Thursday, January 20, 2011

5 Secrets of Successful Savers

One of the most common questions is how someone can begin building financial security, especially when they're still paying off loans or other types of debt. After interviewing dozens of successful savers over the years, …they tend to have the following five traits in common. With the exception of the last one, they are all strategies that anyone can begin implementing today.

Here are the five secrets of successful savers:

1) They started slowly. Overcoming the initial inertia that prevents many of us from saving is often the hardest step. That's why starting by saving just a small amount can get you on the path towards bigger savings. Nicole Mladic, a 31-year-old communications director in Chicago, couldn't afford to put away a big chunk of her salary when she was in her mid-20s, so she started saving 2 percent. A few months later, she raised it to 3 percent, then went to 4 percent, and eventually reached her goal of 10 percent. Today, her net worth is over $90,000.

2) They read about financial and economic news. A survey by HSBC Direct found that people they call "active savers," tend to pay attention to financial news. That might help them maintain a general awareness and savviness about money, and also teach them about basic principles such the importance of not trying to time the market, and finding accounts that don't charge hefty fees.

3) They save regularly, often through automated systems. Online banking makes this technique easy: Sign up for monthly transfers into a brokerage or savings account. You can also transfer funds directly from your pay so you never even see the money, which means you won't miss it. Check in with your human resources department--you might be able to set up an automatic savings account through your pay in addition to your automatic retirement savings.

4) They find saving pleasurable. This trait might sound counter-intuitive: How can anyone enjoy saving money, since doing so essentially prevents the pleasure of a purchase today? But some people--especially successful savers--naturally feel more pleasure while socking money away rather than spending it, since they know they are building financial security, and they can spend it one day in the future. If you don't naturally feel this way about saving, you can teach yourself to, by focusing on how much financial security means to you each time you add to your savings accounts.

5) They first began saving as a child. The HSBC survey found that most active savers had been saving money since they were little and they learned the value of saving from their parents. While adults today who didn't receive those lessons can't change their past, they can help pass on better lessons to their own children by talking about finances and family budgeting often. Doing so would put them in the minority: A Charles Schwab survey found that only one in five parents frequently talk to their teens about family budgeting and spending decisions, and just over half of parents teach their teens how to save regularly.

One trick that combines these strategies is to encourage elaborate family discussions about what you will do with all the money you are saving. For example, if your savings goal is to take a family vacation to Belize, children can draw pictures of the rainforest, parents can crunch some numbers, and soon you'll be snorkeling in the coral reefs.

What's affecting your credit score?

I still have an Eaton’s department store credit card even though there is no where to shop with it.

That hasn’t stopped the long-forgotten card from making its way on to my credit report and ultimately affecting my credit score.

When contacted by a representative of TransUnion LLC — one of two companies providing credit ratings in Canada, the other being Equifax Inc. — for a story about how to improve credit ratings I decided it would be a good time to check my own score.

TransUnion gave me a code to download my score, something that normally costs $14.95 for a one-time credit profile and another $7.95 to get your credit score. The company also offers a program that allows you to monitor both whenever you want for $14.95 a month.

“One of the benefits of checking your credit report is to make sure information is accurate and up to date,” says Tom Reid, director of consumer solutions for, referring to opened accounts you may have forgotten about.

So how did I do? I scored 786 out of 900, considered “good” and better than 66.02% of the population. But I somehow feel like the kid who got a B on an assignment. I want that A.

According to my report, I have too many bank or national revolving accounts on my credit report. I have three major credit cards, American Express, Visa and MasterCard. I have a car loan and an unused line of credit with my bank.

That Eaton’s card probably didn’t help my score and then there’s the Hudson’s Bay card account that was still open that I haven’t used in a decade. Show me a Canadian who hasn’t opened up one of those to get the 10% discount. I just never closed mine.

There are five different categories that go into a credit score. The first is on-time record of payment — got that covered. Next up is the number of inquiries or applications for credit.

You remember getting that credit card for a free tee-shirt at a hockey game or signing up for the department store card to get the discount and then destroying it. You think that doesn’t matter? Think again.

“It could potentially have a negative impact on your score,” says Mr. Reid, about applications I’ve made to various department stores over the years. Fortunately, I haven’t made any in the last two years.

Your utilization of credit is also a major factor — that’s your balance divided by available credit. It’s not based on whether you have a balance at the end of the month but it’s the balance outstanding at a given moment divided by your available credit.

“If that number exceeds 40%, that is typically a warning sign,” says Mr. Reid, noting a higher credit limit will keep that percentage down.

The last factors are longer term credit history and the breadth of your credit, somebody who has just one credit card doesn’t look as strong as someone who also has a line of credit and say a mortgage.

“It’s a fantastic credit score,” says Mr. Reid, about my result, adding I shouldn’t have a problem getting credit. Yeah but my editor who took the same test scored 831.

All of this may just seem like a vanity project but there are real problems you can encounter with bad credit and a poor rating, says Vince Gaetano, a principal broker with Monster Mortgage.

“A number of things can happen if you don’t have a good score. Right now 680 seems to be the cut off for buying a home with mortgage [default] insurance,” says Mr. Gaetano. “If you are below 600, you are in real trouble, you are going to a B leader.”

Those lenders will just kill you on interest rates — 5% to 6% compared to 2.25% —not to mention the fact you’ll need to have at least a 20% deposit on your home.

Then there’s the fees for bad credit. Lenders charge 1% of the value of the mortgage for people with bad credit. Who wants to pay $3,000 extra on a $300,000 mortgage. The broker will also demand 1% because your bad credit means the bank is not compensating the broker for you, the questionable customer.

What’s the worst score Mr. Gaetano has seen. “Somebody had like 430-something. I mailed them a bullet. I wouldn’t lend a guy like that $5 for lunch. That’s happens when you stop paying everybody,” he says.

I’m starting to feel better about my score. But I still cancelled my open HBC card and started to investigate how one goes about cancelling a credit card for a store that no longer exists.

Wednesday, January 19, 2011

2011: Another Step Closer to Recovery

The GTA housing market performed surprisingly well in 2010, and 2011 home sales are expected to almost mirror those of last year. Since the real estate bottom hit in 2008, there's been a slow climb back up to levels and conditions similar to 2003-06, meaning a more balanced supply and demand environment. Canada Mortgage and Housing Corporation (CMHC) is expecting flat prices for the GTA with slight value appreciations in the 905 area codes. The overall 2011 housing projections for Canada is referred to as "Decent volumes without dramatic movements".

Is 2011 a good time to buy? Timing when to buy a home is very tricky business and there's no crystal ball that can help. In my opinion, you are buying a home for you and your family, which is very difficult to put on a spreadsheet. I would suggest you venture into real estate with expectations of living in pleasant surroundings for a reasonable amount of time; I am confident your home value will appreciate as did your parents' home before you. Conversely, if you plan to occupy a new home for only a year or two, you may be challenged in realizing any profit considering property value increases in 2012 are expected to be less than those in 2010 and 2011. If you are prepared to speculate short-term on real estate, I can only wish you good luck!

Is 2011 a good year to borrow? Didn't you hear the sky is falling? Interest rates are going up and we should all be very afraid! You don't have to be a financial guru to understand that currently we are spoiled with crazy low interest rates and, as the economy gradually improves, over the next five years (it won't happen overnight) all of us should be paying more normal mortgage rates of around 5-6%. Keep in mind that regulators do not allow lenders to calculate your debt obligations on current rates. When securing a variable rate mortgage at 2.2%, the mortgage provider is required to use an interest rate of over 5% when determining your budget or comfort zone…this is an excellent Government safety net to avoid future "payment shock". Let me remind you as well that 5-6% is historically an amazing mortgage rate and if you doubt that, just ask your parents.

Bank of Canada Announcement - Rates Remain Unchanged

Slow and steady wins the race was the message today from the Bank of Canada.
As expected- stability was the order of the day in Tuesday’s interest rate announcement.  Rates will remain unchanged- which will keep the status quo in terms of monetary stimulus.

The overnight rate will maintain its’ position at 1%.

The Bank Rate is correspondingly 1 1/4 % and the deposit rate is 3/4%.
This maintenance plan is attributed to global economic recovery carrying ahead at a healthier pace than had previously been forecast. In the U.S., domestic demand has increased- and it expected to increase more with new stimulus to be offered soon. In Europe, growth has outpaced forecasts as well- although the region is the source of uncertainty- from a global perspective. These markets have begun to introduce measures to rectify this, so there is hope for stability.
On the domestic front, the Canadian economic recovery is continuing on much as had been expected. There are concerns, that have been voiced recently by various government agencies, about the overextension of household consumer debt, but the thinking is that the combination of low interest rates coupled with newly introduced lending restrictions will create a favourable environment for continued modest growth.
The Bank of Canada predicts for 2011 growth at a rate of 2.4% and 2.8% in 2012- with an expectation to return to full economic capacity by the end of 2012.
Inflation has not been a major factor as of yet, with prices remaining subdued, likely because of “considerable slack in the Canadian Economy.” Inflation is forecasted to reach a manageable 2% by 2012.

Tuesday, January 18, 2011

New Mortgage Rules Announced

On Monday, Finance Minister Jim Flaherty announced some changes to mortgage rules in Canada. 
1. The maximum amortization period is now 30 years (down from 35 years) for government-backed insured mortgages, when the down payment is less than 20 percent.  This new amortization limit will come into force on March 18, 2011. 
2. The maximum amount that can be borrowed when refinancing a mortgage is now 85 percent the value of the home, down from 90 percent.  This new refinance limit will come into force on March 18, 2011. 
3. The government will no longer provide insurance backing for home equity lines of credit.  Government backing for home equity lines of credit will end on April 18, 2011. 
Exceptions will be allowed after these new changes come into force, if necessary, to satisfy a home purchase or a sale and financing agreement arranged before the above-mentioned March and April dates. 
Be sure to talk to an Invis broker about how these changes could affect you, and for advice on the mortgage strategy that fits your needs.   
Bank of Canada

Bank of Canada Leaves Key Rate Unchanged 
The Bank of Canada said today that it will leave its key interest rate unchanged.  This means that Canadian lenders are expected to keep their prime lending rate steady.  Products typically linked to a lender’s prime rate include variable-rate mortgages, variable-rate credit cards, and home equity lines of credit.  The pricing of fixed-rate mortgages is more affected by trends in the bond markets.

Monday, January 17, 2011

Market News

TORONTO, January 6, 2011 -- Greater Toronto REALTORS® reported 4,395 existing home sales for the month of December, bringing the 2010 total to 86,170 - down by one per cent compared to 2009.

"Market conditions were anything but uniform in 2010. We went from super-charged sales activity during the first four months of the year, to a marked drop-off in transactions in the summer and then in the fall saw sales climb back to levels that are sustainable over the longer term," said TREB President Bill Johnston

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Strengthening Economic Recovery and Low Interest Rates Point to a Stronger Than Anticipated 2011 for Housing Market

Prospect of rising mortgage rates may prompt heightened buyer activity early in the year, according to Royal LePage forecast

TORONTO, January 6, 2011 – The average price of a home in Canada increased between 3.9 and 4.6 per cent in the fourth quarter of 2010, compared to the previous year, as markets shrugged off a lackluster third quarter and returned to a post-recession growth profile. Home values are forecast to continue a moderate and steady climb in many of the country’s key housing markets through 2011 with sales activity skewed to the first half of the year, according to the Royal LePage House Price Survey and Market Survey Forecast released today.
The low cost of borrowing stimulated the housing market in 2010, and this trend is predicted to continue in the first half of 2011. The widely held consumer belief that rates will rise in the latter part of 2011 may prompt an increase in buying activity early in the year.
“Trends in the housing market continue to be driven by the lingering after-effects of the recession,” said Phil Soper, president and chief executive of Royal LePage Real Estate Services.  “Canadians realize that interest rates are unsustainably low and that homes will become effectively more expensive when mortgage rates return to normal levels.  We will likely see more price appreciation early in 2011 as some buyers complete transactions in advance of anticipated higher borrowing costs.”
Soper added, “2011 is expected to unfold much like 2010, when close to 60 per cent of sales volume occurred in the first half of the year in anticipation of interest rate increases that never materialized. However, housing market activity in the first half of 2011 will be modestly closer to the norm, as last year’s phenomenon was exacerbated by mid-year tightening of mortgage accessibility and the introduction of HST in Ontario and British Columbia.”
Regionally, the strongest price appreciation of the cities studied is expected in mid-sized urban centers where affordability is better than the national average. For example, in Winnipeg, St. John’s and Fredericton, two-storey homes below $300,000 are still widely available. Demand in these cities is expected to be strong, putting upward pressure on home values.
Cities in Alberta are expected to be among Canada’s strongest performing markets in 2011. Woes in the historically volatile region’s housing market stretch approximately five years, when the Alberta housing market suffered a sharp correction following several years of double-digit price increases.  The province’s energy-driven economy staged a comeback in 2010, recovering from the recession-led plunge in oil and gas prices.  Major employers are expected to steadily increase hiring in 2011 which should attract new residents to the province and put upward pressure on the limited supply of housing. Royal LePage forecasts the average price of a home in Calgary will increase 5.4 per cent through 2011 while Edmonton home prices will increase 3.3 per cent. Home sale transactions are predicted to rise 6.7 per cent in Calgary and 9.1 per cent in Edmonton over the same period.
Across Canada, the average price of a home is forecast to rise 3 per cent over the coming year to $348,600 while the number of transactions is expected to drop 2 per cent.
During the fourth quarter of 2010, average home prices either increased or stabilized year-over-year, with Winnipeg, Ottawa, Montreal and St. John’s seeing the biggest gains.  Nationally, the average price of detached bungalows rose to $324,531 (up 4.6 per cent), the price of standard two-storey homes rose to $360,329 (up 4.4 per cent), and the price of standard condominiums rose to $226,746 (up 3.9 per cent), compared to the fourth quarter of 2009.
Mr. Soper continued, “Like many Canadians, we anticipated an end to the ultra-low interest rate era before year-end 2010.  Paradoxically, global economic weakness, particularly in the United States, allowed policy makers and financial institutions to keep borrowing costs low, resulting in a stronger Canadian housing market and a better than forecast fourth quarter.”

House prices surveyed in Toronto increased modestly year-over-year. Standard two-storey homes witnessed the largest increases at 5.6 per cent. Market activity slowed in the second half of the year as buyers rushed to the market in the first half of the year in anticipation of interest rate hikes and HST.  For 2011, price increases are expected to be very modest at approximately 1 per cent.