
  3. Moving forward, they can donate highly appreciated assets to their DAF to wash away those gains as well.

A DAF offers a few other benefits as well. For example, you can direct how to invest undistributed DAF dollars in the market, potentially increasing your giving power over time. You can also keep your charitable giving anonymous if you’re so inclined. Continue Reading…

The Inevitable masquerading as the Unexpected

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By Michael J. Wiener

Special to the Financial Independence Hub

Rising interest rates are causing a lot of unhappiness among bond investors, heavily-indebted homeowners, real estate agents, and others who make their livings from home sales.  The exact nature of what is happening now was unpredictable, but the fact that interest rates would eventually rise was inevitable.

Long-Term Bonds

On the bond investing side, I was disappointed that so few prominent financial advisors saw the danger in long-term bonds back in 2020.  If all you do is follow historical bond returns, then the recent crash in long-term bonds looks like a black swan, a nasty surprise.  However, when 30-year Canadian government bond yields got down to 1.2%, it was obvious that they were a terrible investment if held to maturity. This made it inevitable that whoever was holding these hot potatoes when interest rates rose would get burned.  Owning long-term bonds at that time was crazy.

One might ask whether we could say the same thing about holding stocks in 2020 when interest rates were so low.  The answer is no.  Bond returns are very different from stock returns in terms of unpredictability.  We use bond prices to calculate bond yields; one is completely determined by the other.  The situation is very different with stocks.  Even when conditions don’t look good for stocks, they may still give better returns than the interest you’d get if you sold them to hold cash.  All the evidence says that most investors are better off not trying to time the stock market.

Most of the time, investors are better off not trying to time the bond market either.  However, the conditions in 2020 were extraordinary.  Long-term bonds were guaranteed to give unacceptably low returns if held to maturity.  This was a perfectly sensible time to shift long-term bonds to short-term bonds or cash savings.

Houses

The only way house prices could rise to the crazy heights they reached was with interest rates so low that mortgage payments remained barely affordable.  Fortunately, the government imposed a stress test that forced buyers to qualify for a mortgage based on payments higher than their actual payments.  This reduced the damage we’re starting to see now.  Unfortunately, there is evidence that some homeowners faked their income (with industry help) so they could qualify for a mortgage.  This offset some of the good the stress test did. Continue Reading…

Canada’s Real Estate Affordability Battle

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By Dale Roberts, cutthecrapinvesting

Special to the Financial Independence Hub

In my latest for MoneySense, I look at the affordability battle in Canada. Home prices are falling at the fastest clip in the last 20 years. But borrowing costs are also increasing. Mostly, it’s a wash. Even from the bubble peak in February of 2022 to July 2022, things have not improved for homeowner wannabes. Real estate is the most interesting and ‘exciting’ sector in 2022. Have a read of the real estate affordability battle in Canada.

Higher rates take on falling home prices on MoneySense.

In this post I will offer up a few of the important charts, but check out that MoneySense post for the wider perspective.

Average home prices down 22% in July

Home prices are falling fast. After a strong COVID-inspired real estate run, prices are now in a free fall. After peaking at $816,720 in February 2022, the national average house price fell 18.5% to $665,850 in June. The average price fell again in July, settling at $629,971—nearly 22.9% below the peak.

The average national home price in August increased to $637,673.

CREA

The national average price is heavily influenced by sales in Greater Vancouver and the GTA, two of Canada’s most active and expensive housing markets. Excluding these two markets from the calculation cuts $114,800 from the national average price.

Real estate ridiculousness

And here’s some longer term history using average Toronto home prices as an example. It was a crazy run.

  •  Average Toronto home price in 2000: $243,255
  •  Average Toronto home price in 2010: $431,262
  •  Average Toronto home price in 2021: $1,095,336

Rates are going up, up, up

In that battle against runaway inflation, central bankers are raising rates. Borrowing costs mostly follow suit. Here’s the path in Canada for fixed and variable rates mortgages.

And of course, on Wednesday September 7, the Bank of Canada increased rates another 75 bps, or 0.75%. Variable is getting more expensive.

  • A 5-year fixed will now run you about 5.04%.
  • A 5-year variable will increase to about 4.90%.

The B0C offers that they’re not done yet. There are more rate hikes to come.

Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further. Quantitative tightening is complementing increases in the policy rate. As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target. The Governing Council remains resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target.

Bank of Canada

Variable rates will automatically follow Bank of Canada rate hikes. Fixed rates will follow the bond market, and the bond market will make a guess about the near and future path of rate hikes. The rate hike on September 7 was mostly already priced into the bond markets.

The money chart on affordability

In the MoneySense post you’ll find the telling table comparing costs for variable and fixed rate mortgages, for 10% and 20% down payment scenarios. Here was the working copy table. Continue Reading…