Frequently asked questions in the mortgage world these days tend to center around the Fixed vs Variable debate. However, asking your banker simple questions like “Will rates go up?” or “Are variable mortgages better than fixed over the long term?” are typically met with shrugged shoulders and “That’s complicated Joe, let’s move on”. You see, no one has a crystal ball for predicting interest rates but it is very important that you understand how mortgage rates are determined before making the decision to go the fixed or variable route.

Here’s the bottom line – Historically, variable mortgages have proved better off for the consumer. The reason we have fixed-rate mortgages in the first place is because many people need the security they provide, especially those of us who are living on a fixed income. This security comes at a premium though and right now that premium is about 1% when comparing apples with apples.

Finding The Mortgage That Fits is something a lot of people are struggling with today, but it’s not as difficult to understand as you may think. In fact, a commitment to self education of about 30 minutes could save you tens of thousands of dollars in unnecessary interest on your mortgage by enabling you to get the right product for you. When you’re borrowing money, there’s a heavy cost for not understanding things clearly. Ignorance in the financial management arena costs Canadians hundreds of millions of dollars in unnecessary mortgage interest every year. How much of that is yours?

Everything you need to know before you borrow can be found at InterestSUCKS.ca. The information is all free and intended to provide every Canadian with all the financial education needed to make smart decisions about a mortgage. Once you know what you didn’t know about mortgages you will feel more empowered than ever and you will be ready to talk to a reputable mortgage broker who can process your mortgage for you. That part’s easy!

Always remember that education is the key to making this mortgage process as comfortable as possible. Were you comfortable with your last mortgage deal?

Last night, the g.i.v.e team hosted an evening of financial education, sponsored by Ingrid Smith and Dave Proulx of Remax West (www.ingridsmith.com). Caring real estate agents can be tough to find and these two obviously care about their clients.

The evening was held at The Montgomery Inn whose hospitality was genuine and welcoming. It certainly helped in creating a comfortable environment for learning. Chris Nichilo, a founding Director of The g.i.v.e. Network, facilitated the “Curriculum For Saving Money” which focuses on teaching participants the rules of the banking game. As Nichilo made clear, “we do not have an income problem in this country, what we have is a management challenge.” The premise was simple, if you just learn how to pay less interest on what you owe, especially your mortgage, you could save more than you could earn on any other investment…guaranteed!

Nichilo spent considerable time and placed significant emphasis on the “simple mathematics” involved with managing money. “The numbers tell a story…” he said “all we need to do is learn to read them.”

The first half of the two-hour workshop gave people permission to be strategic with their banking by untangling fact from fiction and demonstrating how the different borrowing vehicles in the banking system charge interest. Chris cleverly explained that managing debt without understanding how each of your debts are accumulating interest would be like trying to play hockey against an NHL team without understanding the rules of hockey. Disaster!

A tentative audience had Chris digging a little deeper with the audience to break the nervous ice that forms when people are confronted with public discussion about personal finance. Most of us know that we don’t know as much as we should about managing large sums of money, especially our liabilities, which makes talking about them uncomfortable.

After a short and lively break, Nichilo delved into the inner workings of the mortgage industry to demystify the process of obtaining the very best available mortgage in Canada. Everyone agreed with Nichilo that it was “a silly notion to take the advice of your bank alone when they are also the party you are negotiating with!” Nobody would do that in business and we all need to remember that “the bank IS a business”.

Clearly, it would be wiser to employ the services of a mortgage broker to create competition amongst the banks for your business. The problem is, that there are good brokers and bad brokers. How do you distinguish between the two without knowing what they know? The workshop wrapped up with an education of what a broker is capable of, obligated to do for you, and how “not all brokers are created equal.”

Several minutes of questions and a few “aha’s” completed an evening in which all audience members left having learnt something they didn’t know they didn’t know about banking like the bank and saving their money. Success!

The g.i.v.e Network (TGN) and interestSUCKS.ca are committed to providing this education to audiences of all sizes. If your organization is interested in sponsoring and/or hosting the “Curriculum For Saving Money” facilitated by TGN’s own Chris Nichilo, please let us know by email at events@thegivenetwork.ca or call us on 1866 431 1474.

Effective tax planning is something the wealthy have been doing for years. Unfortunately the typical legal fees for tailored advice from a good tax attorney are enough to deter the Average Joe’s of us from seeking good advice. When you add the fees for incorporations, establishing trusts, drafting loan documents and then the accounting fees for managing all this each year, it simply doesn’t make sense for most of us. Would you spend $10k+ for advice on how to structure your affairs if you aren’t making six-figures?

An article published by The Star today highlights some of the popular methods of building and protecting wealth through various legal structures which are available to us. It is definitely worth reading but I need to emphasize something they barely touched: You should seek independent advice from your financial planner before embarking down this path. Oh and by independent, I don’t mean your bank. Seek advice from someone who doesn’t have financial products to sell you and who doesn’t have monthly quotas to meet!

The article resonated with me when I read:

“Individuals today are looking for ways to make and save more of their money”

So true. Saving money is on everyone’s mind right now, especially as we realize the stock market is not a bank account! For those of us who are looking for a simple AND effective method to build wealth, we should look a little closer to home than these complicated tax structures though… We should look at our mortgages!

With interest rates as low as they can go, it is worth analyzing our personal positions today and reviewing our plans. When the Bank of Canada dropped interest rates to 0.25% they dramatically changed the market and also the strategies we should be using. Perhaps we can refinance to a lower rate, but keep our payments the same?

If you’re in a variable mortgage you have already enjoyed declining mortgage rates and the extra cash that provides you each month. How you put those extra dollars to work for you is what separates the financially savvy from the Average Joe’s.

I implore you to take advantage of the low rates out there and accelerate your wealth building. We can all put more equity into our homes right now using either the extra money we have from the lower monthly payments, the banks own money (Read Bank-Like-The-Bank and ask us how) or a combination of both! This extra equity will save us tens to hundreds of thousands of dollars in interest payments, how’s that for Building Wealth in Times of Trouble?

The first step is to find a reputable mortgage broker that you can trust (http://givemortgages.ca can help you here) and have them run your numbers for you. Please don’t hesitate to get in touch with us for help through this process.

Every month, each of your creditors sends a report card to the credit bureau, grading your level of responsibility as a borrower. The combination of these reports from each creditor over a period of time paint a picture of your credit worthiness that potential future lenders can use to make a decision about whether or not to lend you money when you need it.

Credit scores are generated by plugging the data from your credit report into software that analyzes it and cranks out a number. The two major Canadian credit reporting agencies don’t necessarily use the same scoring software, so don’t be surprised if you discover that the credit scores they generate for you are different.

There are 5 broad categories the system looks at to compute your score. Here is a simple explanation of each and a breakdown of the weighted importance placed on each category.

1. Your payment history - Pretty self explanatory…either you pay on time or you don’t. 35% of your score is dependant on your payment history and each time you are more than 30 days late or worse counts! Always make your payments on time, and if you must pay something late make sure it’s 29 days late or less.
2. What you owe - The system likes to see that you are a balanced, responsible credit user. This means that being maxed out on every account is bad which is obvious, but it also means that having 10 accounts with a zero balance is bad too (contrary to popular belief). Not using credit is not indicative of a responsible borrower, it’s like you never borrowed anything at all which gives no indication to the bureau of what kind of borrower you are. The ideal number is to be carrying between 10-30% of your available credit (loans, lines of credit, credit cards) with consistent activity over a period of time.
3. Length of your credit history - Just like anything else, the longer you have a good, clean, measurable record the better. Remember, this means a long record of activity, not inactivity. 15% of your score is dependant on the length of your history.
4. Types of Credit - Remember, balance is important! The system will score you higher if you have a good mix of different borrowing vehicles (lines of credit, loans, credit cards) rather than 6 credit cards alone. It is also important to note that the bureau does not like retail credit cards (the ones that charge 30% interest!) because their easy to get and even easier to default on! Be careful with those “Don’t pay a cent events”
5. New credit – There is a point where credit shopping begins to look suspicious. That’s why the bureau tracks your application patterns. Every time you apply for credit, an “inquiry” appears on your bureau. Too many inquiries in a short period of time will work against you in two ways. It will make the next potential creditor ask themselves “why is everyone else declining this person?” and it will eventually bring your score down. Just another good reason to use a broker (one application) when arranging a mortgage right?

Update: There’s more information on how your credit effects your mortgage application under Getting Approved.

Making emotional decisions about your finances, especially your mortgage, is a sure fire way to make costly mistakes time and time again. Unless you are taking risks with investments, the numbers are always certain, predictable and never lie. It’s all pretty basic mathematics, right?

If you don’t choose to take the time and learn how to understand the numbers, or if you turn a blind eye to the story they are telling, then you really don’t have anyone to blame but yourself, do you? That would be like opening a business in China, refusing to learn Chinese, and then wondering why you are having difficulty communicating with your clientèle. I wouldn’t be doing you any favours by telling you otherwise.

Here are the two most common mistakes Canadians make when deciding which path to take with their mortgages:

1. Not refinancing because of a penalty – The banks love to prey on our disdain for short term pain. This is why penalties are built into your mortgage: to protect the bank and deter you from seeking a better deal elsewhere.
   
   If it costs you a $5,000 penalty to save $10,000 in interest over the next 3-5 years, it makes sense… period. There’s no discussion necessary here especially since in most cases you can include the penalty in the new mortgage and avoid paying any money out of pocket.
   
   Refinancing is a mathematical transaction and you would only do it if the numbers made sense. When they do though, you must be willing to pull the trigger.
2. Consolidating debt into your mortgage – So many websites and financial institutions promote this strategy which only make things “feel” better. They sell you on the fact that consolidating your debts into your mortgage will free up cash flow and that it is better to carry your consumer debt at a lower interest rate on your mortgage.
   
   In some cases they may be right, but the compounding interest of a mortgage hurts you faster than most consumer debts. Over the long term, this move can end up costing you thousands more!
   
   These Debt-Consolidating-ReFi’s also free up more available credit, which is likely what got you into this mess in the first place.
   Do not overlook the fact that consolidating debt is a band-aid, not a cure for your problems. History unfortunately has a way of repeating itself.

Now, the bank will try to retain your business at all costs and often they will present options to you that make you feel good right now, but will make you pay much more later for this privilege. It would be nice if your bank was willing to just tell you what’s best for you, even if that meant dealing with another bank, but unfortunately business is business and the banks are in the business of making money.

It is our responsibility to make the best decisions for our own financial well being at all times and sometimes that means your loyalty to a specific institution and your emotions must take a back seat to the facts and the numbers.

The message here is simple: Know the math, and make your decisions based on fact, not emotions.

My jaw dropped last Friday when I was reading a recent article from CNBC regarding the return of DIY investors to the market place. This article told the story of how individuals were “taking control of their finances” and turning to options trading in order to “bet” on the direction of stocks. The sad part about this article was that they used the terms “bet” and “control” so closely together that one might be forgiven for thinking that taking a punt at the roulette table was akin to being in control of your finances!

Now, the savvy financial minds of Bay St and Wall St will tell you that you can make money in a bear market by trading options, a type of derivative tied to underlying stocks – which is true, you can! You can also lose a lot more if you take a short position on a stock which ends up rising. In fact, the amount you stand to lose in this case is limitless!

The timing of this “jump into options” advice is obviously perfect given the gyrations in global stock markets right now and it is no doubt tempting for many of us to follow suit and take a punt, but will you sleep at night?

The CNBC article also failed to give reference to any DIY traders who were making enough money to live comfortably off and even went so far as to point out that these traders were still hoping to find a real-job soon in order to build their capital base up and “try again”. Still sounds like gambling to me. Why doesn’t someone offer them some sound financial advice like paying down their mortgages faster, saving thousands in interest, and then living comfortably with the certainty of their current income? Oh that’s right – the banks don’t want people to stop paying interest, their bonuses depend on it!

People – don’t be fooled. Investing or trading (or gambling!) whilst you have a mortgage is like bleeding out of one arm with your mortgage interest whilst trying to take a blood transfusion from your investments in the other. Let’s stop the bleeding first – we can teach you how, just stick around!

When Henry Ford uttered the words, “Whether you think that you can, or you think that you can’t, either way you are right.” he may not have known how right he was or on how many levels he was accurate.

Fear can be clearly defined as – the action or inaction that is caused or avoided based on a lack of information. In other words, in any area of life the more you know, the further you will go. Equipped with the right education and information, human beings become more willing to apply what they have learned to serve their lives and move in the direction of their goals. Financial security and the peace of mind to know that your money is under control is something every Canadian desires but the majority have never experienced. The reason is directly proportionate to the level of education the average Canadian possesses with regards to managing debt and money in general.

Jim Rohn once said that formal education will make you a living while self education will make you a fortune. Where your debts are concerned, self education will SAVE you a fortune! If you took the time to learn how each one of your liabilities – especially your mortgage – worked (about an hour of studying, give or take 30 minutes), then for the rest of your life you would truly understand the impact of your financial decisions instead of relying on the advice of another person which is never as comfortable as knowing for certain based on your own self education.

For most Canadians, their mortgage is their largest liability and due to nature of compounding interest, it is also what you might call “the serial killer” of debt. It’s weapon is interest and it keeps coming for more of your hard earned money until you eliminate it entirely. It’s that simple. Faced with an enemy of this nature in real life (an angry bear in the woods), I’m sure you, just like me, would leave no stone unturned in your search for ways to weaken and eventually kill off your enemy before it finishes you off, right?

So I guess you ought to ask yourself if you are approaching the elimination of your mortgage with the kind of urgency necessary to win your battle? First and foremost, have you even identified the most efficient path you are able to take to pay off your mortgage given your income and expenses? Most people never do and the worst part is that it’s actually simple to do, it’s just basic math! Next, once you know that it is possible to pay the mortgage in say 8 years and 5 months with little to no change to your current lifestyle, would you be willing to make the commitment to follow the steps necessary to accomplish that feat? No one can teach you desire…you either want it or you don’t, right?

InterestSUCKS.ca was born to help you get the information you need in order to quickly learn how to bank like the bank and save money. All you have to do is commit to being a student of your life and finances and this site will become your resource centre and personal guide to getting debt free in a reasonable period of time. Do you believe it is possible for you to do better than you are doing now? Whether you believe it, or you don’t…either way you are right.

Good luck!

Any time you borrow money of any kind, you should always have a strategy in place to pay the debt back as quickly as possible. Understanding interest and how it works with the particular kind of loan you are taking is critical to successful financial management. It’s all math…and simple math at that. Here’s an interesting math scenario for all of you to digest! It may make you think twice about the way you are managing your debts.

For most people, their mortgage is their largest and most damaging debt in terms of interest accrual. Let’s say you borrowed $250,000.00 at 5% interest and paid it back over 25 years. How much interest do you think you would pay on the money your borrowed? How about a whopping $186,000.00!!! If you divide $186,000.00 by the amount you borrowed ($250,000.00) you get the true rate of interest, which is 74.4%!! Can you imagine if the bank told you in the beginning that they would be charging you 74.4% interest on this money? You might have never bought the home in the first place!! Believe it or not, it gets worse!

Currently 37% of mortgages in Canada are amortized over longer than 25 years (in most cases 30, 35, or 40 years). Well, if you used the same numbers as above and paid the $250,000.00 back over 30 years, you would pay 92%  or $230,000.00 in interest. A 35 year amortization for that same mortgage will accrue 110% interest ($276,000.00) and a 40 year amortization?? Forget about it!! A 40 year mortgage will accrue an absolutely ridiculous 130% interest!!!

It’s amazing what happens to the way we think, once we are equipped with factual knowledge (in this case real numbers) that allows us to see the true picture. Perhaps before reading this, you didn’t realize the level of importance in paying off your mortgage in the shortest amount of time possible. Do you even know how fast you could become mortgage free given your income and expenses? Most people don’t! I ask people every day when they will be mortgage free and they usually shrug their shoulders and estimate in blocks of years! “Oh, you know, somewhere between 15-20 years”…which is crazy when you consider the cost of not being on the shortest possible path to paying back the principle owing on your mortgage.

The numbers tell us it is possible for the average person, with an average income to pay an average mortgage off in 12 years or less and save 50% of the interest they would have otherwise paid. Now, getting your mortgage under control like this may seem like a scary thing, but it doesn’t have to be. All the education you need is here on this site and if you do not find the answers you need, please drop me a note or comment on the post and ask me…I want to help you.

-Chris

Today marks the official launch of InterestSUCKS.ca, your place for learning how to “Bank-Like-The-Bank” and make interest work for you, not against you.

We are a Canadian site dedicated to educating other Canadians on how we can own our homes free and clear in less time than we have ever dreamt just by banking smarter. Take some time reading our first two articles titled How To Take Control of What Is Controllable and You can take a shower now, or a bath later! and be sure to subscribe to our feed.

Don’t be shy, have a poke around this site and you will find mortgage related tools including personal credit checks, as well as finance related news from all over the web as well as the details you need to be able to learn how to “Bank-Like-The-Bank”.

Have fun, good luck, and please get in touch with us if you have any comments/suggestions.

A good friend and associate of mine gets the credit for this one…thanks David! He sent me an email this morning about the Smith Manoeuvre. I have been fortunate to spend enough time with David to show him that paying off a mortgage as quick as possible has only one goal…get to zero fast! Did you know that 37% of Canadians with a mortgage have an amortization longer than 25 years? That’s crazy!! People are always trying to find new and interesting ways to get mortgage free faster, and the Smith Manoeuvre is a popular choice for those who have built up some equity in their home (at least 20%) and have a tolerance for taking calculated risks. For the record, I do not believe in this type of strategy only because I am partial to strategies for paying off debt that are safe, certain and predictable like the Money Merge Program from United First Financial.

The Money Merge Account (MMA) system helps average people determine what IS possible for them in terms of becoming mortgage free. Like a GPS for paying off debt, the MMA program is a web based software system that charts the “path of least interest” for you based on your current budget and gives you specific instructions what to do with your money when you get paid. It does not move money for you and is totally secure because it does not know any of your banking info. It simply manages the process of becoming debt free as efficiently as possible based on what you tell it is happening in real life. It’s simple to use and all my clients are using it. Imagine you are Sharon, a single mother of 3 who just found out that the MMA program would show her how to pay her 30 year mortgage off in 6 years, saving her $248,000.00 in interest!

About the only thing the Smith Maneouvre and The Money Merge Account program have in common is that they both use a line of credit and both share the common goal of trying to help people pay their mortgages off sooner. That’s it.

The Smith Maneouvre is not a bad strategy by any means, but it is risky, and it requires you to already have considerable equity, which many people do not have, and once you are performing the Maneouvre, you must manage the entire process, making sure to move money around every month to ensure effectiveness with the Maneouvre.

Here’s how it works in a nutshell with my comments after each step…

1. First, you must have a specific type of mortgage product. Your mortgage must be re-advanceable which means there is a Home Equity Line of Credit attached to it. As your mortgage principle comes down, your limit on your line of credit increases proportionately.

   Stop and think! You must exercise extreme discipline not to use this available credit for anything except making the SM work until the mortgage is paid off…assuming everything goes as planned.

2. Use the HELOC portion of your mortgage to invest in income producing entities like dividend paying stocks or rental properties.

   Be Careful, as this can obviously put you in a very insecure position as a homeowner. Recently the housing market has taken a dip and home values have dropped across the country and people who were leveraged up this way have been burnt. Being in a negative equity position, where you owe more to the bank than the house is worth, is never comfortable and peace of mind is a big consideration for me.

3. When it comes time to file your taxes, you can then deduct the interest you paid on the money you invested from your income. If the tax paid was $10,000.00 this would reduce your taxable income and you would earn a return.

4. You can then use your tax return and stock dividends to make a lump sum payment on your mortgage.

Uncertainty at it’s best – There is no guarantee with any stock that a dividend will be there, it’s all speculation, just ask those who recently lost their shirt in the stock market!

Repeat these steps until the mortgage is paid. It is impossible to predict when that will be though because all of this depends on nothing “bad” happening in the market.

At the end of the day, the Smith Manoeuvre is nothing like the Money Merge Account which deals only in absolutes and adjusts as life changes. The Smith Manoeuvrer lacks certainty and predictability which ultimately eliminates peace of mind through the process but if you would like to discuss this further, let us know!

Until next time…hang on to your money!

-Chris