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Ask the Expert: Should I prepare myself for higher interest rates?

Rates may be at historic lows however, with big banks raising fixed rates and reducing variable-rate discounts, you need to be ready to pay more. As seen in REW.ca

Q: I’m easily able to make payments on my mortgage at the moment as my rate is so low. I saw that the Bank of Canada didn’t cut its overnight rate last week, and that some banks are actually raising interest rates. Should I be prepared for higher interest rates, and if so, what is your advice?

A: Interest rates are still at historical lows, and we keep hearing for years that interest rates are going to rise. If anything, interest rates have dropped.

The Bank of Canada was considering dropping the overnight rate. However, on Wednesday’s announcement they have decided to maintain the overnight rate at 0.5 per cent. Since the Canadian dollar has already fallen sharply and a rate cut could have imprudently triggered a currency rout. There is a great deal of concern about household debt, and another rate cut would add to the risk by encouraging excessive borrowing.

So does this mean that we should stop thinking about rising interest rates? Not at all. It is important to be proactive and prepare yourself for higher interest rates.

The following are some tips that can help you.

  1. income-reportPay down your mortgage faster

To ensure that you don’t over-leverage yourself when interest rates do eventually increase, start by making larger or more frequent payments and make lump-sum prepayments when possible towards your mortgage. This will help you by lowering your principal so you will pay interest on a smaller amount in the future.

  • Consider making a lump-sum payment. Most lenders allow you to pay up to 10 to 20 per cent of your mortgage without a penalty annually. The prepayment amount is applied directly to the principal balance, which will help you save money.
  • Changing your payment frequency is a great way to pay off your mortgage faster. While most people might not have extra money to put a lump-sum payment every year, you can save money by paying the same amount per month and just simply splitting your mortgage payments throughout the month to semi-annual, bi-weekly or weekly payments.

Below is a chart showing how paying more often pays off.

table pay off mortgage faster

(Calculations based on a mortgage amount of $450,142 with a five-year fixed rate of 2.64% and a 25-year amortization.)
  1. Pay down other debt

pay-off-credit-cardsIf you are only making minimum payments on your credit card, it would be a good idea to start paying more. If you are unable to come up with the money to increase your payments, start a budget or see where you can tighten your existing one, cut spending and start paying down your credit card debt with the money you save.

If you are living beyond your means, it won’t get any easier later on. It is better to become proactive, instead of getting in a tighter situation later, especially when interest rates start rising. If you are looking at buying a home, calculate what the payments will be with a higher interest rate and see if you would be comfortable making those payments in the long run. If not, purchase a property of lesser value.

  1. Refinance

If your mortgage is coming up for renewal in the next two to three years, it is worth checking out if you are eligible to refinance now and take advantage of the lower interest rates. Also, if you have equity in your home, this is a great opportunity to pay off some debts and increase your monthly cash flow. Even if you have to pay a penalty for refinancing prior to the end of the term, it could help you save money in the long run. Talk to your mortgage expert to explore the options and see if it makes sense.

  1. Have a contingency fund

imagesQ8W8929HIf you are concerned about higher interest rates when your mortgage comes up for renewal, start working on it now. It’s a good idea to start a contingency fund that can be used to cover the increase in mortgage payments or use that fund to make a lump sum payment on your mortgage. If you are on a variable mortgage, figure out what would be your mortgage payments if you had a fixed rate and put that extra money aside. By making small changes in your daily spending you can save more money in the long run.

  1. Seek professional advice

Having a close relationship and working with your mortgage expert 83834073frequently can help offset some of the stress and confusion. Your mortgage expert can help educate you in areas you might not be familiar with and can help you be prepared for when interest rates do start increasing.

If you are worried if you will be able to afford your home when interest rates increase or if you want to find out how you can save money, give me a call at 778.893.0525 to speak about your options.

 

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Credit card rules: How to wean yourself off credit card debt.

As seen in BC New Home Guide.

The Canadian government implemented credit card regulations that increases transparency and protects consumers. Here are some of the regulations:

  • Credit contracts and application forms must have a “summary box” that clearly explains interest rates, fees, and how long it would take to fully repay a balance if only minimum monthly payments are made.
  • Banks must give advance disclosure of interest rate increases, even if this information is already in the credit contract.
  • You must give your consent before your credit limit can be increased.
  • If you transfer your balance to a lower-interest card, your payments now have to be allocated in your favour.
  • There’s now a limit on certain debt collection practices used by financial institutions.
  • Banks can’t charge over-the-limit fees resulting from holds placed by merchants.
  • You have a minimum 21-day interest-free grace period on all new purchases if you pay your outstanding balance in full by the due date.

Eliminate-credit-card-debt1While critics don’t think these regulations go far enough to protect the consumer, at least the government is trying to make an effort to help consumers avoid predatory lending practices. And that’s a good thing.

However, an even better strategy is to start weaning yourself off of credit card debt. Unlike taking out a mortgage to buy a home or revenue property, buying stuff with your credit card at high interest rates doesn’t yield any returns – it simply gets you deeper in debt.

The following are some tips to help you use your credit card responsibly so you don’t pay unnecessary charges and get in trouble with credit card debt:

  • When you pay for something with a credit card, you are taking out a loan and you have to pay it back.
  • Pay the balance in full each month
  • If you can’t pay it in full, pay as much as you can
  • Don’t make only the minimum payment
  • If you always carry a balance, get a low rate card
  • Pay a few days before the due date
  • If you have a line of credit, transfer the balance to your line of credit with a lower rate. The goal is to pay down your debt and not go further into debt.

Put yourself on a budget, take a part-time job (or start a home business) and eventually get your credit cards paid off. You will be astonished how much extra money you will have to invest in assets that actually appreciate in value and put cash in your pocket!


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What If I Don’t Have the Full Down Payment?

Raising a down payment can be the trickiest part of buying in Vancouver’s hot market – but some programs may help. As seen in REW.ca

Q: I really want to put in an offer on a condo, but I haven’t raised the full down payment amount yet? Do I have any options?

A: The minimum down payment required is 5 per cent of the purchase price of the home you are buying – if you are employed. For those who are self-employed, it will depend if you are qualifying based on what you are declaring on your income tax then it will be 5 per cent, and at least 10 per cent if you are self-employed and qualifying with an “estimated” gross income instead of the income showing on your tax return. And if you want to avoid paying mortgage default insurance, you need to have at least a 20 per cent down payment.

However, there are programs available that enable you to use other forms of down payment when you don’t have the full down payment.

  • RRSPs: If you are a first-time home buyer,income-report you can use up to $25,000 from your RRSP without paying any personal taxes. However, you will have to repay any amount withdrawn from your RRSP for down payment of a home purchase.
  • Gift from a family member: You can get money gifted from a parent, child or sibling to go towards the down payment. The lender will ask that the person that is giving you the gift signs a letter stating that the funds are a gift and are not to be repaid.
  • Borrowed down payment: You can borrow from a line of credit, get a loan or use your credit cards to complete your down payment. However, in order to qualify, you still have to be within the Total Debt Service (TDS) ratio. The TDS ratio measures your total debt obligations (including housing costs, loans, car payments and credit card bills). Generally speaking, your TDS ratio should be no more than 44 per cent of your gross monthly income.

Once you have raised the full down payment and made your offer, you will still need solid advice on which mortgage is best for you. By working with a mortgage expert, you have access to multiple lenders including banks, credit unions and other lenders that only work with brokers, which will ensure that they can find the best mortgage for your individual needs.


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Fraud Alert #1: What Happens with Mortgage Fraud – and Why You’re Not Safe

In the first of a two-part series on fraud, outline the red flags for mortgage fraud. As seen in REW.ca

Nowadays, with the amount of information that is shared on the internet and social media, identity theft and Ponzi schemes are happening regularly. Homeowners are taking the necessary steps to protect one of their largest investments, which is their home.

The last thing you want to worry about is yet another way to lose your hard-earned money. But as a homeowner, you need to be aware of crimes on the rise, known as mortgage fraud and real estate title fraud.

In this first part, we will look at mortgage fraud and “straw buyer” schemes.

trap,  catch

Mortgage Fraud

Some borrowers may think that providing false documents and making false statements is not a big deal. However, the Criminal Code clearly states that obtaining funds, including mortgages, by providing false information is a crime.

The most common type of mortgage fraud involves a criminal obtaining a property, then increasing its value through a series of sales and resales involving the fraudster and someone working in cooperation with them. A mortgage is then secured for the property based on the inflated price.

Here are some red flags for mortgage fraud:

  • Someone offers you money to use your name and credit information to obtain a mortgage.
  • You are encouraged to include false information on a mortgage application.
  • You are asked to leave signature lines or other important areas of your mortgage application blank.
  • The seller or investment advisor discourages you from seeing or inspecting the investment property you are purchasing.
  • The seller or developer rebates you money on closing, and you don’t disclose this to your lending institution.

“Straw Buyer” Schemes

Another kind of mortgage fraud is the “straw” or “dummy” homebuyer scheme. For instance, a renter does not have a good credit rating or is self-employed and cannot get a mortgage, or doesn’t have a sufficient down payment, so they cannot purchase a home. They, or an associate, approach someone else with solid credit. This person is offered a sum of money (can be as much as $10,000) to go through the motions of buying a property on the other person’s behalf – acting as a straw buyer. The person with good credit lends their name and credit rating to the person who cannot be approved for a mortgage for a home purchase.

Other types of criminal activity often dovetail with mortgage fraud. For example, people who run “grow ops” or meth labs may use these forms of fraud to “purchase” their properties.

It’s important to remember that if something doesn’t seem right, it usually isn’t – always follow your instincts when it comes to red flags during the home buying and mortgage processes.


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Financial Literacy presentation for adults & the entire family (ages 12 & up)!

You are invited to a complimentary presentation on Financial Literacy for adults & the entire family (ages 12 & up)!

November is Financial Literacy month!

You don’t have to look very far to read an article in the newspaper or watch a segment in the news talking about the lack of education when it comes to teaching youth and adults the basics about Financial Literacy.

We will be hosting an educational presentation on Financial Literacy for adults and the entire family (ages 12 and up)! While the topic of Financial Literacy can be dry, dull and boring this presentation was designed to be an incredibly powerful program that will both educate and entertain. This presentation will provide some good information about the understanding of money management and investing. The presentation is based on the EnRiched Academy  program that was endorsed by Jim Treliving and Bruce Croxon from the Dragon’s Den.

We will be covering the following topics:

  • Understanding how money works and where most North Americans are financially
  • Money myths and misconceptions
  • Why some people, including high earners, never get around to saving money & how to avoid the pitfall
  • How important is to create the habit of saving money as early in life as possible
  • The power of saving 10% of what you can earn and more
  • The magic behind compounding interest and how it works
  • How to systemize your savings and where to put your money for maximum wealth building
  • How credit cards, credit score and credit card interest work
  • What happens if you only make minimum payments or neglect to pay your credit card on time
  • 6 steps to having an A+ credit score
  • What “Good Debt” and “Bad Debt” are and what makes the difference
  • Your personal brand and how it can have an impact on your future

Dates: 

Saturday, November 2nd from 10 am to noon at Collingwood Neighbourhood House located at 5288 Joyce Street, Vancouver (room A multi-purpose room on the main level).

Saturday, November 16th from 10 am to noon at the Fleetwood Community Centre located at 15996 – 84th Avenue, Surrey (room 3).

For more details and to register, please:

Email: aaragon@dominionlending.ca or jaragon@dominionlending.ca

Call: 778.893.0525 or 604.931.9000

Reserve your spot today as space is limited.

You don’t want to miss this great event!


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Free presentation on Financial Literacy for teens and young adults – May 25th from 10 am to noon

We are hosting a free presentation on Saturday, May 25th from 10 am to noon on Financial Literacy for teens and young adults (great for teens of 15 years of age and older including adults).

As you know you don’t have to look very far to read an article in the newspapers or watch a segment in the news talking about the lack of education when it comes to teaching students the basics about Financial Literacy.

While the topic of Financial Literacy can be dry, dull and boring – enRICHed ACADEMY was created to be an incredibly powerful program that will both educate and entertain. This presentation will provide some good information about the understanding of money management and investing. This program was featured and endorsed by Dragon’s Den.

We will be covering the following topics:

  • Understanding how money works and where most North Americans are financially
  • Money myths and misconceptions
  • Why some people, including high earners, never get around to saving money & how to avoid the pitfall
  • The power of saving 10% of what you can earn and more
  • The magic behind compounding interest and how it works
  • How to systemize your savings and where to put your money for maximum wealth building
  • Understanding how the stock market works and how to get started investing
  • Understanding how to purchase your first rental property
  • How credit cards, credit score and credit card interest work
  • What happens if you only make minimum payments or neglect to pay your credit card on time
  • 6 steps to having an A+ credit score
  • What “Good Debt” and “Bad Debt” are and what makes the difference

Details:

Saturday, May 25th from 10 am to noon

Pinetree Community Centre, Room 8 located at 1260 Pinetree Way, Coquitlam

(next to the Douglas College, David Lam Campus)

Please register via:

Email: aaragon@dominionlending.ca or jaragon@dominionlending.ca

Call: 778.893.0525 or 604.931.9000

It would be great if you want to join us and please feel free to pass on to anyone that you think would enjoy attending this unique event.

Register today s space is limited!