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.

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…

Half of us fear rising interest rates will be negative for our finances

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Now that interest rates have finally appeared to bottom, consumers are starting to worry about the prospect of rising rates and their impact on their personal finances.

This is explored in my latest article, which is in Monday’s Financial Post (e-paper and online). You can access it by clicking on this self-explanatory highlighted headline: Only a quarter of Canadians have a  rainy day fund, but more than half worry about rising rates.

It describes a new Forum Research Inc. poll that shows more than half of Canadians (51%) fear rising rates will negatively impact their personal finances. The national poll of 1,350 voting-age adults was conducted after the Bank of Canada raised the prime interest rate from 0.75 to 1% on September 6th, which in turn followed an initial 0.25% hike in July.

After an amazing run of nine years of ultra-low interest rates, it’s clear consumers are starting to fret the party is over. Anyone with variable-rate mortgages might well be petrified that interest rates could again reach the high teens, as they did in the early 1980s. Little wonder that many homeowners are starting to “lock in” to fixed mortgages while rates are still relatively low.

Of course, as Credit Canada’s Laurie Campbell notes, for the longest time it’s paid to stay variable and flexible, whether with a variable-rate mortgage or a line of credit. It does cost a bit more to “lock in” to fixed mortgages, as Campbell notes, but the ability to sleep well at night in my opinion more than makes up for the difference.

While the poll asked specifically how consumers felt about the second hike, “they are worried more are coming,” Forum Research president Lorne Bozinoff told me. 12% say the negative effect will be extreme. However, 17% believe rate hikes will have some positive aspects:  you’d expect debt-free seniors to welcome higher returns on GICs and fixed-income investments. Another 38% don’t think it will have an effect either way.

Lorne Bozinoff

A quarter have no emergency savings at all

Bozinoff is more concerned that 26% of respondents have no emergency savings, and 40% have a cushion of a month or less: 9% have less than a month and 11% just a one-month cushion.

Financial planners generally recommend three to six months as a hedge against job loss or other setbacks. A minority do: 14% have two to three months, 9% four to five months, and 13% six months to a year. Only 15% have a year or more and predictably, 56% of the latter group are 55 or older. Continue Reading…

Right side of the tracks: most affordable commuter Neighbourhoods

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

It’s a given that home buyers will pay a premium to live within big city limits: close proximity to work, lifestyle benefits and a comparatively healthy job market mean homes within a municipality’s core are in high demand.

While the concept of moving to further-away communities with lower real estate prices isn’t new, the suburbs near Canada’s largest cities are becoming a buying destination for home seekers at a faster pace. For example, homes within the Greater Toronto Area’s 905 region have appreciated 56.96 per cent over the past years, fueled by demand from spillover buyers from the 416.

This trend is mirrored on the west coast, where popular commuter cities Maple Ridge, Pitt Meadows and New Westminster have appreciated 6.5, 72.8 and 73.4 per cent, respectively.

Car commute costs add up

However, a long-standing argument against “driving until you qualify” is the opportunity cost of longer commutes. Those who choose to drive to an office in the downtown core need to factor in the cost of purchasing and maintaining one or more vehicles, as well as insurance, gas and parking. For this reason, neighbourhoods closest to well-serviced transit lines, such as rail, light rail or bus lines, tend to appreciate in value faster than their car-accessible-only counterparts.

“The cost of owning and operating one or more personal vehicles greatly outweighs the cost of taking transit,” states the Metro Vancouver-commissioned “Housing and Transportation Cost Burden Study”. It found the average auto-related commuter costs range from $13,500 to $17,700 annually, a “significantly higher amount than the average annual transit costs.”

That makes a pretty strong argument for suburban buyers to stick close to local transit stations when buying. But what regions provide the greatest value vs commute cost? To find out, Zoocasa crunched average home prices and transit pass prices in Canada’s two largest housing markets: Toronto and Vancouver. (Please refer to the infographic at the top of this blog.)

Toronto commuters could save $395,667

That’s the difference between purchasing the average home in the 416 compared to one in Malton, the most affordable neighbourhood located along the GO Transit Line, which services the majority of the Greater Toronto Area with commuter trips to downtown Union Station. Continue Reading…