What People Think and How they Act can be Very Different

A new survey for the Chartered Professional Accountants of Canada suggests Canadians may harbour false notions about their financial savvy and security. 

The CPA assessed attitudes from before and after the recent drop in oil prices and interest rates. The accountants say, that while Canadians rank themselves highly for financial discipline, few households are planning for potential changes to the economy.

According to the survey 79% of respondents say they are staying on top of their payments, while 59% say they are living comfortably and are doing alright financially. This may sound great but further questioning reveals another story. 

The CPA survey indicates: 

 - 53% of households do not save on a regular basis.

- 51% say they do not have an emergency reserve fund apart from their "regular savings".

- 60% (which the CPA characterizes as "only") of households say they pay off a portion of their debt on a regular basis.

- 41% of households with a HELOC (Home Equity Line of Credit) in other words a line of credit secured on their home's equity,  did not make regular interest and principal payments to repay their outstanding balance. 

 “It may be a matter of perception,” explains Kevin Dancey, FCPA, FCA, president and CEO, CPA Canada. “Factors such as lower interest rates, cheaper gas and a strengthening U.S. economy may have some people thinking things are just fine. However, no matter what happens with the economy over the coming months many households remain vulnerable because of high debt levels.”

 Key economic indicators reinforce the financial vulnerability of many Canadian households:

• total household debt reached a record high of $1.82 trillion as of Q4 2014
• the debt-to-income ratio reached an all-time high of 163 per cent in Q4 2014, meaning that for every dollar of income, Canadians carried $1.63 in debt

“Canadians should be taking steps now to build their nest eggs and improve their ability to service debt obligations in the event of future economic shocks,” says Joy Thomas, FCPA, FCMA, executive vice president, CPA Canada. “Economic uncertainty lingers and borrowing rates will rise at some point. Canadians should be planning ahead and be prepared for what tomorrow brings.”

   If you work in the oil patch or a related industry; or if you are feeling financially vulnerable the best thing to do now is to speak with a mortgage broker about lowering your mortgage payments or moving your high interest debt into a lower interest product to make paying it off easier if your situation changes.

Source: https://www.cpacanada.ca/en/connecting-and-news/news/professional-news/2015/March/Household-finances-Canadians-at-risk

Tips for Paying Off Your Mortgage Faster

Mortgages in Canada are generally amortized between 25 and 35 year terms. While this seems a long time, it does not have to take anyone that long to pay off their mortgage if they choose to do so in a shorter period of time.

With a little bit of thinking ahead, and a small bit of sacrifice, most people can manage to pay off their mortgage in a much shorter period of time by taking positive steps such as:

• Making mortgage payments each week, or even every other week. Both options lower your interest paid over the term of your mortgage and can result in the equivalent of an extra month’s mortgage payment each year. Paying your mortgage in this way can take your mortgage from 25 years down to 21.
• When your income increases, increase the amount of your mortgage payments. Let’s say you get a 5% raise each year at work. If you put that extra 5% of your income into your mortgage, your mortgage balance will drop much faster without feeling like you are changing your spending habits.
• Mortgage lenders will also allow you to make extra payments on your mortgage balance each year. Just about everyone finds themselves with money they were not expecting at some point or another. Maybe you inherited some money from a distant relative or you received a nice holiday bonus at work. Apply this money to your mortgage lender as a lump-sum payment towards your mortgage and watch the results.

By applying these strategies consistently over time, you will save money, pay less interest and pay off your mortgage years earlier! If you require more information, visit my website or contact me.

Changes to Canada's mortgage rules - November 1, 2012

    Today we received a reminder from our lenders about the changes to mortgage rules in Canada as of today. The major change that will affect people today is that if you want a line of credit , the maximum that you will be able to access is up to 65% of the value of your home. This is down from 80% yesterday. As Canadians grapple with high debts on credit cards and loans, this will remove one way for them to consolidate their debts. I suspect there will be more unsecured loans and more people driven into bankruptcy.
        The other big change is with conventional uninsured mortgages. As of today you will have to qualify at the bank's 5 year  benchmark rate intead of the lower rate for 1-4 year mortgages. This may make it difficult for investors and some home buyers.
 We will have to wait to see what the repercussions are from this latest change to the mortgage rules.
 If you want more information or to discuss these changes you can contact me here.
 I have included the whole notification below for you to read over yourself.
 

As I suspect you are aware, OSFI - the regulator of all Canadian Financial Institutions, has imposed underwriting guidelines for Residential Mortgages on all regulated lenders and CMHC.  These underwriting guidelines are known as B20 and have been created at the insistence of the Financial Stability Board, the financial oversight organization of all G20 nations.  The creation of these guidelines is a direct result of the financial crisis caused by poor American mortgage lending practices.

My purpose in writing this is to give you, our valued brokers, an overview of the components of B20 in general terms.  I will explain to you what it means to your lender partners - at least to Optimum Mortgage and secondly, what it means to you. 

Components of B20
The Guideline sets out what OSFI considers to be prudent residential mortgage underwriting standards.  A residential mortgage is considered to be a loan or any other product, like a HELOC, that is secured by a residential property - up to a four-unit dwelling. 

The Guideline sets 5 principles for sound residential mortgage underwriting:

1.       All lenders must have a policy outlining risk appetite, governance and over site mechanisms to ensure lenders follow their own policies;

2.       Lenders must confirm the borrower’s identity, background and demonstrated willingness to service debt obligations on a timely basis;

3.       Lenders must assess the borrower’s capacity to service their debt obligations on a timely basis;

4.       Lenders must be satisfied that the value of the property being financed has been confirmed by an independent third party; and,

5.       Lenders must stress test their book of business with unlikely, but plausible scenarios to determine the impact to their business.  Lenders are expected to impose a higher level of due-diligence on higher risk deals, conduct ongoing risk-assessments on the insurers they use and generally pay close attention to the risk attached to their residential mortgage portfolio.

CIBC Poll: Paying Down Debt named the Top Financial Priority for Canadians

Annual poll reveals the focus on debt management and budgeting is increasing - while retirement planning takes a back seat among younger Canadians

TORONTO, Dec. 28, 2011 /CNW/ - A new CIBC (TSX: CM) (NYSE: CM) Poll conducted by Harris/Decima reveals Canadians named paying down debt as their number one financial priority entering 2012, followed by managing day to day spending and retirement planning. Compared to the findings of the same poll one year ago, more Canadians are focusing on debt repayment in the year ahead.

Top 3 Financial Priorities, year over year:

2011 2012
Paying Down Debt 14 per cent 17 per cent
Managing Day to Say Spending & Budgeting 12 per cent 14 per cent
Retirement Planning 13 per cent 11 per cent

"More Canadians are recognizing the importance of managing debt as a component of their overall financial plan, and that is driving an increased focus on debt management and day to day budgeting entering 2012," said Christina Kramer, Executive Vice-President, Retail Distribution and Channel Strategy, CIBC. "Canadians are also increasingly seeing the connection between good management of their day to day budget and their longer term financial goals, recognizing that taking smaller steps today as part of a plan can lead to significant benefits down the road."

While paying down debt was the top priority among Canadians, financial priorities vary across age groups:

Among 25 - 44 year olds, 23 per cent named paying down debt as their top financial priority right now, while 14 per cent of this age group said building savings was their top priority.

Among 45 - 64 year olds, 20 per cent named retirement planning as their top financial priority right now, followed by paying down debt (16 per cent).

Managing day to day spending and budgeting was also a key theme in the survey across all age groups. Those 65 and over placed a particular emphasis on this aspect of their finances, with 24 per cent of those surveyed in this age group naming this as their top financial priority.

"It's not surprising to see that the financial needs of Canadians vary at different stages of life, which speaks to the need for individual financial advice," said Ms. Kramer. "For example, baby boomers have a clear focus on retirement, while Canadians over 65 years of age are focused on cash flow management given that many in this age group have started drawing on their retirement savings."

Ms. Kramer noted that while Canadians have a clear sense of their priorities for the year ahead, it is important to recognize that your finances are integrated.

"Paying down your debt can improve cash flow, which in turn gives you more money to work with each month to put towards your savings goals or longer term goals such as retirement," added Ms. Kramer. "With interest rates low as we enter the New Year, 2012 presents a good opportunity for Canadians to make progress on debt repayment as part of their long term financial plan."

While boomers maintained a strong focus on retirement, few Canadians in their 20s and 30s ranked retirement planning among their top financial priorities. Only 5 per cent of Canadians surveyed between 25-34 years of age said retirement planning was their top priority, while another 8 per cent said it was their second priority.

"It's understandable that younger Canadians are more focused on managing their mortgage and building their savings, but it's never too early to start saving for retirement, particularly with time on your side to have those savings grow over the years," added Ms. Kramer. "Part of a discussion with a financial advisor about your needs should include a long range plan for retirement that you can start taking small steps towards today."

KEY POLL FINDINGS

Percentage of Canadians that name paying down debt as their top financial priority by age:

18-24 21%
25-34 22%
35-44 24%
45-54 17%
55-64 14%
65 and over 9%

Percentage of Canadians that name managing day to day spending and household budgeting as their top financial priority by age:

18-24 9%
25-34 14%
35-44 10%
45-54 12%
55-64 13%
65 and over 24%

Percentage of Canadians that name retirement planning as their top financial priority by age:

18-24 2%
25-34 5%
35-44 7%
45-54 19%
55-64 21%
65 and over 5%

Results are based on a CIBC poll conducted by Harris/Decima, via teleVox, which surveyed 2,015 Canadians. The associated margin of error is +/-2.2%, 19 times out of 20. Polling was conducted between November 10th to 21st,

If you are having problems managing your debt I can help. Contact me and get your finances in order for 2012