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 Sean Cooper quit his full-time job after 8 years

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What a thoughtful goodbye email. Gosh, it’s hard to keep a secret! I guess everyone knows about my mortgage burning story, even my colleagues at work!

 

By Sean Cooper

Special to the Financial Independence Hub

If you follow me on Instagram, you may have already heard the big news. After 8 years, I’m quitting my full-time job at the pension consulting firm. I gave my employer plenty of notice. I handed in my resignation 2 months ahead of time. June 1st will be my last day in the office. To celebrate this big career milestone, I’ve booked a weeklong trip to New York City and Boston.

I always planned to quit my full-time job. I just didn’t think it would happen so soon. I’m at a crossroads in my life. I’m 33 years old and not getting any younger. It’s time to make some tough “adult” decisions. I can either take the easy road and keep working for a company where I’m comfortable, or take the hard road and become a full-time entrepreneur. I chose the latter.

Keeping a promise to myself

A promise I made to myself after I burned my mortgage in September 2015 is that I’d slow down and get a better work-life balance. Unfortunately, that just wasn’t happening.

I’m someone who’s super ambitious. So, 6 weeks after burning my mortgage papers, I started writing a book. With the success of my book and speaking career, I’m finding myself busier than ever. I’m probably working harder now than when I was paying down my mortgage (no joke).

I’m still putting in the 80+ hour workweeks, waking up at 6:30AM and working until midnight or 1AM most days – and for what? I’m mortgage-free. I don’t have to work this many hours, but the problem is I love what I do. I enjoy my side hustle as a personal finance journalist, money coach and speaker more than my full-time job. I couldn’t keep working at this insane pace forever. I was tired all the time. Something had to give.

So with mixed emotions, in early April I made the difficult decision of choosing my budding career as a personal finance expert over my full-time career. It wasn’t an easy choice, but I was ready to make the jump.

Taking a risk

This was probably the most difficult decision I’ve ever had to make. It wasn’t easy to walk away from a steady, full-time job with benefits and a defined benefit pension plan. It was especially difficult for someone as risk adverse as me (I did after all pay off my mortgage in record timing in 3 years).

When I shared the big news with those closest to me – friends, family and coworkers – I didn’t know what to expect. Thankfully everyone has been supportive of my decision. Saying goodbye to my coworkers will be especially tough. My coworkers are like family to me. They were there when I burned my mortgage and launched my book.

It’s going to take me a while to get up and running. Luckily I have time and money. My house is paid off. I also (still) rent out the main floor of my house. The rental income alone can support me. I also have savings to last me for the years to come.

From a personal standpoint, it helps that things are less complicated. I’m single (I’m half joking when I say I’m still looking for a frugal girlfriend). I don’t have a spouse or children to look after. (Although this is a double-edged sword since I don’t have a spouse’s income to rely on either.) I’d probably hesitate to do the same thing if my circumstances were different and I was married with children.

You’ll never get rich working for someone else

Continue Reading…

Shopping for a Mortgage: 4 factors to consider apart from the Rate

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By Sean Cooper

Special to the Financial Independence Hub

Shopping for a mortgage in the near future? The mortgage rate matters, but it shouldn’t be the only factor you consider. There are so many factors to consider, yet homeowners often get fixated on this one factor.

When you’re shopping for bread at the supermarket, you most likely don’t just shop for the bread at the lowest price. You consider other factors, such as calories, sugar and nutritional value. So why do so many people do the same thing with their mortgage?

Mortgage rates should be one in a long list of factors. Your likelihood of breaking your mortgage is a lot higher than you think. Even if you get the lowest mortgage rate, if it comes with a hefty mortgage penalty, it’s probably not worth it. Let’s look at four factors to consider besides just the rate.

1. ) Penalties

It’s not a coincidence that mortgage penalties are number one. Mortgage penalties are such an important factor (perhaps more important than your mortgage rate), yet they’re one of the most overlooked factors. Here’s a stat that may change your mind: 6 out of 10 Canadians with a fixed rate mortgage break their mortgage at an average of 38 months in. Why do they break it? For many reasons:  job loss, illness, job relocation and divorce, to name a few.

If you have a variable rate mortgage, the penalties are pretty straightforward: 3 months of mortgage interest. However, if you have a fixed rate mortgage, that’s where things get a little more tricky; and costly. You’ll pay the greater of 3 months of interest or the interest rate differential (IRD). The IRD looks at the mortgage rate your lender is charging today on a similar term mortgage. If mortgage rates are a lot lower today, then that’s when you can be hit with a hefty IRD penalty by your lender.

To avoid a hefty IRD, ask your lender whether the IRD is being calculated using the posted or discounted rate. If it’s using the posted rate, be careful. If you break your mortgage and have a big balance owing, your mortgage penalty could amount to thousands or tens of thousands.

2.)  Portability

To avoid a hefty mortgage, it helps if your mortgage is portable. When your mortgage is portable, you can take it with you. For example, let’s say you’re living in Ontario and you get a job offer in B.C. If you sell your home in Ontario and buy a home in B.C, you can “port” or take your mortgage with you and avoid the hefty mortgage penalty. If the property that you’re buying in B.C. is more expensive, lenders often let you “blend-and-extend” your mortgage, which means you take your current mortgage and blend it with a new mortgage for the additional amount of financing you need.

A word of caution: all portable mortgages aren’t created equal. There are specific conditions that must be met in order for a mortgage to be ported. Sometimes the time window is tight, so ask your mortgage broker for all the details. Likewise, if you think there’s a possibility that you could transfer outside your province, avoid portable mortgages with credit unions. Credit union mortgages can never be ported outside the province you took them out, leaving you stuck paying the hefty mortgage penalty.

3.) Prepayment Privileges

Is your goal to be mortgage-free? Continue Reading…

Driving until you qualify vs. Condo Living

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By Sean Cooper

Special to the Financial Independence Hub

Are you in the market for a home and finding it tough to afford a decent-sized place? You’re not alone. The new mortgage rules certainly haven’t made it any easier. Homebuyers have seen their purchasing power reduced by about 20 per cent due to the mortgage stress test that came into effect January 1, 2018.

Under the new rules, homebuyers are required to qualify at a mortgage rate 2 per cent higher. If you’re looking to buy a home in big cities like Calgary, Ottawa, Toronto or Vancouver, your options can be quite limited, especially when you’re a first-time homebuyer.

So, you go out into the real estate market, look for the home you’d like to purchase, but can’t afford it. What’s a homebuyer to do? Don’t throw in the towel: there’s still hope! Two popular options are driving until you qualify and condo living. Let’s look at them both now.

Driving Until You Qualify

If you don’t like what you can afford in the big city, your first option is suburban living or what I like to call “driving until you qualify.”

Living in the suburbs does have its advantages. You can typically stretch your home-buying dollar further. Quite often in the suburbs you get more square footage for less than you otherwise would get in the city. Instead of only being able to afford a condo in the city, you might be able to afford a more spacious single-family detached home.

If you’re planning to start a family or have a dog, it’s hard to beat a big yard with a fence. Also, if you’re raising children, the city typically offers better schools. The suburbs also usually have a lower crime rate than the city centre.

Although you probably won’t have shopping at your doorstep, the ‘burbs make shopping easy with big box retailers. If you’re an outdoor enthusiast, you’ll often enjoy the suburbs a lot more. The suburbs usually have a lot more community centres, parks and swimming pools.

But living in the suburbs isn’t without its drawbacks. Perhaps the single biggest downside is the time it takes to commute if you work in the city. You could find yourself travelling for two hours or more a day. Make sure you’re ok with this before buying the property.

A good exercise is to try driving to work in the neighbourhood you’re thinking of buying in on a typical day to make sure the commute is tolerable. If you work from home this won’t be an issue, but don’t forget to factor in the added cost of not only buying a vehicle, but maintaining it as well.

Besides a longer commute, the other big downside is that you’ll be further from downtown. If you’re a millennial and enjoy the nightlife, make sure you’re ok with living further away from most of your friends. If you’re constantly downtown late after work, you may find it a real pain in the neck to commute back to the suburbs.

Condo Living Continue Reading…

Toronto vs Chicago housing: An Arbitrage for being under-weight Canadian bank stocks

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Figure 1: Chicago and Toronto Home Prices
By Jeff Weniger, CFA, WisdomTree

Of the major North American cities that feel most like Toronto, Chicago is clearly the closest fit. It’s Toronto’s sister. Chicago is the third most-populous city in the U.S., behind New York and Los Angeles. According to the U.S. Census Bureau, Chicago proper has a population of 2.7 million, almost exactly the same amount as Toronto.1 Both cities have several million more living in the immediate suburbs. Chicago’s money resides mostly on one side of the city, with most of its poverty found on the city’s south and west sides. Wealthy suburbs span almost to Wisconsin in the city’s “North Shore” suburbs, which consist of some of the wealthiest zip codes in the U.S.

Like Toronto, Chicago is a money centre. It is widely considered to be in that tier of financial hubs that includes Boston and San Francisco, behind the center of it all in New York. Its construction is dense; people take trains and buses to commute into the downtown core. Critically, as far as desirability of property goes, Chicago’s weather is miserable, just like Toronto’s. The two cities are also characterized by left-leaning politics, so there isn’t much of a difference on that front either.

When we engage Torontonians about the U.S. and Chicagoans about Canada, time and again the answer comes back: the city that is most like Toronto is Chicago.

Except in one way.

Chicago homes are one third or half of similar homes in Toronto

There is a major arbitrage just sitting there for anyone who liquidates Toronto property, hops on a 75-minute flight and purchases a mirror-image property for one-third or half the price in Chicago. Yes, Chicago is riddled with violence, but not in the neighbourhoods where someone would spend C$767,818, the average Toronto home price in February.2 In those neighbourhoods, the biggest risk is having a $500 stroller run over your toe.

Just what could C$767,818 get in Chicago?

According to the National Association of Realtors’ (NAR) Illinois chapter:

In the nine-county Chicago Primary Metropolitan Statistical Area (PMSA), home sales (single-family and condominiums) in January 2018 totaled 5,777 homes sold, down 8.0 percent from January 2017 sales of 6,277 homes. The median price in January 2018 was $224,000 in the Chicago PMSA, an increase of 7.2 percent from $209,000 in January 2017.

Converting US$224,000 to Canadian dollars at the January exchange rate of $1.231, that is C$275,856 for the median house in Chicago. Granted, U.S. housing data tends to be measured by the median, whereas the Canadian norm is to take the average, but there is still not much of a comparison; the gap is yawning, and this all started happening only in recent years. Continue Reading…

Generation X feeling the Retirement squeeze

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Generation X, and to a lesser extent the Millennials, are already starting to feel the retirement squeeze, according to a Franklin Templeton-sponsored survey released Thursday.

Details are in my column in Friday’s Financial Post, which you can retrieve by clicking on the highlighted headline here: Generation X is ‘stretched beyond their financial limits’ and struggling to save for Retirement. 

The challenges should be familiar to members of any generation (four are mentioned in the survey): it’s never easy saving money when you’re starting out in life with low wages and high expenses. But Franklin Templeton cautions against the  rationalization embraced by younger investors that they simply can  choose to keep on working if they haven’t accumulated enough assets to generate adequate income in retirement.

That may not always be an option, since ill health or corporate downsizing (to mention just two) may prevent this. You can find full details about the fifth annual edition of Franklin Templeton Investments Canada’s 2018 Retirement Income Strategies and Expectations (RISE) survey here.

Stressed GenX resigned to retiring later than hoped

More than half of Gen Xers (aged 37 to 52) are resigned to retiring later than they would want (56% in Canada, 59% in the US). While the online survey included Canadians and Americans across four generations, “this year we felt in particular that Gen X and the stress of preparing for Retirement was the predominant thing coming out of the research,” said Matthew Williams, a Franklin Templeton senior vice president, in an interview.

Continue Reading…