Mortgages

On top of a pandemic to worry about, people are still losing sleep over their finances. In fact, a recent survey on financial stress found that nearly half of all respondents blamed money woes for keeping them up at night. More than one-third admitted that money was their number-one worry, while one-quarter cited personal health as their main concern. Not surprisingly, 44 per cent of participants said the COVID-19 pandemic has had an impact on their level of financial stress.

If you’re feeling stressed out about money, talking over the situation with your partner, family members or trusted advisor and then taking action can help relieve your financial worries. Here are some ideas.

WATCH: Money stress, a video about some of the things you can do to reduce stress about money.

Create a budget

If you don’t already have one, get started by creating a household budget – it’s an invaluable tool to help track income and expenses. When you know where your money is going each month, it’s easier to make adjustments to free up cash that can go towards savings or paying down debt. Examine your spending to see what can be eliminated or reduced, and take a hard look at discretionary (or non-essential) items. Explore free or lower-cost alternatives where you can. For example, try negotiating a better deal on certain products and services (think bulk purchases and bundled discounts). A budget works best when everyone in the household is on the same page, working towards common objectives.

Not sure where to start? Numerous online applications and tools are available to help. Some banking apps can analyze your bills and spending habits, track your spending, and even help you determine how much you can save and automatically transfer that amount into a savings account.

Pay down debt

Many of us have debt, and most of us don’t like to think about it. The key is being aware of how much interest you’re paying to carry that debt each month. If you can reduce the interest amount, more of your money could go towards paying down the principal. Concentrate on getting rid of debt that has the highest interest first. Consolidate wherever you can, for example, consolidating credit card balances onto a single line of credit at a lower interest rate. You could save money, plus it’s easier to pay one bill instead of several.

If you’re a homeowner who has available equity in your home, think about using it to pay off higher-interest debts. Or you can explore other options, such as an all-in-one account that lets you combine your mortgage and debts into one – a great way to help you pay both down faster at a lower interest rate.

Boost savings

There are three words to live by when it comes to saving: Pay. Yourself. First. Set up automatic payments to deposit a small amount from each paycheque into a high interest savings account or other savings vehicles, such as a Tax-Free Savings Account or Registered Retirement Savings Plan. You likely won’t miss it, and your savings could grow faster than you’d expect.

Start an emergency fund

It’s also a good idea to start a separate emergency fund for any unforeseen financial crises. Put in as much as you can afford weekly or monthly, whether it’s $5 or $50 – a little can add up to a lot. You could also consider opening a line of credit with a low interest rate as well, so that you don’t need to rely strictly on cash savings to pay for an unexpected expense.

Get professional advice

No matter your situation, a professional perspective can be invaluable. Let’s face it, most people have neither the time nor the expertise to tackle the complexities of their financial affairs alone. An advisor will learn about your situation and establish your risk profile. They will work with you to determine short-term and long-term goals and develop a flexible plan of action to ensure those goals are achievable.

Build a financial plan

Work with your advisor to build a comprehensive plan that balances your current needs and future goals. A good plan should be easily adaptable to changing circumstances, while including milestones to help you gauge progress. It will most likely include:

Disciplined savings
A customized investment strategy based on your risk profile and time horizon
Debt management and cash flow planning
Tax strategy
Insurance solutions (life, disability or critical illness) to help protect your family
Retirement plan
Will and estate plan to protect your legacy

And as we all know, life is full of unexpected change, so it’s wise to review your plan regularly.

With a few simple steps and some expert advice, you can take the worry out of your finances. Speak to your advisor to get started.

Millennials in Canada are facing a very different home‑buying environment than their parents. Soaring real estate prices, high levels of student debt and precarious employment are making it difficult for young people to get into the housing market.

WATCH: Property ladder, a video about the challenges of buying a new home.

Despite these challenges, a recent survey found that 80 per cent of Canadian millennials want to own their own home. What’s more, 27 per cent already do.[1] If purchasing a home is a goal for you, here are some tips to guide you through the process.

See what it will cost

Look at home prices in and around your desired location and be realistic about what you can afford. Perhaps moving to the outskirts or setting your sights on a smaller property can bring costs down. You might also need to think outside the box a little – like bringing in a tenant to help lower the carrying cost of your new home. Keep in mind the purchase price is only one part of the equation – closing costs such as real estate commissions, legal fees and land transfer tax can add an additional four per cent to the purchase price. You’ll also want to factor in ongoing expenses like property taxes, mortgage insurance, utilities and maintenance.

Save for your down payment

If you aren’t already saving, start now. If you can put down 20 per cent of the purchase price, you’ll avoid needing to purchase mortgage insurance (which can add thousands of dollars over the course of the mortgage). If not, at least five per cent is required for first-time buyers. Consider setting up a dedicated home-buying fund and putting aside money from every paycheque. Pad your savings with tax refunds and any bonuses or gifts you receive. You may also be able to negotiate a personal loan from parents or a family member to put towards your down payment.

Learn about government perks

Home Buyers’ Plan (HBP). You can withdraw up to $35,000 tax-free from your Registered Retirement Savings Plan (RRSP) through the HBP to put towards your new home. This amount will be repayable in instalments back into your RRSP over 15 years.

First-Time Home Buyer Incentive. This federal program was introduced in September 2019 to help first-time homebuyers reduce their mortgage payments and the total interest paid over the life of the loan. It’s available to households with an income of $120,000 or less and offers a loan of five to 10 per cent of a home’s purchase price to put towards the down payment. The incentive is repayable when the property is sold or after 25 years, whichever comes first. A potential drawback of this program is that repayment is based on the fair market value of your home at the time– if it increases in value, you’ll pay back more than you borrowed.

First-Time Home Buyers’ Tax Credit. New homeowners can claim a non-refundable tax credit of up to $750 to cover closing costs.

GST/HST New Housing Rebate. If your home is a new build and cost less than $450,000, you may be able to recover a portion of the GST and HST that you paid. Your province may also offer rebates on the provincial portion of the GST or HST.

Land transfer tax rebates. Some provinces and municipalities (for example, Ontario, British Columbia, Prince Edward Island and the City of Toronto) offer rebates on the land transfer tax for qualifying buyers.

Explore your mortgage options

When shopping for a mortgage, there’s more to consider than the rate. That’s why it’s so important to seek help from a professional. For example, a flexible mortgage that allows you to make prepayments can help you pay off your mortgage sooner and save on interest in the long run. Think about your personal situation – if the possibility of rising interest rates makes you nervous, you might be more comfortable with a fixed rate. If you’re expecting changes to your financial situation, an open mortgage may be ideal. You can also customize your mortgage by splitting between a fixed and variable rate and an open and closed mortgage.

Get pre-approved

Before applying for a mortgage pre-approval, it’s a good idea to review your credit rating and report any errors. You can request a copy of your credit report once a year for free from Equifax Canada (www.equifax.ca) or TransUnion Canada (www.transunion.ca).

With a mortgage pre-approval, your lender will let you know how much it is willing to loan and the estimated size of your payments. The current interest rate will also be locked in, so you’re protected in case rates increase before you purchase your home. The lender will also apply the mortgage stress test to ensure you can make your payments if interest rates rise.

It’s important to note, a mortgage pre-approval is not a guarantee that the lender will grant you the mortgage. When it comes time to make an offer on a home, it’s a good idea to insist on the condition of financing – it protects you in the event your financing falls through. If you waive it, you could lose your deposit and risk being sued by the seller.

Don’t shop alone

Buying a first home can be an exciting and challenging task, but knowing what to expect can make it easier. A team of experts including an advisor, mortgage professional, real estate agent and home inspector can help you figure out your options and ensure you’re making the best purchase decision possible.

Mortgage basics

Principal is the amount of money you borrow to buy your home. With every mortgage payment, some of the money will go to paying down the principal and some will go to interest.

Fixed interest rates will not change during the term and your payments will stay the same.

Variable interest rates are usually lower than fixed rates but are subject to fluctuations.

Mortgage term is the length of time you’re committed to your lender, the rate and any conditions – five-year terms are most common, but you can choose anywhere between one and 10 years.

Open term mortgages allow you to pay back what you borrow at any time, without penalty. Because of this flexibility, interest rates are generally higher.

Closed term mortgages do not allow you to pay back the entire balance without penalty, but many offer some prepayment options to help you pay down your mortgage sooner.

Amortization period is the length of time before you pay off your mortgage, up to 30 years. The longer the amortization, the lower your mortgage payment, but you will pay more interest over the life of your mortgage.

Mortgage insurance is needed if you have less than 20 per cent for your down payment. This insurance protects the lender in case you can’t pay your mortgage.

[1] https://abacusdata.ca/rented-dreams-the-truth-behind-millennial-home-ownership

Stressed about money? You’re not alone.