Money hurdles for 2014: How to get out of debt ASAP

“According to a recent TransUnion survey, 47% of Canadians are committing to at least one financial resolution this year. That being said, 37% did not reach their goal in 2013.

Resolutions are easy to make, hard to keep. Goals can be more attainable if you have a coach in your corner. So let us help you tackle your financial resolutions for 2014.”

debt

Reblogged from Melissa Leong

‘We resolve to reduce our debt as speedily as possible’

Motivational quote for your fridge: “It always seems impossible until it’s done.” — Nelson Mandela

Pep talk: You are determined to tackle your debts. You’re not alone. Paying down debt was at the top of Canadians’ financial priorities last year, according to CIBC. And we ought to take action — TransUnion predicts that average Canadian consumer debt will rise by 4% to an all-time high of $28,853 by the end of 2014.

Debt is stressful but think of how awesome you’ll feel when you’ve got a plan to beat it, when you’re seeing it retreat, when you’re finally free and clear, when you’ve got all of that extra money, etc.

Peer support: At the age of 20, Mike Bremner moved to Whistler, B.C. He also got his first credit card. “By the time I was 23, I had $20,000 in credit card debt,” he says.

When he maxed out one $15,000 card, the company increased his limit to $45,000. That was the moment he realized that his situation wasn’t going to change without his own intervention. He cut up all of his credit cards except one.

“You have to change your lifestyle. I cut back on spending by not eating out and drinking as much. I shopped online instead of in stores. I got a second job,” he says. “This all sounds like a nightmare to some people, I know. But your life is going to be better in the future because of this.”

The 28-year-old independent contractor for a technology company in Chester, N.S., put more than $500 every month to his debts for four years. He became debt-free in March.

“I said once I was out of debt, I’d spend the money to go on vacation and get a new car; but I’ve been spending more wisely and I’ve been keeping the money to do nicer things,” he says.

“It is hard to see the end. When I made my first payment, it felt like nothing. But it’s like going for a car drive across the country. On the first day, you don’t look at getting to your destination. You look at driving across the province. You have to set realistic goals for yourself.”

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Getting rid of risky property play will improve retirement

Situation: Couple has retirement portfolio with high risk investments that could fizzle
Solution: Get out of speculative investments, then invest for reliable income

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Reblogged from Andrew Allentuck

In Alberta, a couple we’ll call Frank, who is 57, and Ella, who is 51, emigrated to Canada decades ago to find work and build secure lives.

Starting with nothing but their will to work, Frank in a municipal civil service job, Ella in health care, they have built up about $705,000 of net worth, most of it in their $490,000 home. They worry, however, that their income from about $184,000 of financial assets plus two civil service pensions at 65 plus CPP and OAS may not be enough to sustain their retirement. The irony is that their Canadian assets would make them very wealthy in their countries of birth. In Canada, though, they worry that their liabilities could sink their retirement.

It is a legitimate concern, for they have a $70,000 line of credit to pay off at $1,200 a month, about 18% of their $6,500 combined monthly take-home pay. The line of credit was taken out to buy into a speculative land development in which they are co-owners of undivided land rather than sole owners of a defined parcel. It is a risky investment that produces no current income. Moreover, they have $37,500 in a mortgage fund in their RRSPs which yields 10% a year. That yield implies the mortgages carry more risk than banks and credit unions accept.

Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Frank and Ella, who still have a daughter at home attending university.

“The good thing about the couple’s financial affairs is their dedication to their work and their home,” he says. “The not so good thing,” he notes, “is that they appear to have made investments in land and mutual funds on the basis of trust in advice.”

The interest on the loan to buy the property is not tax deductible, though it can be added to the adjusted cost base of the property, eventually reducing the taxable capital gain. Best bet: sell the land to pay off the line of credit and capture a capital gain which the couple believes to be about $30,000 or $20,000 after costs. We’ll assume they just get their money back, then invest in low fee mutual or exchange traded funds focused on producing dividends.

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Five things to do if you are over-extended on your mortgage

five-things

Reblogged from Financial Post, Andrew Allentuck

Mortgage default may be rare in this country, but nearly 9% of indebted households need 40% or more of their gross income to pay their debt service charges, says the Bank of Canada Financial System Review.

If you can see problems coming, then you can take action to avoid foreclosure, which happens when lenders run out of other alternatives and borrowers can do no more to pay their debts. Here are five options to consider when you are being crushed by mortgage payments:

1. Extend amortization: If the mortgage has been paid down to 10 or 15 years, then extending it to 20 to 25 years or even to 30 years will decrease payments. In a lot of cases this will work, says Elena Jara, director of education for Credit Canada Solutions, a Toronto-based non-profit organization which offers free credit counselling.

2. Seek better terms: You can go for lower interest rates with the same or a different lender but with a potential penalty, says Bill Evans, a mortgage broker with Mortgage Architects in Winnipeg.“If you are having trouble with payments with one lender, another may not want to take you on. But if you can present a case for a new income, you can go to a so-called specialty lender such as Home Trust or Optimum Trust for a fresh look at your problem and potential solutions,” Evans says. “If you just want to alleviate the problem, timing is crucial.”

3. Renew at a floating rate: There is more risk but lower interest cost in floating rate mortgages. If you are on a fixed rate mortgage with relatively high rates and want to go to a lower floating rate, perhaps by taking the mortgage to another lender, then there may be relief when it is time for loan renewal. The present lender may add a penalty, but over time, floating rates and the often attractive rate on a one-year closed loan can offer relief, Mr. Evans says.

4. Sell it and rent: In markets with high home prices as a result of speculative building, absentee owners will often rent at relatively low cost. That makes for good deals for renters.

5. Discuss a consumer proposal
The homeowner can avoid outright bankruptcy and foreclosure of the home by talking to creditors, suggests Bruce Caplan, trustee in bankruptcy for BDO Canada Ltd. in Winnipeg. “The homeowner can make a consumer proposal in which a settlement plan is devised for the creditors. Secured creditors such as the banks or private mortgage lenders can work out new terms such as reduced payments or a payment bridge for a period of time with the homeowner,” he suggests.

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Quick! Read this before you head off on Winter Holidays!

Five practical financial preparations for a long-term vacation.

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Reblogged from Financial Post, Melissa Leong

When that first cold wind or frost hits, I’m always surprised. I have no clue why — I’m Canadian, a Winnipeg native — and I’m well acquainted with this country’s winters.

If the chilling reminder of what’s in store this season has you thinking of going on an extended trip, here are five financial preparations to make before any long-term vacation.

Get travel insurance. Only half of Canadians, according to BMO, buy medical insurance before traveling. You don’t want to get caught with a $20,000 bill to treat a broken leg in the U.S. Check with your employer or your credit card company because you may have some coverage under their plans.

Check your home insurance policy. According to a recent TD Insurance survey, only 12% of Canadian snowbirds say they checked their home insurance policy to ensure their primary residence would be covered while on vacation. Often, insurance policies have specific “away” requirements, which, if not fulfilled, could void coverage if your home is left unoccupied and unattended for an extended period of time, TD Insurance says. Make sure you know what steps to take to keep your policy valid, for example arrange to have someone check your home every seven days to make sure heating is on and shut off the water supply.

While you’re renting a vacation home, if you have home insurance, your contents could be covered anywhere in the world and you may have liability coverage. It’s best to check your policy.

You want your home to have that “lived-in” look while you’re away.Suspend your newspaper subscription. Have someone shovel your snow. Get Canada Post to hold your mail. This service starts at $20 for the first 10 weekdays and is $8.50 for each additional week. So if you’re gone for six weeks, it will cost you $54 for Canada Post to hold your mail. To save money, enlist a friend who will come by and check up on the property and collect your mail.

Don’t forget to set up a budget before you leave. The wise thing to do would be to know how much you have to spend and try to play within your boundaries. The unwise thing to do would be to overuse your credit card and return home to a giant bill that will stress you out after a relaxing vacation.

Make sure that your bills get paid. A lot of bills can be paid online or prepaid with your credit card. Make a list of the bills that need to get paid and try to sort out the payment before you leave in case the sun and the beach makes you forgetful.

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Calgary business school introduces new centre for real estate education

westman

Reblogged from The Financial Post, Dan Ovsey

With home prices on the rise in Calgary and a steady stream of construction projects on the go, real estate observers have been keeping a close eye on the Canada’s energy heartland and how it develops.

Now, a new centre at the University of Calgary’s Haskayne School of Business is aiming to groom the next cohort of real estate leaders to meet the city’s future needs in a sustainable and responsible way.

The school announced this morning that the new Jay Westman Centre for Real Estate will offer academic and research programs to students and faculty while also serving as a partner to the city’s thriving real estate industry.

The Centre is being launched with a $5-million donation from Jay Westman, owner and co-founder of Jayman, one of western Canada’s largest home builders.

“The industry has really come of age here,” said Mr. Westman in a press release. “I am committed to its ongoing strength through the development of responsible business leaders, and I believe the Haskayne School of Business is the place to make that happen.”

Almost 60,000 homes have been built in Calgary since 2011, which remains below the pre-recession boom years of 2005-2007 when more than 70,000 homes were built. In addition, approximately 4 million square feet of downtown commercial real estate is currently under construction in Calgary.

Jayman has built more than 21,000 single and multi-family homes in western Canada over more than three decades and has diversified its business to include financial, design and development divisions.

While Haskayne has offered elective courses in real estate in the past to business undergraduates and MBA students, the donation from Mr. Westman will allow the school to offer a full undergraduate concentration in real estate in the next two years.

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Canadian housing starts climb, sparking fears market is overheating

Daniel Acker | Bloomberg

Daniel Acker | Bloomberg

Reblogged from The Financial Post, Reuters

TORONTO — Canadian housing starts rose more than expected in October and September starts were revised higher, according to data released on Friday that will add to fears the property sector could be overheating.

Data from the Canada Mortgage and Housing Corp showed the seasonally adjusted annualized rate of housing starts was 198,282 units last month, up from an upwardly revised 195,929 in September and surpassing analysts’ expectations for 190,800.

Multiple urban starts registered a slight increase of 0.9% to 115,011 units in October while the single urban starts segment saw a decrease of 1.7% to 62,423 units, the federal housing agency said.

“The trend in total housing starts has gained momentum since July, which is in line with expectations that new construction would strengthen over the second half of 2013,” Mathieu Laberge, deputy chief economist at CMHC said.

Canada’s housing market has rebounded in 2013 after a sharp slowdown in the second half of 2012 when the government tightened mortgage lending rules to prevent homebuyers from taking on too much debt.

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CMHC cuts 2014 housing starts forecast, signalling slowing market

Matthew Sherwood for National Post

Reblogged from The Financial Post, Andrea Hopkins

TORONTO — Canada’s federal housing agency has bumped up its forecast for housing starts in 2013 but trimmed its forecast for 2014, setting an essentially flat outlook for a once-roaring market.

The Canada Mortgage and Housing Corp said on Thursday housing starts will be in a range of 179,300 to 190,600 units in 2013, with a point forecast, or most likely outcome, of 185,000. That is up from its August estimate of 182,800.

The agency said there will be 163,700 to 205,700 units started in 2014, with a point forecast of 184,700. That is down from CMHC’s August estimate of 186,600.

Both forecasts represent a sharp slowdown from the 214,827 starts of 2012.

Canada sidestepped the worst of the financial crisis of the last decade because it avoided the real estate excesses of its U.S. neighbour, and a post-recession housing boom helped it recover more quickly than its Group of Seven peers.

But the housing market began to cool last year after the country’s Conservative government, worried about a potential property bubble, tightened mortgage rules.

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Don’t look now Mr. Flaherty — here’s another shot in the arm for real estate

Gavin Young - Postmedia News files

Gavin Young – Postmedia News files

Reblogged from The Financial Post, Garry Marr

The Canadian real estate industry will get more good news today — not that it needs any more positive spin or Finance Minister Jim Flaherty even wants to hear it.

Canada won’t interfere in housing market — for now: Flaherty

The Canadian government has no plans for now to clamp down on the housing market even though prices are rising again, Finance Minister Jim Flaherty said on Monday, but he pledged to investigate whether the price uptick looks to be more than temporary.

Continue reading.
But a London-based group is now predicting construction output, led by housing, is set to grow by about 4% over the next year, despite the fact the industry faces labour shortages and financing concerns.

“It’s not stunning growth but it’s solid growth. Over the year, based on this survey, the construction industry will underpin the economy in Canada,” said Simon Rubinsohn, chief economist with the Royal Institute of Chartered Surveyors which interviewed dozens of senior managers in the largest construction firms in the country.

The news comes as Mr. Flaherty continues to keep a close watch on the Canadian housing industry which is showing signs of a recovery. The finance minister said he will be talking to developers about whether the housing sector needs more regulation as prices continue to rise in most markets and sales recover after a dismal 2012.

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An (American) Mortgage Market Out of Balance

Nick Ut/Associated Press

Nick Ut/Associated Press

My initial thoughts on the US mortgage market are always envy of their 30 year fixed mortgage. Hovering at the mid-to-high 4% range, how can you go wrong? Upon closer look, the disparity and inconsistency in the entire banking and regulatory system leaves me scratching my head. Where is the common sense? Isn’t it against all logic to give lower rates to non-conforming, non-guaranteed, larger mortgages? OK so the down payment comes to play, but isn’t it baffling that there is no set rules or requirements on the amount down payment required? And the final gigantic red flag – that general banking practices (not regulations mind you!) can potentially influence government standards which in turn influence banking practices? (That’s a circle for those of you who didn’t catch it!) Banks who don’t trust the government (backed securities), governments who don’t control the banks, and people who are stuck in the middle wary of both but left with no choices.

Reblogged from The New York Times, Peter Eavis

The vast system that provides home loans to millions of Americans has long been a strange place. A surprising development has made it even stranger.

Recently, interest rates on mortgages for expensive homes have fallen below those for smaller mortgages that the government promises to repay if the borrower defaults.

On Thursday, for instance, Wells Fargo, the nation’s largest mortgage lender, was offering to make the larger so-called jumbo loans at a fixed rate of 4.625 percent for 30 years. That compared with the 4.875 percent that the bank was charging on fixed 30-year loans that qualify for government backing.

On the surface, these moves in rates make little sense. The jumbo mortgages do not have a taxpayer guarantee of repayment. Anyone holding such loans relies solely on the creditworthiness of the borrowers to be repaid. Most of the jumbo borrowers are wealthy and have good credit scores, so they are not that high a risk right now. Still, their credit probably isn’t as strong as that of the federal government, which guarantees the smaller loans. As a result, those loans, often called conforming mortgages, should have lower rates than those on jumbo mortgages. Indeed, as far back as industry participants can remember, that has been the case.

The fact that jumbos are now cheaper points to dysfunctions in the mortgage market, which is going through a jarring adjustment that appears to be influencing guaranteed mortgages more than jumbo loans.

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Discount mortgages dry up as Canadian borrowers face tough test

Reblogged from The Globe and Mail, Tim Shufelt

The discount mortgages that stoked the Canadian housing boom are disappearing, increasing the likelihood of a correction in home values.

On Thursday, Royal Bank of Canada will hike its five-year fixed-rate mortgage to 3.89 per cent, one day after the Bank of Montreal raised its rate to 3.79 per cent. The other major lenders are all moving in the same direction.

The increases mean the cost of a new fixed-rate mortgage has climbed by more than a third in five months, signalling what could be the beginning of the end of ultra-cheap credit in Canada – and the start of fiscal pain for consumers who have overburdened themselves with debt.

“I think this is the real thing,” said Benjamin Tal, deputy chief economist at CIBC World Markets. “This is the end of extremely low interest rates. They’re simply unsustainable.”

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