Average Consumer Debt in Canada Rises to $25,597
As per a recent study, the debt load for the first quarter of 2011, in Canada, shows a growth of 4.5% over the last year. This is a clear indication that there is no respite in the demand for debt. And, the bureau conducting the study further reported that the debt for each consumer amounts to $25,597 for the quarter as compared to $24,497 for the last year.
The most significant increase was found in Newfoundland & Labrador and Quebec, where debt has seen a growth of 7.8% in both the provinces. The growth in consumer spending for the first quarter is just 0.1%. Experts have attributed this very small growth to the efforts of the consumers to consolidate their debt that had been taken during the period of recession.
As compared to the fourth quarter, the average debt on credit card for consumers fell by 4%, from $3,688 in the fourth quarter to $3,539 in the first quarter. The fourth quarter is the peak period for Canadian shopping market. However, it was comparatively same to that of the first quarter of the previous year. This report has been based on the credit files of the Canadians who are credit-active; however, the identities are all anonymous.
The quarter also witnessed an increase in the auto loan debt. The average debt grew by 12.4% from $14,402 last year to $16,189 in 2011. And, the delinquency rate fell by a small margin from 0.13% last year to 0.1% this year.
Excluding mortgages, the most common type of consumer debt are the lines of credit. And, at the end of the first quarter they account for as much as 41% of the outstanding debt. The average debt on lines of credit stands at $33,981 against the figure of $31,867 last year in the first quarter. This is a growth of 5.9%.
In addition, warnings have been released from different quarters including the leading central banker of Canada for consumers to restrain borrowing. It has been noted by leading Canadian banks that borrowing has seen a little slowdown in the first quarter. But, this includes the mortgage market, which is slowing down because of the slowdown in the housing market. A weak consumer spending capacity also means that the higher cost of energy will have a larger bite from the household budget. This means there will be fewer amounts left for meeting expenses. Share
Gurmit Singh, MBA
Homeowner’s Insurance and the Major Five Myths Surrounding it
One of the most commonly found kind of insurance is the homeowner’s insurance, but at the same time people don’t understand it completely. People are of the view that their policy will provide coverage for any damage caused to their home or its contents. However, there are lots of restrictions and exclusions in the coverage provided by homeowner insurances. The main five myths about this insurance are discussed here in brief.
The first myth is that when you are repairing your home and it has borne severe damage that makes it inhabitable, you would consider your insurance company to help you to stay in a hotel. But, that is not always true. Loss-of-use coverage is not provided by all the insurances. And, if this is covered, it needs to be stated clearly in your policy.
The second myth is about replacement cost. This refers to evaluating the loss amount at the cost of replacing items. A replacement cost for example can help you to buy a computer lost in fire with same features. But, most of the policies don’t have this clause. And, in this case, the computer can be valued at a price that is equal to the worth of the old computer, and not at a price equal to that of a new one.
The third myth associated with a homeowner’s insurance is related to flood coverage. Natural disasters like floods and earthquakes are not always included in your homeowner insurance. Floods can arise out of different reasons – hurricane, or burst pipes. And, homes are mostly damaged due to this single reason. If you are living in a flood-prone area it is important that you get an exclusive flood policy.
Termite damages are not covered in most of the homeowner’s insurance. Termites can cause great harm to structures in homes, and sometimes they can even eat up supports. And, repairing such damages can cost thousands of dollars. Make sure that you get your house checked regularly for termite damages, and also get it included in your policy.
When it comes to valuation of loss, most homeowners take the minimum value assessed by the appraiser. However, it is possible to contest and prove that your loss needs to be valued higher. You must keep all the pictures and receipts of valuable items in order to support your claim. This is the fifth myth, and you should make sure that you are getting the best price for your loss. Share
Gurmit Singh, MBA
RRSP or Mortgage: There’s Only One Choice
Time and again the eternal question pops up in financial forums: Should I pay down my mortgage or contribute to my RRSP? While both tasks are desirable, sometimes you really have just enough money to do one of them. Banks and financial gurus all sing the same refrain: Contribute to your RRSP first. Then, pay down the mortgage with the tax refund that you get. Is this the most apt advice for one and all? Probably not.
This is not to deny the obvious benefits of RRSPs and saving for your retirement. However, when one is carrying a mortgage as well, it is important to focus on where your hard-earned dollars will benefit you the most.
For those who are making mortgage payments on their first house, their choice should be to get rid of the mortgage debt as soon as possible, before thinking of contributing to their RRSP. When you increase your mortgage payment, the excess goes straight towards your outstanding principal. This cuts down the time that you take to pay off your mortgage. This reduction in term can save thousands of dollars you’d have paid as interest. Of course, there is a limit to how much over payment you can make every year. But generally, there is a generous allowance given by lenders for making excess payments.
It’s easy to see why banks would like you to follow the advice of keeping both your RRSP and mortgage going. They are able to sell you mutual funds for your RRSP on one hand, and on the other, keep earning interest on your mortgage for longer. It’s a win-win situation for them.
If you follow the advice of bankers, and contribute the same amount to your RRSP, you get a tax refund. Of course, the refund is only a small percentage of your contribution, based on your marginal tax rate. Once you apply this to your mortgage, it will reduce the principal as well. But with the previous method, you would be able to slash your mortgage off in much less time.
You will be much better off when you’re mortgage free, and then you can invest all the amounts now freed up from paying the mortgage into your RRSP. Most people will tell you that with mortgage rates of 5% over the longer term, it is more prudent to carry this debt and invest in an RRSP. They say that you could average around 6% in your retirement plan. However, you need to note that when you pay off that mortgage, you are getting a real saving of 5%, whereas there is no guarantee that your retirement funds will make 6% every year.
With the current economic climate, it is not easy getting this kind of return in an assured investment. Plus with mutual fund fees and other expenses, the returns on RRSPs are further diminished. You cannot get a better risk-adjusted return than by getting rid of your mortgage. Share
Gurmit Singh, MBA
The Right Way to Become a Real Estate Investor
Many new-found millionaires credit their wealth to real estate. With the marching uptrend in property prices in many cities over the past ten years, their investments in real estate have made them look like stars. This area has attracted a lot of media attention lately and potential property magnates are looking for money-making opportunities.
Real Estate Investing is a Business
While there are many success stories in this industry, many investors find the going tough. It is not an easy business to get into. And that is exactly what it is: a business. You must look at it not as an easy way to make money but an ongoing business proposition. You must devise a business plan and analyze its financial aspects.
Many investors get into this market by buying one or two condos to rent out. They crunch the basic numbers. They get an estimate of what rents are being commanded by similar units in the neighbourhood. Then, they deduct the cost of carrying and maintaining the property. Costs such as mortgage interest, condo fees, taxes, etc. are accounted for. A contingency amount is set aside for those periods when you are between tenants, and also to account for any dodgy tenants who skip.
Investing in condos is an excellent way to get your feet wet, while receiving a nominal stream of monthly income. However, the risks are higher when you only own one or two properties. One bad tenant can send your plan to be a real estate magnate out the window.
Learn the Ropes to Succeed in Real Estate
In order to make this business your sole earning vehicle, you have to spread the risk. Many investors will deal with multi unit dwellings, such as duplexes, four-plexes and six-plexes. They need not be in the downtown areas, and can even be in outlying towns. You need to take great care to find good, creditworthy tenants. The benefit of having many tenants spreads the risk of any shady tenants that slip past.
Checking the potential tenants’ backgrounds is vital as well. You must verify not only their employment and income status, but also their credit history. Further, check their references, especially previous landlords for renting history.
A good, solid, regular paying tenant is a golden acquisition. When you have good tenants, make sure that they are well treated. Attend to any problems at your earliest opportunity. It is far cheaper to keep the good tenant than look for new ones.
Tenancy laws are very complex in Canada, and landlords must understand and uphold their legal responsibilities. Getting a lawyer on board and vetting all contracts is a key to a good real estate business. Share
Gurmit Singh, MBA
Going Variable, Paying Fixed
Research has shown that Canadians would save more money on their mortgages if they chose to go with variable rates. Yet not many of us have walked down this path. The reason is not far to seek: Fear. Of course, variable rates tend to be lower than fixed rates, even the best ones. Variable rates are latched on to the Prime rate and track it within a few points above or below it.
We’re afraid of the unknown. Who knows where the Prime rate will be six months from now or a year from now? Not even the Bank of Canada that fixes the Prime rate. They too have to look at the prevailing economic conditions and decide on what the rate should be. Not many of us are financial gurus to anticipate this movement in Prime rates.
This is exactly why most people choose the fixed rate route. Yes, you may end up paying a higher rate, but at least you’re not riding a yoyo of uncertainty. Variable rates will fluctuate and so will your monthly mortgage payments. We want stability and we want to be able to budget for our families’ future.
Yet, variable rates offer the best opportunities to save big bucks, says the oft-touted and much respected research. Actually, there are some ways to get the advantage of a variable rate and the stability of a fixed rate. Many lenders offer what are called hybrid mortgages, where a part of the loan is attached to the variable rate and another part to the fixed rate. You can decide how much of the loan should be allocated to each for your own comfort.
There is another great method that will save you even more than the hybrid mortgage. You can take the variable rate on the entire mortgage amount, but structure your payments to match what you would pay on, say, a five year fixed mortgage. The beauty of this method is that every dollar that you pay in excess of the amount required for the variable mortgage, goes directly towards your principal. This helps to pay down your mortgage faster.
In today’s environment, everyone agrees that variable rates are the way to go. The Prime rate is at historic lows and the variable mortgage rates are going at a discount to Prime. Chances are that these rock-bottom rates have nowhere to go but up. However, with the current economic malaise affecting the globe, the rates may not go shooting up any time soon.
A smart move is to select a variable rate mortgage, at current insane rates of 2.2% or thereabouts. Then, make your monthly payments as if you were paying for a five year fixed mortgage. Check with your lender if these amounts of regular pre-payments are possible. This is the best way to enjoy low variable rates and get mortgage free sooner as well. Share
Gurmit Singh, MBA
Buying a New Condo
You look at all those glossy ads in new home and condo magazines and you begin to drool. You imagine you’re one of those glamorous couples cavorting on the exquisite verandahs and you wish you were there right now. The views of the city at night time jump out of the page and entice you to enter the world of your dreams. You walk into the builder’s office ready to sign up for a new home in the clouds. But, wait. Take off your rose colored glasses and see the deal for what it really is.
Buying a condo for you and your family to live in is not a frivolous decision. You need to be fully aware of what you’re getting into. Make sure you understand what condo living is all about. If indeed you are comfortable with what it entails, and are happily looking forward to this lifestyle, then by all means venture forth.
Check Out the Builder
The first thing is to do is research the builder. It is vital to deal with a reputable builder, preferably one with several successful and appealing projects in your city. You want a builder who has considered the wishes of condo owners and incorporated them into the details of his buildings. Do some research online and see if the builder has the approval of provincial bodies. Look for any complaints against the builder that may be floating around. There may be issues with workmanship or delayed constructions that you should be aware of.
Most reputed builders have excellent customer service. Call and speak with them to get a sense of how good they are to work with. Check out the plans and models at their showrooms. Ask a question to your heart’s content, until you’re satisfied that this is the right builder to go with.
Read the Fine Print
Once you have chosen your desired plan off the builder’s sketches, inspect its location on the model and the floor of your choice. Then you can go ahead and sign on the dotted line. The agreement for purchase and sale is an important and binding document, so make sure that you have your legal advisor explain to you its intricate clauses.
Anything that you agree with your builder must be in written form and included into the contract to be effective. In Ontario, you are given a ten day cooling off period after you sign a deal for a pre-construction condo. If for whatever reason, you change your mind about your condo purchase within this period, you can walk out on this deal. You can get back your deposit from the builder, if you had given one. Once this date passes, you are legally bound by the contract. Share
Gurmit Singh, MBA
May 20, 2011
Getting Home Mortgages
Having a place where you can go home to after a long days work is very rewarding especially if that place is your own. There are a lot of people who are only renting apartments and places to live in. Most of them are afraid to buy a new home because it is very costly. It is costly for a fact but one can get a home with help from financial institutions. There are a lot of companies that offer financial aid so that you can get your own house. There are companies that can provide you loans and mortgages.
Your standing and good credit score is one of the things that you should worry about when it comes to get someone to loan you money. Your score is inversely proportional to the risk you are going to be. The sky rocketing your credit score, the more chance of getting a higher amount of loan because you are not that risky compared to those who has lower credit ratings. Maintaining a great credit score has another perk, and that is the flexibility in the terms given to you.
You can bargain for a lower interest rate. In case you are not in a pretty good standing, there is still a chance for you to get your own home financing. Businesses are all over catering to the undeserved market. The most visible factor though from the ones with higher standing is the rate of interest – it is higher compared to those with good records. The higher the risk is involved the higher the interest rate is going to go.
Institutions that are giving out mortgages first look at the credit rating of the person. Sometimes, people get pre approved because they have maintained a very good credit score. Lenders lend you more the higher your FICO or your credit score is. Credit score is sort of your test results in you SATs or your final examination grade. You cannot get it high over night. It takes years of good paying record to get a high score. Lenders favor those who have the good ratings because these are the people who make sure that they pay their debts. So if you want to get approved for a good amount of home loan, start building your credit early.
There are different types of that one can choose from. The fixed rate is one of them; this will have the same interest rate from start to finish. Another is the adjustable rate mortgage. Normally has a lower interest compared to fixed rate but it would vary due to the market condition. It may go up or down depending on the market. Balloon rate is another type. It makes you minimal payments for a specific period of time and will ask you to pay in full after the time given. So choose wisely among these mortgages and make sure you can pay them. Share