How Julia was able to move into another home, even if her separation wasn't finalized

In the last week I've met with three clients whose personal situation was almost identical. All three where in the initial stages of their separation and wanted to move out of their matrimonial home and into another house. 

All three cited that it was difficult to stay in the same home with their ex. spouse and needed a physical separation.  When they looked into renting, all noted that rents where high in Guelph for places that where substandard to what they where accustomed to. After having gone to their bank to see if they could qualify for a new mortgage, the banks turned them down. Why? They had great credit and good employment stability and felt they could carry the mortgage on a new property.

With some creative financing I was able to get mortgage approval for all three.  The new mortgages where temporary for a year or two until the details of their separation where finalized.  Each had 10% as a down payment and knew the amount of child support they where to pay or receive. Some mortgage-lenders do not require a full separation agreement to put a mortgage in place. Just a statutory declaration that is signed at the lawyer's office by both parties identifying what the child support payments would be.

Aside from the financial stress of going through a separation, I've attached a link to a local counselling centre who can help you work through the emotional side of a divorce or separation.

http://www.walkingwithyou.ca/grief.html

Here's one way to pay-off your mortgage if you have rental properties

This week I met Sam who has been an astute real estate investor over the last 7 years. He's been strategic about his real estate purchases, focusing on good locations and positive cash flow.

Although he's retired, Sam still has a significant mortgage of $250,000 on his primary residence and carries a secured-line-of credit (SLOC) of $70,000.  Don't be surprised at this debt level, because more and more baby boomers are not paying-off their mortgages before they retire.  In this case, Sam went through a divorce almost 10 years ago where his assets where divided, which is the main reason he still carries a mortgage.

The great thing about Sam's situation is that he has a stable teacher's pension and he's done a good job at managing his real estate investments.  He has enough equity in his real estate investments to pay-off his secured line-of-credit. This SLOC could be an issue in the future, given that rates on SLOC's show a 10-year historic average rate of about 6%.

Sam's meeting with his accountant this week to determine how to minimize the tax implications of this restructuring.  But I'm a big believer of using the equity in your real estate to help your personal finances, while still maintaining a positive cash flow on the properties.

Here's a good link from a recent story in the Financial Post on how to manage SLOC debt.

Smoke and mirrors - longer-term may be better...

In the last week most banks and wholesale mortgage lenders have raised their four- and five-year rates.  It was a marginal increase but we're now programmed to think we can get a five-year fixed rate mortgage for under three per cent.

What I've found in the last week is that there is now mortgage lenders are promoting their three-year fixed rate mortgage. Why? Because the rate could still be under three-percent.  Is this a good financial decision? It depends...

I recently had a client who came to see me about moving into a bigger home.  She will be starting a family and needed more room. She also went to see her bank (Scotia) and they managed to convince her that the three-year rate was the right decision.  What do you think? Here's my analysis...if we consider the 10-year average on fixed-rate mortgages, the rate is close to six-percent. I'm also renewing clients I did mortgages for five years ago and the best rates at that time where about 5.7 per cent.

Considering that in three years the rates may show a spike of about 3 percent, on a $400,000.00 mortgage, amoritized over 25 years, that would mean monthly payments would increase by about $600/month.  When you're on maternity leave, or are paying daycare costs, that increase is significant.  In this scenario, my recommendation is to go to a longer term (at least a five-year fixed rate mortgage). Although you may be paying a little more in the short-term, it is worth the extra security.

Shaking hands with the Govenor...

Today I heard the Bank of Canada Governor, Mark Carney speak at The Kitchener/Waterloo Chamber of Commerce lunch. Although the food was terrible, Carney's sense of humour and insight into the challenges of the Canadian economy left me with indigestion about Canada's housing market.

The growth and strength in the Canadian economy has largely been dependent on consumer spending. Essentially, spending the equity that Canadian's have in their homes.  Canada's exports have lagged because our economy is still dependant on the U.S. as it's major trading partner.  Carney suggested that Canada needs to invest more in emerging markets such as China and India.

What about the housing market and rising rates? Nothing was mentioned in his talk this afternoon.

What was interesting is Canada's economic reliance on construction.  If housing starts cool,  and as rates increase, a slow down in construction may have a wider impact on the employment rate.

By-the-way, I did get to shake Mark Carney's hand...it was soft!

The Gimmick's Over Low Mortgage Rates

I get questions almost daily about the low rates being offered on mortgages. Most people are confused over the terms and the conditions, but know exactly what “the rate” is. We’ve been so programmed to consider just the mortgage rate. There’s been very little information about how the features in a mortgage can have a positive or negative impact on your ability to pay the loan or your lifestyle.


Here are the questions you should be asking aside from getting the lowest rate (which is always important):

1. What is the term of the mortgage?

This is where the biggest confusion lies. I’ve seen RBC ads in newspapers that compare 4-year fixed rate mortgages directly with 5-year mortgages. They are not comparing apples to apples in this scenario. Perhaps you would benefit from a longer term mortgage at a slightly higher rate than going shorter term. I’ve just helped a client arrange a 10-year mortgage term at a higher rate. She’ll pay that mortgage off in ten years and wants absolute stability for the next ten years.

2. Can I make extra payments on the mortgage to help me save interest? When can I do that and how much?

Some of the deeply discounted mortgages have limitations on making extra payments. For example, if you receive bonuses at work, and if you can only make lump-sum payments on your mortgage on the anniversary date of the mortgage – you will be stuck waiting possibly a year to make that extra payment, in the meantime accruing unnecessary interest expenses.

3. What happens if I need to make significant changes to the balance on the mortgage or sell my house? What is the penalty?

There’s been a lot of buzz around penalties to get out of a mortgage – and now it’s regulated by the Financial Services Commission of Ontario for banks and mortgage brokers to discuss the penalties around discharging the mortgage. Sometimes deeply discounted mortgages have constraints around making changes or getting out of the mortgage. Be sure to discuss this with your mortgage professional.

Women and money...do I dare say more?

Women (I've read) make better money managers and investors than men. They tell us we're more likely to collaborate, share ideas and not let ego in the way of investing. How does this differ from how men invest? We're more likely to do the research and make investment decisions on rational, objective terms rather than emotional.

On the debt and budgeting side, I see single women, and those in relationships, often managing their family's budget and expenses.

Have women come along way in managing money? I don't think we have, even though many women in families make more money than their spouses.  When I meet with clients to do mortgage planning sessions, most men still do the talking. Why? Is it ego or a lack of financial self-esteem?

Jim: Love's his bank, but they can't "get" what he wants to do...

Have you ever gone into your bank and the banker didn't understand what your financial goal was?  I'm working with Jim, a professional who wants to keep the current property he lives in as a rental and then buy another, more modern home to live in.  His bank couldn't understand why he wanted to do that.  Of course, Jim's a smart guy because he knows that the rental property will help him financially with his retirement.

When Jim came into see me (a referral from a local lawyer), he was frustrated and was almost ready to give up on his plans.  About a half an hour later we determined that he had about $55,000.00 equity that he could extract from his current home valued at $270,000, and put about 10% down on the next house he wanted to buy.  The great news for Jim is that he made a wise decision when he bought his originally house 6 years ago.  The house was in a perfect spot for a rental - close to most amenities and centrally located.

Within another half hour we determined that the rental should have a longer amorization, to keep the cashflow high and also to limit the tax implications sometimes associated with the principal pay-down on a rental.  A five-year fixed rate was a good choice here. For his new primary residence we set the amorization shorter to help him pay this mortgage off in 20 years on a weekly accelerated basis.

What took Jim almost 2 weeks to negotiate with his bank, took me about 1 hour to do.  Let's just say Jim's story has a happy ending! :)