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.

Why I haven’t paid off my mortgage … yet

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Followers of this blog know that I tend to focus on saving and investing rather than trying to pay off my mortgage faster. Indeed, our household assets are projected to exceed $1 million this year but we’ve still got a $200,000 mortgage to contend with.

So why don’t I make it a priority to pay off my mortgage? It’s not strictly about dollars and cents. Here are three reasons:

1.) Higher Priorities

Setting priorities is part of any good financial plan, and those priorities change as you move through different stages of life.

For many years we put all our effort into paying off student loan and consumer debt. Then we became laser-focused on saving for a large house down-payment. Priorities shifted again towards maxing out my unused RRSP contribution room. And now, finally, we’re catching up on years of unused TFSA contribution room.

My wife and I are on the same page with our financial priorities. Right now, we’re focused on these four areas:

  • TFSA – contribute $1,000/month
  • RRSP – max out our available contribution room
  • RESP – max out contributions for our two kids
  • Travel – Visit Scotland/Ireland this summer. Vancouver in October. Maui in February.

Paying off the mortgage slides in at priority number five, which leads to the second reason.

2.) Finite Resources

In a perfect world we would all max out our RRSPs, TFSAs, RESPs, and start investing in a taxable account: all while doubling up on our mortgage payments and still having money left over for dining, travel, and sending the kids to hockey school.

Reality check. We don’t have infinite resources, so we need to make choices and trade-offs.

I mentioned above that we neglected our TFSAs for many years. That’s because we decided to get a new car and pay it off over four years. Our TFSA contributions turned into monthly car payments.

Now that the car is paid off, we can go back to funding our TFSAs and hopefully catch up on all that unused room before we need a new car again.

Speaking of cars, ours are now 12 and six years old. This “sacrifice” – if you can call not getting a new car every 4-5 years a sacrifice – allows us to increase our savings rate and fund more of our financial priorities each year.

Unfortunately, there isn’t another $800/month money leak in our budget to close that will allow us to fund a fifth financial priority (extra mortgage payments). Not yet, anyway.

And remember, it’s not simply about earning more money. I’m already combatting stagnant wage growth and creating my own raise by freelancing, selling used items online, and earning credit card rewards. That extra income allows us to do everything we’re doing now, plus keep pace with inflation and feed a growing family.

3.) Mortgage debt and asset allocation

We tend to think of mortgages and investments in isolation, but if an investor has any debt at all – including a mortgage – then he or she is effectively borrowing to invest.

You could say that I have a leveraged investment loan of $200,000. Another way to think about the mortgage is that I am short fixed income. Continue Reading…

Retirement #2 priority but four in ten Americans don’t see it happening

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Retirement is a close second to home ownership, according to a LendEDU survey of American saving priorities

While having enough money saved for Retirement is narrowly behind buying a home, more than a third of Americans don’t expect they’ll ever be able to retire, according to a survey released Tuesday from LendEDU.com.

Retirement saving was cited by 19% of 1,000 respondents, versus 20% prioritizing “buying my own house or apartment.” Paying off credit-card debt was cited by 14% and building an emergency fund by 10%.

While there was only a minor lack of confidence about paying off credit cards and building an emergency fund, 17% don’t believe they’ll ever become homeowners and but almost four in ten Americas (39%) don’t believe they’ll ever be able retire.

Of those doubting their ability to retire, 52% were over age 54, 30% were between 45 and 54, and 15% were 35 to 44.

As for emergency savings, 33% said a major bill resulting from an injury would destroy their savings and therefore their long-term financial goals; another 14% cited some form of debt that could quickly get out of hand. However, 28% felt “relatively secure” and did not believe their financial goals could be derailed.

Secondary priorities

After home ownership and retirement, the most cited financial priorities were some form of getting out of debt: 14% cited paying off credit-card debt, 7% paying off student-loan debt, and 4% cited paying off other forms of debt apart from credit cards or student loans. 6% answered “Building my credit score,” 5% wanted enough saved to move out of their parents’ homes and rent a home or apartment, 4% said “Buying a car,” and 3% wanted to start a business.

1% wanted to invest in real estate, another 1% wanted to buy a second home and yet another 1% wanted to buy a second or third car. 3% want to “create a retirement account” and 2% want to “invest in the market outside my retirement account.”

Money a bigger priority than Love?

Of the 37% who were not currently in a long-term relationship, 72% were more focused on their financial targets, versus a minority 23% who prioritized finding a romantic partner. (The rest preferred not to say). The survey sees this as a “glass half full” finding: “It is good that Americans are quite serious when it comes to realizing their personal finance goals. But, on the glass empty side, sometimes one’s finances can’t buy happiness, or in this case love, and it is always important to understand what is truly important in life.” Continue Reading…

An innovative way to solve your family cottage dilemma

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By Jason Kinnear, CPA, CA, CBV

(Sponsored Content)

Sipping your morning coffee on the dock with your spouse; teaching your children to waterski; and roasting marshmallows with your grandchildren. These are just some of the treasured memories you’ve created at your family cottage. But times change and those memories can sometimes be replaced with concerns about how to deal with your family cottage dilemma:

You enjoy spending time at the family cottage, but the time, cost and stress associated with it are turning a pleasant summer pastime into an ongoing headache.

To illustrate this dilemma, let’s consider Doug and Barb’s situation. Barb inherited their cottage from her mother just after they got married. They now have three adult children and six grandchildren, and are recently retired. While they’re looking forward to spending more time at the family cottage, they see a number of issues on the horizon:

  • Two of Doug and Barb’s adult children are professionals, while the third owns her own growing company. These time demands mean none of the children are able to visit the family cottage as often as they’d like.
  • There are several steep sections of stairs between the family cottage and the dock on the lake below. While Doug and Barb can navigate these stairs now, they’re concerned they won’t be able to as they get older.
  • Doug and Barb do not know who they will leave the family cottage to.

Time commitment

The most pressing issue for Doug and Barb is the time commitment for maintaining the cottage. They’re the only family members with the time to open and close the property, and maintain it throughout the summer months. While they’re both healthy enough to do this now, they’re concerned that they may no longer be able to as they grow older and their physical health declines.

Costs

There’s also the issue of costs related to maintaining the cottage. The cost of repairs and improvements to host their growing family and their friends means the simple family cottage they inherited from Barb’s mother a generation ago has morphed into a monster home on a lake!

Additionally, there’s the question of how these capital improvements and the maintenance costs will be shared amongst family members. Should Doug and Barb continue to pay for the upkeep? Or should that be split amongst the adult members of the family? How would they split these costs: evenly, or based on actual cottage usage?

Succession planning

Finally, there are the succession and estate planning issues to consider. Which of the adult children will get the cottage? Do any of them really want it? What about the personal taxes triggered when the cottage is transferred, or the probate fees (Estate Administration Tax in Ontario) if they both should pass away unexpectedly?

As you can see, Doug and Barb have a number of issues to contend with. They continue to enjoy the family cottage experience, but need a solution to address these issues.

Consider establishing a Family Vacation Trust

One solution for Doug and Barb to consider is establishing a Family Vacation Trust to pay for their family’s future summer vacations. A Family Vacation Trust would allow their family to continue to enjoy the annual cottage experience without the responsibility and costs of maintaining one.

Here’s an example of how their Family Vacation Trust might work:

1.) Let’s assume the value of the cottage when Barb took possession was $100,000 and it’s currently worth $800,000. Selling expenses will be 5% of the sale price and the resulting capital gain will be taxed at the highest personal marginal tax rate in Ontario*. This situation would result in Doug and Barb receiving approximately $580,000 on the sale of their cottage. Continue Reading…

”Lucky 5” ways to prepare for a post-Divorce financial future

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By Meggie Nahatakyan

Special to the Financial Independence Hub

Divorce is not the end of the world. Well, not for you. Being newly divorced signals the beginning of a brand new life and the opportunity for you to redesign and fine tune your life, now as a single person, living under your own terms: the way you want it.

Studies show that many newly divorced women are often left off facing worse financial issues right after divorce. Many are struggling to cope with the demands of being able to provide for themselves and their families, single parenthood, and suffering low self-esteem as well as feeling emotionally battered.

Take stock of your life

Instead of focusing on all the negativity a divorce brings, it is crucial that you take stock of your entire life and place yourself in a positive frame of mind by being grateful for all the great things in your life: like your career, health, family, children, friends, and other support systems you have. After that, make a firm decision to make today the very ‘first’ day of a brand new and better life, looking forward to the future and achieve your fullest potentials in a way that fortifies your core values and beliefs.

Take your time

Take the time out of your usual routine and set your mind free. Relax. Think about how you want your life to look 3 to 5 years from now and what you really need in your life. What if you no longer have to work? What will financial freedom, abundance, wealth, and stability really mean to you?

To bounce back from your past broken relationship and face the future with confidence, you need to be financially stable. You can do this by starting a business that you can juggle while working at home and tending to the kids.

Here are 5 business ideas you can start post-divorce to start empowering yourself:

1.) Start Freelancing

There are websites like People Per Hour or Fiverr that allow you to sell your services for a price. If you are a good writer, bookkeeper, transcriber, or you have specific skill sets that can be outsourced, you can always telecommute and work online. The positive side of freelancing is the work time flexibility; you can work in the given timeframe but the exact hours of work will be up to you.

2.) Start a YouTube Channel

With videos booming these days, people are glued to YouTube and social media. There’s no denying that the future is video. Why not start your own YouTube video channel? Are you a good cook? Start a cooking channel. Are you an expert home DIY hobbyist? Then, let the world know through your very own video channel. There are no limits to what you can do so as long as your channel offers interesting and useful content, you are sure to get viewers and subscribers. Join the bandwagon! Continue Reading…

Just how steep is housing affordability in Toronto and Vancouver?

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

It’s no secret that in order to purchase a house in Toronto or Vancouver, you’ll need to have considerable financial assets; however, a new study from Zoocasa reveals just how elite income earners need to be in order to afford the benchmark single-family home in these cities.

According to the data, which is based on benchmark home prices sourced from the Canadian Real Estate Association as well as income tax filings from Statistics Canada, a Torontonian buyer must be within the top 10% of earners to afford a house priced at $873,100, while only Vancouverites within the top 2.5% could do so for a home priced at $1,441,000.

The numbers also show that prices for entry-level housing, such as condos, remain out of reach for many; buyers must be within the top 25% of income earners to afford the benchmark unit, which costs $656,900 in Vancouver and $522,300 in Toronto, respectively.

Affordability is greater in Southern Ontario, Prairies

However, the study also highlights the comparative affordability in other cities; several of the secondary markets in Ontario, as well as in the Prairie provinces, are much more accessible in terms of housing prices.

For example, those interested in markets within proximity of the GTA, such as Waterloo real estate, need only be within the top 50% to purchase a condo priced at $320,857, though houses are still only in reach for those within the top 25%, at a benchmark of $523,720.

London is also a reasonable alternative for first-time buyers; those looking to purchase a house priced at $426,236 must be within the top 25%, though condos for sale in London are accessible to the top 50%, at $307,359.

Regina takes top spot for affordable Real Estate

Continue Reading…