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.

Is a HELOC right for you?

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By Alyssa Furtado, RateHub.ca

Special to the Financial Independence Hub

A home equity line of credit (HELOC) is a convenient way to access the value in your home. You might have seen commercials on TV or been offered one by your mortgage agent. Not only can you get a much lower interest rate than you can with an unsecured line of credit, you can also be approved for a sizeable loan. It’s tempting to have quick access to a lot of money, but is a HELOC right for you?

A HELOC is a secured line of credit that uses your home as security. As with a mortgage, the money you borrow is secured by your home. In Canada, as long as you can show that you can carry the debt, you can borrow up to 65% of the value of your home, provided you keep at least 20% of the value as equity.

For example, if your home is worth $1 million and you owe $400,000 on your mortgage, you can borrow up to $400,000 against your home ($1 million x 80% = $800,000 – $400,000 owing = $400,000).

There are many upsides to getting a HELOC. Depending on the value of your home, you can potentially borrow a large amount of money. Interest rates on HELOCs are significantly lower than on unsecured lines of credit (typically about prime + 0.5%). You can take out money or repay it at any time without penalty. And you can go up to 25 years before you have to pay back what you’ve borrowed.

One of the most appealing HELOC features is that the minimum monthly payment is just the interest that’s accrued. Using a HELOC calculator on that $400,000 line of credit example above, the monthly payment at today’s best HELOC rate of 3.7% is just $1,233. The minimum monthly payment on a traditional line of credit is typically 2% of the outstanding balance: $8,000 on a $400,000 balance. Even a traditional mortgage would require a much higher monthly payment. This feature alone is a big part of why HELOCs are so appealing.

Possible downsides of HELOCs

However, HELOCs also have their downsides.

Because the minimum monthly payment on a HELOC is just the interest, it can feel like it doesn’t cost you much to borrow money. But when you don’t repay the principal, your costs over the long run are actually much higher than with a traditional loan.

Let’s look at an example comparing a regular $50,000 loan with a rate of 4.7% repaid monthly against borrowing $50,000 at 3.7% from your HELOC repaid in a lump sum at the end the loan term.

If you pay the loan over five years, your monthly payment will be $936.83 and you’ll pay $6,209.80 in interest over that time.

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Should buyers make a move in slower Autumn housing market?

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

Depending on where you live in Canada, purchasing real estate in recent years hasn’t exactly been a cakewalk. Tight supply and rampant buyer demand (and alleged speculative investing) have pushed home prices to what some experts argue are unsustainable levels in the nation’s hottest markets.

However, following a slew of new policy changes introduced over the last year — such as Metro Vancouver’s foreign buyer tax and the Ontario Fair Housing Plan — those red-hot conditions have changed, with real estate boards from both markets reporting slower sales in the months following.

That’s made a dent in the national numbers, reveals the latest analysis from the Canadian Real Estate Association: with a 11 per cent drop in sales from last September. This is despite the typically busier autumn market, which is often the last chance for buyers to make a serious go of it before the snow — and holiday season — sets in. Seasonally adjusted activity was up slightly month over month at 2.1 per cent.

Too soon to call for market stability: CREA

While this could indicate market conditions are starting to settle after what has been a turbulent spring and summer market, it’s too soon to call it a trend, say CREA’s analysts.

“National sales appear to be stabilizing. While encouraging, it’s too early to tell if this is the beginning of a longer-term trend,” stated CREA President Andrew Peck.

Calmer sales activity hasn’t translated to greater affordability, though: home prices continued their ascent, with benchmark prices rising in 13 of MLS’s tracked markets. It’s the first time in seven years that all markets have seen simultaneous growth, with the national average price coming to $487,000.

However, prices are increasing at a slower pace than at the market’s peak, and that’s mainly due to the lost steam in the detached house segment since March. One- and two-storey single family homes appreciated by 7.9 and 7.2 per cent respectively, compared to the sizzling condo market, which saw 19.8 per cent appreciation, and townhouses at 13.5 per cent.

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Investing so you don’t get lost — or detoured by financial hitchhikers

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By Darren Coleman

Special to the Financial Independence Hub

Investing is like driving a car. Every now and then you feel lost, and need to make sure you’re headed in the right direction:  your destination.

That’s why I wrote the book ‘RECALCULATING – Find Financial Success and Never Feel Lost Again’ which makes use of my years of experience counseling clients about their money and assets.

Indeed, when it comes to directions, a car’s GPS makes things easy if you get lost; it just says ‘recalculating’ and you’re off again, hence the title of the book. So while driving is something we all do, we often encounter obstacles: potholes, detours, flat tires, not to mention unexpected passengers.

Take a couple we’ll call Tim and Janet. They’re nearing 60: he’s a financial executive, and she’s been focused on raising their two children to adulthood; one of them they are helping with a down payment on a house and the other is still in university, and they pay the tuition. What’s more, Janet’s parents are in their mid-80s and their health is starting to fail. So, while this couple is on the cusp of their own retirement, they are still playing Mom and Dad, while also taking care of an elderly Mom and Dad.

And they feel lost.

During my almost 25 years as a professional Financial Advisor and Certified Financial Planner, I often meet people who aren’t where they thought they would be. That’s why they come see me. Some of them are off course and unsure of how to get back. They may be ahead of their plans, behind, or just not sure. Even people who are very successful in their careers are often stressed and much of that comes from a 24/7 financial news cycle that assumes we are more financially savvy than we really are.

Supporting financial hitchhikers

With Tim and Janet, the dilemma concerns ‘financial hitchhikers’ —  passengers they didn’t plan on taking along for the ride on that journey known as financial planning. In this case, their kids aren’t really hitchhikers because they’re already in the car, so let’s call them First Class Passengers and the journey is built around them. Janet’s parents we can call Second Class Passengers who may need temporary assistance.

Continue Reading…

How mortgage rule changes impact affordability

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By Alyssa Furtado

Special to the Financial Independence Hub

The mortgage market in Canada is heavily regulated. Both the federal government and the Canada Mortgage and Housing Corporation (CMHC) control almost every aspect of residential mortgage lending.

The government decides what criteria people must meet when getting a mortgage in Canada. Rules apply to almost every aspect of the mortgage, ranging from the maximum amortization to the minimum down payment required when buying a home.

In the last few years, the government has taken action in response to rapidly rising house prices in an effort to keep people from taking on mortgages they can’t afford. A number of changes have been made to mortgage rules since 2012. Dry descriptions of the changes make it difficult to understand their true effect.

Instead, let’s take a look at some examples of how some recent mortgage rule changes affect their ability to borrow.

Sarah and Rachel

Even though Sarah and Rachel are choosing a three-year fixed mortgage with a rate of 2.39% for their condo purchase, new “stress testing” rules introduced in October 2016 mean they have to qualify at a substantially higher mortgage rate than they’ll actually get. The qualifying rate is set by the Bank of Canada (BoC), and is currently 4.84%. When checking a mortgage payment calculator, they find that even though their monthly payment will be $2,352 at their chosen rate, they’ll need to prove they can afford payments of $3,043.

A new rule pertaining to minimum down payments that came into effect in February 2016 will apply to Sarah and Rachel as well. The minimum down payment on a home sold for over $500,000 was raised to 5% of the first $500,000, and 10% of any amount thereafter. For their $540,000 purchase, Sarah and Rachel have to save a little longer: the minimum down payment went up to $29,000 from $27,000. They’ll also need to pay for CMHC insurance since their down payment is less than 20%. Continue Reading…

6 unexpected expenses you need to prepare for

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By Lidia Staron

Special to the Financial Independence Hub

“Life is like a box of chocolates. You never know what you’re gonna get.”

Truer words were never spoken. We all know how life can be full of surprises: some of them happy while others can be a huge pain in the backside.

We’re talking about unexpected expenses here. Even when you’ve already set your budget,  you’re sticking with it, and you’ve got some savings set aside, you can still get knocked off your financial track due to a cost you never anticipated paying for. While you were patting yourself on the back for your financial savviness, life was preparing to throw you a curveball. To help you expect the unexpected and plan your savings accordingly, we’ve listed six of the most overlooked costs that are just waiting for you around the corner.

1.) Home repairs or replacements

It’s a fact of life that everything breaks down eventually, especially if it experiences everyday wear and tear. Your home won’t last forever, especially since you and your family are living inside it everyday. Anything that breaks down will need to be taken care of right away. Plumbing, electricity, a leaking roof, a flooded kitchen, a broken oven, termites …  all  these are things you never think of saving for when you plan your budget.

2.)  Health-related bills (Dental and vision care)

We all know you need to save up for those emergency room visits and prescriptions you may need to fill. But have you ever considered that you may suddenly need to pay your dentist or eye doctor a visit? If you’ve ever had a really bad toothache that turned out to be a root canal in your future, then you know this is something that needs to be placed in your “health budget” right away. Continue Reading…