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Financial tips and tricks for savvy Home Buyers

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Image courtesy of Rawpixel

By Jim McKinley

Special to the Financial Independence Hub

Purchasing a house is a major investment, and finding one you can afford can feel like quite a puzzle. However, there are some smart, money-stretching strategies you might not know, but that can make all the difference in your financial situation. Read on for tips and tricks to help you land the home you’re dreaming about.

Dealing with Down Payments

One of the big hurdles for home buyers is gathering funds for a down payment. Lenders traditionally require 20 per cent down, which calculates to tens of thousands of dollars that many people don’t have sitting in their bank accounts. There are strategies for gathering those funds, like paying off credit cards and saving your cash, taking on a second job, or selling belongings.

Bear in mind that lenders will look at your bank statements to examine where your funds came from, and if anything looks fishy, such as a sudden large deposit, they might hold it against you. Mortgage lenders want to see financial stability, so big fluctuations, bounced checks, and irregular activity could damage your chances for a loan.

For home buyers struggling to come up with a down payment, there is good news. There are FHA loans available that permit as little as 3.5 per cent money down (in the United States). On top of that, you might be able to use gifted funds, which most lenders do not allow.

A couple other opportunities for special mortgages are available. Veterans can aim for a home loan through the VA, and for low-income applicants in rural areas, the USDA offers 100 per cent financing through Rural Housing loans.

Squeaky clean Credit

No matter where you apply for a loan, the lender will examine your credit history. Chances are you know if you’ve made some mistakes, but sometimes credit reports have clerical errors on them. Thankfully, there are ways you can clean up your credit score, but it can take a little time, so if you plan to apply for a loan, get started early.

Start by requesting a free credit report and give it a thorough once-over. If you find errors, you will need to dispute them with the reporting agency, explaining the problem and documenting the error. After that, there will be a time period in which the error can be substantiated by the appropriate credit institution, and if they fail to do so, it is then removed from your credit report.

It can also help to pay down your debts because lenders will examine your debt-to-income ratio. As InCharge points out, you will generally need a result no higher than 43 percent of your income. Keep in mind the lender will include your potential mortgage payment in that calculation.

Rethink your Search

House hunters often search traditional home listings in hopes of finding the home of their dreams. However, thinking outside the box can mean broadening your search. For example, foreclosures can be a bargain under the right circumstances, but you should weigh the pros and cons carefully. Continue Reading…

Are you creating Loneliness in your future?

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Empty park benches… waiting for YOU to fill them up!

By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

I’m a little troubled.

Twice now in the last year, two friends of almost four decades have confided in me that they no longer have an interest in making new friendships. The man said “It’s too much work” and the other, a woman, said she is “without enthusiasm or desire for it.”

Couple that with the fact that my friends and I are all proceeding to the milestone age of 70.

Articles abound on how loneliness is an epidemic and adds to our health problems. Loneliness feeds on itself creating terrible self-talk (what do I have to offer? What would I talk about, anyway? It’s not safe to express an opinion, and besides I’m not up on the news …) that keeps us housebound.

A recent article about a study in the UK says hundreds of thousands of people often go a week without speaking to a single person. Nearly half of all the seniors interviewed said they’d feel more confident to head out each day if they knew their neighbors. This begs the question … why don’t we know our neighbours?

Why aren’t we looking into the eyes of people we live next to and giving them a smile? Or talking about the roses in their gardens, or the pup they walk daily?

Are we just so afraid of each other that we cannot afford to make small talk anymore? I have lived outside the US for many years now, and forgive me for asking … But is this chatting up a stranger considered impolite these days? Or hazardous?

Two more first-hand experiences

Some years back I witnessed two of my relatives in curious circumstances. One elderly aunt said “I don’t need any more friends. I have my husband, my church group, children and grandchildren. Why would I need more?”

To myself I responded “Do we have so many friends that we can’t squeeze in another one? Someone who can make us laugh, or teach us something? Who in the world has too many friends?”

Another elderly relative, on the way to breakfast after church, had a well-dressed gentleman say hello to her and something about “what a nice day it was” — and she was aghast.

She responded, “Do I know you? Why are you talking to me?”

To me this situation was incomprehensible. It seemed obvious that the man meant no harm and he was actually on the way to his car in the restaurant parking lot – right where we were – after finishing his morning meal.

Heads up here

If loneliness is the epidemic disaster that health studies say it is, then maybe we could prepare for this ahead of time.

Ask yourself how might we be part of our own problem here? Or if you are inclined to take action, I have a couple of suggestions below which you might find useful. Continue Reading…

15 ways to flourish financially in a Covid-19 world

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T.E. Wealth

By Aaron Hector, B.Comm, RFP

Special to the Financial Independence Hub

COVID-19 has brought wide-sweeping change. The silver lining with any change is that it opens the door to new opportunities. Here are 15 thoughts on how a financial planner views moments in a time like this:

1. You now have more time to get your taxes prepared. You also have more time to pay your taxes for 2019 and your instalments for 2020.

2. Those of you with RRIF or LIF accounts are familiar with your requirement to take a minimum withdrawal each year, which is fully taxable as income. This year, the minimum payment will be adjusted downward by 25%, which will allow you to report less income on your tax return. Given the situation, this may also preserve some of your OAS if you’re currently being fully or partially clawed back. Cash flow could potentially be replaced by withdrawing the additional 25% from your non-registered account this year.

3. Somewhat surprisingly, the Government of Canada has recently confirmed that if you had previously withdrawn your original RRIF minimum payment earlier in 2020, that you will not be permitted to re-contribute the 25% excess withdrawal back into your RRIF.

4. Let’s recognize that stock markets are down. Let’s also recognize that they’ll go back up. How can we turn this moment into an opportunity?

5. If you make more money than your spouse, spousal loans are a great way to shift income. Now might be a great time to initiate new spousal loans because portfolio values are lower than they used to be and the eventual recovery could be captured by your lower income spouse.

Pension Splitting

6. In other circumstances (typically in retirement after age 65+ when RRIF, LIF, and pension income can be split between spouses), previous spousal loans can lose their merit. In some cases, it’s too costly from a capital gains perspective to repatriate funds back to the original spouse, so these loans remain in place for longer than they need to. If your portfolio has fallen in value then the capital gains cost to unwind a spousal loan may no longer be a detriment. You could look at this time as an opportunity to repatriate the loan and tidy up your overall affairs.

7. If you reported taxable capital gains on your previous three tax returns, you may look to trigger a capital loss today, which you could carry back against those gains. The losses could also be carried forward and applied against gains in the future.

8. If you have a plan to unwind your RRIF, LIF, or investment holding company over the next several years, then you could look at this as an opportunity to extract some money out of those accounts now at their lower values (pay the tax on the dividend or RRIF/LIF income) and then shift your money into a personal non-registered account or TFSA to be better positioned for recovering equity values as we move forward. Continue Reading…

Accessing new Income Support programs during the Covid-19 crisis

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Designed by snowing / Freepik

By Carrie Hunter

Special to the Financial Independence Hub

With the Canadian Centre for Policy Alternatives warning of unemployment rates that could hit 13.5 per cent this year, the highest level we’ve seen in our country since the Second World War, there appears to be few industries and individuals who will escape the economic impact of COVID-19 unscathed.

As of the writing of this blog (April 2, 2020), one million Canadians have already applied for Employment Insurance benefits; with the federal government estimating close to four million joining the queue for the Canadian Emergency Response Benefit.

Meanwhile, the John Hopkins Coronavirus Resource Centre has recorded a staggering one million confirmed global cases of COVID-19, with over 235,000 of those situated in the U.S.

The situation south of the border is dire: especially when you consider that the near quarter million number we’re looking at today is likely to skyrocket over coming days, weeks and months tracing the trajectory of the heart-wrenching Italian and Spanish COVID-19 pandemic curves.

On April 1st, in what one wishes were a cruel April Fool’s Day prank, the U.S. Labor Department reported the loss of 10 million jobs in the last two-week period, with 6.6. million Americans filing for unemployment benefits last week alone.

Why does all this matter to Canucks? As the adage goes, when the U.S. sneezes, Canada catches a cold. Our economies, and those of other global entities, are inextricably intertwined.

Your Emergency Income options

Venturing back north to Canada, what follows are some of the options you have to ease your current financial burden. The tried n’ true path, if you qualify, is to apply for Employment Insurance or Sickness benefits. If, however, you don’t meet the criteria for either of these benefits, all’s not lost. You may still be eligible for the Canadian Emergency Response Benefit (CERB). Eligibility standards for this benefit, lasting 16 weeks and paying out $2000/ month, are arguably much less stringent.

Can I apply for CERB? 

You can apply for CERB if you had an income of $5,000 (this can be self-employment, employment or parental benefit earnings) in 2019 or the 12 months prior to the CERB application; and, you expect to be without employment or self-employment income for at least 14 consecutive days in the initial four-week period identified in your application.You’re also potentially eligible for CERB if you:

  • live in Canada and are at least 15 years of age
  • were laid-off from your job, or your hours have been drastically reduced to zero and you lack any other form of employment income
  • were let go from your job because of COVID-19 and are eligible for regular Employment Insurance or sickness benefits (consult the FAQS at the bottom of the CERB page to get a better handle on when and how to apply for which benefit)
  • still have a job, but have been temporarily laid off
  • are sick, quarantined or are the primary caregiver for someone with COVID-19
  • are a working parent who now must stay home, without pay, to care for your child/children whose school/ daycare is now closed
  • are self-employed or a contractor and wouldn’t otherwise qualify for EI

Tricks, Tips & other considerations

How much will I receive?

Preet Banerjee, keynote speaker and founder of MoneyGaps, has launched the COVID Calculator to help estimate how much income support (via the Canada Child Benefit (CCB), GST and CERB) you can expect during the pandemic.

It’s worth noting CERB will not be taxed at source. That means it’s up to you to squirrel away anticipated tax money that will come due in 2021. To get a sense of how much you might want to sock away, experiment with different income tax scenarios within the Turbo Tax calculator or Simple Tax calculator.

If you’re ambitious, you can model a myriad of tax scenarios in the 2020 and 2019 Canadian Income Tax Calculator. As I mentioned earlier, you can begin applying for CERB on April 6th. However, the government has wisely (although I would still bet heavily on an overburdened IT network suffering instability with unprecedented pent-up Canadian demans) …. staggered the application process. Patience will, undoubtedly, be a virtue.

If you were born in:

  • January, February or March, apply April 6th
  • April, May or June, apply April 7th
  • July, August or September, apply April 8th
  • October, November or December, apply April 9th

And if you fancy a weekend date with the application process, anyone can apply on Friday, Saturday or Sunday.

I know, for many of us myself included, many days this all seems too much to bear, but this morning I was reminded by this Scottish Grandma, this too will pass.

Carrie Hunter is the founder and writer of the personal finance blog, PoundWiseandPennyPrudent.com. A passionate advocate for financial literacy, Carrie writes, speaks and facilitates workshops with a singular goal: to simplify the language of money. A self-taught money expert, Carrie is completing her designation as an Accredited Financial Canada Counsellor®.  This blog originally ran on April 2, 2020 and is republished on the Hub with her permission. 

Bond ETF discounts during recent periods of Volatility

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Rich Powers, Vanguard head of ETF product management

By Rich Powers and Scott Johnston, Vanguard Americas

(Sponsor Content)

The waves of volatility from the coronavirus outbreak have reached every corner of the financial markets. For bond ETFs, the waves have resulted in both volatile market price swings and larger-than-usual gaps between market prices and net asset values (NAVs).

When the gap is positive (that is, when the market price is greater than the NAV), it’s called a premium. A discount occurs when the NAV is greater than the market price. While such gaps can be unsettling, history shows that premiums or discounts are always present with bond ETFs, and their widening amid market volatility tends to be short-lived.

Bond ETFs are an important source of liquidity

Along with heightened market volatility in the bond market over the last few weeks, there’s been a drop in liquidity of many types of individual bonds: that is, the willingness of market participants to buy and sell. Bond ETFs, on the other hand, have maintained their liquidity and have been the primary mechanism for price discovery in the fixed income markets.

In such a volatile environment, bond ETFs can be expected to trade at discounts or premiums. Though discounts and premiums of this breadth and magnitude are rare, bond ETFs have been tested during prior bouts of volatility and actually do a good job of reflecting in real time the value of the underlying fixed income securities. In times of volatility with rapidly evolving macroeconomic, interest rate, and credit environments, investors should expect premiums or discounts in bond ETFs. Bond ETFs tracking similar benchmarks have experienced large variations in market returns as well.

Fewer inputs can create greater price disparities

Discounts and performance differences reflect the fact that there are two ways to determine portfolio values. In setting end-of-day NAVs, ETF pricing specialists use both actual trades and an adjustment factor based on bid/ask spreads for bonds, especially for bonds that haven’t traded recently. Market prices, in contrast, are collectively determined by ETF investors and “market-makers.” If, as happened in the second last week of March, bond trading is fairly diminished in the underlying market, NAV calculations will have fewer inputs and thus there’s an increased chance for differences from market prices.

Unlike a NAV that’s calculated by a pricing provider, market prices for bond ETFs reflect the market’s minute-by-minute judgment, which includes factors such as:

  • Valuation estimates of the underlying holdings by market-makers.
  • Supply and demand for the ETFs.
  • The cost for providing liquidity in fast-moving markets where underlying bonds may have less liquidity.

Since these calculations have different inputs, investors should expect different outcomes, particularly in volatile markets. When viewed over longer periods — say a month or a quarter — these short-term disparities are generally imperceptible, as they are over a “normal” day or week. Continue Reading…