Some great advice that will serve you well from our friends at Planswell.

When you ask someone where they get most of their financial advice, you’ll likely receive answers that mostly include family and friends. Unfortunately, relying on your social circles to provide financial advice leaves lots of room for (accidental) misinformation. That’s why we’ve rounded up four common personal finance tips that will actually fail you in the long run.

1.  If you have any debt, paying it off is your only priority

It is essential to understand that debt can fall into one of two separate categories: good debt and bad debt. A few examples of good debt include a mortgage or a student loan (basically, any accounts that hold an incredibly low interest rate and was taken on for some sort of investment purpose).

Bad debt is what you have to be cautious of. Most often, bad debt is synonymous with credit cards, as the debt offers you little to no value and credit cards are notorious for having painfully high interest rates (upwards of 20% per month in some cases). The best use of your money is paying off bad debt before paying off any other type of loans.

While there are some circumstances in which it may make sense to pay off your good debt early, like your mortgage, it’s not always in everyone’s best interest. By extending your mortgage and freeing up cash flow to invest and reap the benefits of compounding interest, you’ll likely be in a better situation to reach your goals – whether that be sending a child to school or retirement.

Bottom line, everyone is different and your mortgage and debt decisions should be driven by your financial plan.

2.  If you save 10% of your income throughout your life, you’ll be retirement ready

This one is pretty straight forward to debunk; everyone needs to save a different amount based on their current lifestyle and future goals. Each  dollar that you save won’t be used until the future – figuring out exactly how much to put away (and where to put it) is not always straightforward.

A lot goes into how much you should be saving such as your:

• Age
• Marital status
• Children
• Pension, if any
• Career growth opportunities

And many other factors. There is no way one single savings rule could blanket all of those different situations. For example, starting to save 10% at the age of 22 as opposed to starting at 32 will leave two different people in very different retirement situations.

The best way to combat this myth is to have a financial plan. By building a financial plan, you will know exactly how much savings are required to maintain your lifestyle in retirement (and where those savings should be).

3.  You don’t need insurance when you’re young and single

Early in your career, you may not have much in terms of savings and investments yet, so a financial setback could put you in debt. But these are also your prime growth years to get you to those peak earnings. Insurance can help keep things in balance.

Your early career sets the stage for how the rest of your life will play out – it’s your responsibility to ensure you’re doing everything you can to keep things on track. Critical illness insurance is an inexpensive way to protect yourself and should be something young, single people should consider as a key part of their financial plan.

To really understand and combat where this false financial tip is coming from, is to always understand and ask how someone selling insurance gets paid. Then you can protect yourself against being oversold types of insurance that you don’t need or told you don’t need any when you really do.

4.  Invest in something because it’s a “winner”

If you want to be a successful investor, emotions are the enemy. Don’t get overly excited when your investments go up and don’t panic when they go down. Know that you’re in it for the long game. You have to trust that the market has reliably gone up for decades. That means if you’re focused on the long term and keep adding to your portfolio every month, you will be successful.

Knowing that no investment is a sure thing is a key part to being a successful and happy investor. Instead of banking on one mutual fund with high fees or that pot stock your cousin told you about, invest in an efficient, low-cost portfolio of Exchange-Traded Funds (ETFs) that contain stocks and bonds from a broad mix of great companies.

When it comes to taking financial advice, you always have to be cautious. Everyone has different goals, lifestyle expectations and situations so there is no hard and fast rule that applies to everyone across the board. That’s why we built Planswell. We believe everyone needs a personalized financial plan that will take into account their specific situation to optimize their investments, insurance and borrowing.

Some insight on the market in both Toronto & Vancouver. If you want to understand our current real estate market, it’s worth a read.

When you’re self-employed, qualifying for a mortgage can be difficult. Here’s some great tips from our friends at rate hub.

Self-employment certainly comes with its benefits; you get to be your own boss, you get to make your own hours, and you get to build a company that’s all on your own, enjoying the spoils along the way. It does, however, have its challenges; long hours, a lack of support, and, in the case of buying a home, higher barriers to entry.

It’s no secret that qualifying for a mortgage as a self-employed Canadian is more difficult than for those in more traditional professional roles but, with some planning, self-employed Canadians won’t have too much trouble getting into the housing market.

The key, according to James Laird, president of CanWise Financial, is to be organized and avoid cutting corners when it comes to taxes.

“Make sure your documentation is all in order,” he said. “Anyone self-employed who might be considering minimizing their income through earning in cash and not declaring it, or writing down as much as they possibly can should realize there is a trade-off for their tax strategy and getting a mortgage.”

Self-employment in Canada

First, some background on self-employment in Canada.

At the end of 2017, 2.8 million Canadians (15% of the workforce) were self-employed, according to Statistics Canada. Those numbers were backed by up CMHC in mid-2018.

That’s a lot of Canadians who, just like more traditionally employed Canadians, dream of home ownership. However, self-employed Canadians tend to have a more arduous process when qualifying for a mortgage.

Qualifying for a Self-employed Mortgage

The problem with qualifying for a self-employed mortgage is that it’s difficult to prove income to lenders. That, coupled with the fact that many business owners tend to expense as much as possible to minimize the taxes they pay, lenders have to be a little more discerning when it comes to issuing mortgages to them.

Prior to 2014, self-employed Canadians had a fairly easy time qualifying for a mortgage. However, at the end of that year, the Office of the Superintendent of Financial Institutions (OSFI)—the country’s banking regulator—introduced Guideline B-21, which requires federally regulated banks to look more closely at self-employed incomes before approving a mortgage application.

So, along with providing 2-3 years’ worth of notices of assessment and tax returns, self-employed borrowers must also provide the following;

• Proof that your HST and/or GST is paid in full;
• A copy of your business licence or articles of incorporation showing you’re licenced;
• Financial statements for your business. You have to ready to explain your business—your income, expenses, and when you’ll break even;
• Proof that you are a principal owner in the business;
• Client contracts showing expected revenue for the coming years; and
• Have a down payment available of at least 15%.

The good news, though, is that the government has made efforts to address the additional hurdles self-employed Canadians face when trying to purchase a home.

The Canada Mortgage and Housing Corporation (CMHC) announced last summer changes that are meant to make it slightly easier for certain self-employed Canadians to get a mortgage.

The changes were meant to allow lenders more flexibility when evaluating applications for these borrowers. They went into effect in October and allow borrowers to submit Proof of Income Statements, and Statements of Business or Professional Activities as additional ways of proving income.

So, while self-employed Canadians might have to provide more documentation, an applicant with the right documents in order – and the right risk profile — shouldn’t have too much trouble qualifying for a mortgage in 2019.

The Bottom Line

It might be a little more time consuming to get a mortgage as a self-employed Canadian, but with diligent planning, strong organizational skills, and a dedication to properly recording income for tax purposes, achieving the dream of homeownership is easily attainable. And, to make sure you get the best mortgage rate available, make sure to speak to a mortgage broker.

JUNE 28, 2019

By Ratehub.ca

Housing affordability got a little better in Canada in the first quarter of this year, but not so much that anyone would really notice.

The latest report from one of the country’s big banks shows a 0.3 percentage point drop in its affordability measure for Q1.  It is a small reduction but it marks the second straight quarter of decline.  The measure now puts the cost of home ownership at 51.4% of household, pre-tax income, including mortgage payments, utilities and property taxes.

The report cites “policy-engineered market downturns” for the improvement in affordability.  It also points out that those downturns have not happened where they would have the greatest impact, namely Vancouver and Toronto.  Cost of ownership in the GTA clocks-in at 66%.  In Vancouver it is a staggering 82%, even after a 2 percentage point drop in the first quarter.

Victoria and Montreal are also showing up as hot spots.  Even though Victoria saw affordability improve by a full percentage point, it still stands at 58.6%.  Montreal is 44.3%; steady for the last two quarters but up from the long term average of 38.6%.

Encouragingly the report notes that, in nine of the 14 markets tracked for the survey, between 46% and 56% of families “would be able to cover the cost of owning an average home.”

Jul 2, 2019
First National Financial LP

A new report out of the University of British Columbia says millennials – who make up the bulk of the highly coveted first-time buyer cohort – are still wildly priced out of the housing market.

The report, titled “Straddling the Gap”, says 25 to 34 year-olds are stuck between high home prices, rising rents, stagnant wage growth and the threat of rising interest rates.  It says that – over the next decade, on a national basis – average home prices would have to drop by more than $220,000 (about half their current value), OR wages would have to increase by more than $93,000 a year (about double their current level) in order for housing to be affordable.

In a hot market, like Vancouver, prices would need to drop by about 75%, OR wages would need to increase by about 400%.

Over the past 40 years the home-price-to-income ratio has risen from about 4 to 1, to more than 10 to 1.  Millennials are facing 13 years of saving in order to accumulate a 20% down payment, according to the report.  Their parents and grandparents typically had to save for just four years.

The UBC report comes as the City of Montreal is finalizing a proposed by-law that, the mayor says, will address affordability concerns.  The Montreal market has been picking up steam.  According to CMHC, sales are outpacing new listings and there is evidence of overheating.

Montreal mayor Valérie Plante is worried rising prices are forcing people off the island and into the suburbs.  A recent study shows 24,000 people left Montreal for outlying neighbourhoods between July 2017 and July 2018.

Montreal’s new by-law would force developers to set aside as much as 20% of new units for affordable housing, social housing or family-sized units.  The law is set to take effect 2021.

Jun 17, 2019
Be the expert
First National Financial LP

I love this guy…always an excellent straight-in-the eyes viewpoint on the Canadian Mortgage Market. Worth a read…especially if you’re in the biz!

It’s been many moons since my last post and I have definitely fallen out of the habit.  Today’s note is the result of relentless harassment by the mean girls in marketing and the fact that Friday’s double employment reports gives me something specific to talk about.

Employment

The Canadian employment report ain’t pretty, she just looks that way.  The headline number indicates a solid increase of 27,700 full time jobs compared to survey expectations of 5,000 and the unemployment rate fell from 5.7% to a 45 year low of 5.4%.  Unfortunately, the details are less impressive.  Self-employment jumped by 61,000 leaving declines of 13,000 and 21,000 jobs in the public and private sectors respectively.  The jobless rate decline was also wearing a little lipstick in the form of a two-tick drop in the participation rate.  Finally, the hours worked actually fell 0.3%.  Overall, I rate last Friday’s job report as a solid “meh”.

Meanwhile, down in ‘Merica, nonfarm payrolls rose by 75,000 jobs.  That’s well short of the 175,000 expected.  In addition, the prior two months were adjusted down by a combined 75,000.  Probably not a disaster considering an unemployment rate of just 3.6% but this could be worrisome if this is the beginning of a trend as employers start pumping the brakes on hiring as uncertainty related to trade tensions persist.

Monetary Policy

It’s unlikely the Fed will react to one payroll report but given the backdrop of a potential trade war and low inflation it won’t take much more to trigger a rate cut.  The Fed next meets on June 19^th and the probability of a cut stands at 30%.  Perhaps more telling is that the probability of at least one cut by the September 18^thmeeting is almost 100%.

The Bank of Canada has its next meeting on July 10^thand the probability of a cut from the current overnight rate of 1.75% is just 10%.

Rates

5 year Government of Canada bonds are at a two year low of 1.30%.  For context, they were trading as high as 2.50% in November last year.  Before you start thinking we can’t possibly go lower from here, don’t forget that we spent most of 2015 and 2016 below 1.00% and bounced of 0.50% a couple of times.

10 year Government of Canada bonds are also touching two year lows at 1.45% after trading as high as 2.60% in November.  Back in 2016 they actually dipped just below 1.00% on a couple of occasions.

By comparison, US Treasuries are currently trading at 1.82% and 2.07% for 5 and 10 year terms respectively.

Securitization

In residential mortgage securitization news, Merrill Lynch Canada launched at $780 million NHA MBS offering literally minutes ago.  This is Merrill’s first syndicated offering since December 2017.  A general lack of new MBS supply should help this deal fly off the shelf.  They must be confident…bringing a deal of that size on the first warm and sunny Friday of the season wouldn’t be my first choice.

The statistics tell us that the national average price of a home is falling in Canada.  Despite that, housing affordability is still a significant challenge for buyers, especially in the country’s bigger markets.

Affordability to remain a challenge

The latest report from one of the big banks projects prices will rise in all six of Canada’s major metropolitan areas this year.  The increases – on top of already inflated prices and coupled with rising interest rates – are expected to have the cost of ownership outpacing (what has been until recently) stagnant wage growth.

Drive ‘til you qualify

These upward cost pressures suggest the trend known as “drive until you qualify” is likely to continue – if not increase – especially in the regions around Vancouver, Toronto, Montreal and Ottawa.  But the idea of leaving town to save money on the cost of a home is not without its drawbacks.

Moving out of the city almost always requires commuting back into town for work, school or other activities.  Late last year Canada Mortgage and Housing Corporation released a report that examines the trade-off between location costs and commuting costs.

Unfortunately the study was confined to the Greater Toronto Area, which is probably the most extreme case in the country.  However the methodology can be applied to any metropolitan area and the findings are likely to be proportional, with the costs and drawbacks being relative to the commuting situation in any local market.

Commuting can drive away your savings

What the CMHC report found is that, in many instances, commuting costs can completely offset the savings of moving to a more affordable location.  Not surprisingly the report finds that commuting costs rise as the distance from the urban centre increases.  This negative relationship is well known and was first formalized by a German economist in the 19^th century.  In several cases the CMHC research found that when the carrying costs of the lower priced suburban or exurban home were combined with commuting costs the amount matched or even exceeded the cost of buying in the city.

Your time is worth something

On a somewhat more abstract level there is also the consideration of what a person’s time is worth to them.  In a separate study, based on the 2016 census, Statistics Canada found that commutes of an hour or more each way are becoming more common.

Nearly 60% of these so-called “long commutes” are travelled in cars and take an average of 74 minutes.  That amounts to more than 12 hours being added to the work week.  At a rate of $27.36 an hour, which is the average wage in Canada, it amounts to $330.00 a week in unpaid, unproductive time.

There have also been several studies done on the negative effects of commuting on health and wellbeing.

There are good reasons to leave town

Of course there are reasons other than price for wanting to get out of the city: a quieter environment, more space, bigger home, bigger property.  These are genuine and legitimate considerations and desires.  But if the goal is to simply get a home at the lowest cost, buyers may be better served by staying in town and considering options like a smaller down payment or a longer amortization period.