2 Jun

Don’t Be House Poor.

General

Posted by: Ram Dhunna

Having the biggest and best home on the block sounds great – but not if it is at the expense of your life and monthly finances! Be smart about your budget and avoid buying a home at the very top of your pre-approval value, which might lead to cash flow issues and being “house poor” down the line.

Home Expenses

When it comes to your home, it is more than just your purchase price and mortgage cost. While you might be able to afford to buy a $800,000 home, can you also afford the maintenance, property taxes, utilities and more?

When it comes to your home expenses and overall monthly budget, the goal is that the costs to maintain your home do not exceed 35% of your total monthly income.

Monthly Budget

To help you keep track of your finances, consider breaking up your monthly budget into the following categories:

  • Housing – mortgage payments, property taxes, utilities, etc.
  • Transit – car payments or transit passes, gas, maintenance, etc.
  • Debt – payments to credit cards, lines of credit, etc.
  • Savings – your long-term savings for retirement, etc.
  • Life – food, vacations, fun, medical, childcare, etc.

From there, you would want to look at how much you spend on each category. The below is a good rule of thumb:

  • Housing – 35% of your monthly income
  • Transit – 15% of your monthly income.
  • Debt – 15% of your monthly income
  • Savings – 10% of your monthly income
  • Life – 25% of your monthly income

By spending too much on housing, you are forced to sacrifice in other areas of spending such as your life or savings, but it is better to be life RICH than house POOR.

If you’re not sure what you should budget for your new home, or have questions about making your home costs more affordable (such as changing your mortgage payments), please don’t hesitate to reach out to me.

3 Apr

Choosing Your Ideal Payment Frequency

General

Posted by: Ram Dhunna

Choosing Your Ideal Payment Frequency
Your payment schedule is the frequency that you make mortgage payments and ranges from monthly to bi-monthly, bi-weekly, accelerated bi-weekly or even weekly payments.

Below is a quick overview of what each of these payment frequencies mean:

Monthly Payments: A monthly payment is simply a single large payment, paid once per month; this is the default that sets your amortization. A 25-year mortgage, paid monthly, will take 25 years to pay off but includes the added burden of one larger payment coming from one employment pay period. With this payment frequency, you make 12 payments per year.

Example: $750k mortgage, 3-year fixed rate, 5.34%, 30-year amortization you would have a monthly payment of $4,156.19. No term savings; no amortization savings.

Bi-Weekly Payments: A bi-weekly mortgage payment is a total of 26 payments per year, calculated by multiplying your monthly mortgage payment by 12 months and divided by the 26 pay periods.

Example: $750k mortgage, 3-year fixed rate, 5.34%, 30-year amortization you would have a bi-weekly payment of $1,915.98 with term savings of $177 and total amortization savings of $1,769.

Accelerated Bi-Weekly Payments: An accelerated bi-weekly mortgage payment is also 26 payments per year, but the payment amount is higher than a regular bi-weekly payment frequency. Opting for an accelerated bi-weekly payment will not only pay your mortgage off quicker, but it’s guaranteed to save you a significant amount of money over the term of your mortgage. This frequency also allows the mortgage payment to be split up into smaller payments vs a single, larger payment per month. This is especially ideal for households who get paid every two weeks as the reduction in cash flow is more on track with incoming income.

Example: $750k mortgage, 3-year fixed rate, 5.34%, 30-year amortization you would have accelerated bi-weekly payments of $2,078.10 with term savings of $1,217 and total amortization savings of $145,184. Plus, you would save 4 years, 12 months of payments by reducing scheduled amortization.

Weekly Payments: Similar to monthly payments, your weekly mortgage payment frequency is calculated by multiplying your monthly mortgage payment by 12 months and dividing by 52 weeks in a year. In this case, you would make 52 payments a year on your mortgage.

Example: $750k mortgage, 3-year fixed rate, 5.34%, 30-year amortization you would have weekly payments of $957.50 with term savings of $253 and total amortization savings of $2,526. You can move to accelerated weekly payments to save even more!

Prepayment Privileges: In addition to fine-tuning your payment schedule, most mortgage products include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This can help reduce your amortization period (the length of your mortgage).

By exercising your prepayment privileges, you can take time off your mortgage. For instance:

  • Extra $50 bi-weekly is $32,883 total savings and an additional 1 year, 2 months time saved
  • Extra $100 bi-weekly is $62,100 in total savings and an additional 2 years, 3 months time saved on your mortgage
  • Extra $200 bi-weekly is $111,850 in total savings and an additional 4 years, 1 month of time saved on your mortgage.

Understanding the different payment frequencies can be key in managing your monthly cash flow. If you’re struggling to meet a large payment, breaking it up can be effective; while the same can be true of the opposite. Individuals struggling to make a weekly or bi-weekly payment, may benefit from one monthly sum where they have time to collect the funds.

Consider getting in touch with me today to determine what payment frequency is best for you OR you can download my app and calculate them for yourself!

Spring Cleaning Tips
As the sun starts coming back around, it is a great time to scrub those windows and deep clean your home!

Here are some tips for a successful Spring clean:

  1. Create a Playlist: Everything is more fun with a great playlist! Not only is music great therapy but it can make the cleaning process go by quicker and make it more enjoyable.
  2. Clean One Room at a Time: While we all like seeing our homes sparkly and fresh, it can sometimes be an overwhelming process to get to that point. To help minimize the stress, work one room at a time! Start with the smaller rooms, or those that need the least amount of cleaning, and work your way up to the larger, project rooms. Another option is to tackle one or two rooms each weekend for the month and by the time May comes, you’ll be ready!
  3. Declutter as You Go: Spring cleaning isn’t just about shining up the brass on the door and dusting. It is just as important to declutter your space! Before you start cleaning the room, it is a good idea to pinpoint items that can be discarded, such as old magazines and papers, as well as to go through closets and cupboards for anything that you can donate (like that sweater you bought and never wore). This will clear up space for new clothing and items and will make you feel that much more accomplished!
  4. Think Green: Spring cleaning allows us to start the season off on a fresh, clean note. Don’t muddy that up with harsh chemical cleaners. In today’s eco-friendly environment, there are many safe alternatives to regular cleaners. Vinegar is a great substitute in the bathroom or kitchen as well as combining vinegar, baking soda and water as a deep clean alternative. You can also opt for a steam cleaner to manage tile, hardwood floors, appliances and even outdoor areas as they only use hot water and vapor.
  5. Work From Top to Bottom: Starting from the ceiling and working your way down just makes sense! This will force debris downward and save you having to re-clean your space. Dusting first will prevent a headache later too!
  6. Don’t Forget The Fridge & Freezer: The best time to clean out your fridge and freezer is right before you do your grocery shop, so they will be at their most empty. Take everything out and dispose of anything that is past its expiration date and any almost-empty items you won’t use. Before you restock be sure to wipe down the interior of the fridge with disinfectant and a damp cloth. The same can be done for the freezer but you’ll have to defrost it first!
  7. Clean Air Reduces Allergies: Replacing furnace and HVAC filters is one of the most overlooked parts of Spring cleaning. Going as far as replacing your standard filter with a more robust one with a higher rating will help keep you even healthier this year as they catch smaller particles to ensure your home is void of allergen triggers, chemicals and even odors.
Economic Insights from Dr. Sherry Cooper
In March, the global economy was focused on systemic risk in the banking sector.

Following three bank failures in the U.S., markets were roiled again by the forced sale of Credit Suisse to UBS.

Interest rates have plummeted as demand for the haven of government bonds has increased sharply. Consequently, five-year fixed mortgage rates have fallen roughly 30 basis points as the Fed pondered its next move.

Inevitably, failed banks and fears of additional losses have led many financial institutions to tighten their provision of credit. Although interest rates have fallen worldwide, more cautious lending will slow economic activity, particularly in the U.S. and Europe, ground zero for bank failures.

For that reason, many expected the Fed to pause to assess the situation further. The Fed raised its overnight policy rate 25 bps to a range of 4.75% to 5.0%, now above the overnight rate in Canada.

Just over two weeks ago, Fed Chair Jerome Powell testified to Congress that inflation pressures warranted higher-than-expected interest rates. With the bank failures, the Fed suggests that the target level might be only one or two moves away. However, even with that, the U.S. central bank reasserted that interest rates determined by the Fed will not be reduced until next year.

Market-determined yields have fallen sharply, especially at the short end of the yield curve—increasing the inversion in the yield curve. An inverted yield curve portends a more aggressive economic slowdown, reflected in the fall in oil and gas prices.

Canada’s yield curve moved almost as much as in the U.S. Good news on the inflation front affirmed the Bank of Canada’s decision to pause. Consumer price inflation fell last month from 5.9% to 5.2%. The Bank will likely pause again at its next meeting in April.

Canadian bank stocks fell quite a bit, mirroring global trends. Our banks are in no danger of failing. Like the 2008 Financial Crisis, Canadian banks have proven to be very soundly regulated.

Lower mortgage rates are great news for the coming Spring season. While it won’t measure up to the 2021 boom, a rebound in sales and new listings will be great for the industry.

2 Mar

Need an Appraisal? Tips for Success

General

Posted by: Ram Dhunna

If you are looking to buy a home or want a current value of your property, you will need an appraisal.

Before banks or lending institutions can consider loaning money for a property, they need to know the current market value of that property. The job of an appraiser is to check the general condition of your home and determine a comparable market value based on other homes in your area.

While you may think “it is what it is”, we actually have a few tips that can help improve your home’s appraisal to ensure you are getting top market value!

Clean Up: The appraiser is basing the value of your property on how good it looks. A good rule of thumb is to treat the appraisal like an open house! Clean and declutter every room, vacuum, and scrub to ensure your home is as presentable and appealing as possible.

Curb Appeal: First impressions can have a huge impact when it comes to an appraisal. Spending some time ensuring the outside of your property from your driveway entrance to front step is clean and welcoming can make a world of difference.
Visibility: The appraiser must be able to see every room of the home, no exceptions. Refusal to allow an appraiser to see any room can cause issues and potentially kill your deal. If there are any issues with any spaces of your home, be sure to take care of them in advance to allow the appraiser full access.
Upgrades and Features: Ensuring the appraiser is aware of any upgrades and features can go a long way. Make a list and include everything from plumbing and electrical to new floors, new appliances, etc. This way they have a reference as to what has been updated and how recent or professional that work was done.
Be Prudent About Upgrades: While the bathroom and kitchen are popular areas, they are not necessarily the be-all-end-all for getting a higher home value. These renovations can be quite costly so it is a good idea to be prudent about how you spend your money and instead, focus on easy changes such as new paint, new light fixtures or plumbing and updated flooring to avoid breaking the bank while still having your home look fresh.
Know Your Neighbourhood: You already know where you live better than the appraiser. Taking a look at similar homes in your neighbourhood and noting what they sold for will give you a ballpark. If your appraisal comes in low, you will be prepared to discuss with the appraiser the examples from your area and why you believe you property is worth more.
Be Polite: The appraiser is there to get in and get out. Avoid asking them too many questions or making too many comments and simply be prepared should they have questions. Once they have completed the review of your home, that is a good time to bring up any comments you might have.

Don’t forget to contact me   if you have any questions about your existing home or mortgage, or if you are looking to sell and relocate in the future!

Ram Dhunna

Dominion Lending Centres-First Pacific Mortgage.