Advice to tips and advice to improve your finances and long term goals
Friday, October 6, 2017
Financial Health Real Estate Market
Almost exactly three years ago, I bought a house in downtown Toronto. It was one of the hardest things I’ve ever done.
I’d been saving the down payment for 20 years, but prices were ridiculously high and bidding wars common. After viewing more than 30 homes, we put a bid on our dream house, only to be outbid by a measly two grand. Determined not to lose dream house No. 2, we turned to our agent for advice. As we huddled in a coffee shop down the street, she told us to raise our bid by $10,000 times the date of my birthday—and God help us, we did. It was a foolhardy thing to do, but we actually got the house.
I should have been elated—but I was overwhelmed by buyer’s remorse. I feared I had just made the biggest mistake of my life. House prices seemed inflated and unstable, and I was sure we were in for a sickening crash. I hardly slept for a week. But the market didn’t crash—instead, the housing gods stepped on the gas. Even with the recent cooling in Toronto, my cozy townhouse is almost certainly worth 40% more today than when I bought it.
In the October issue of Report on Business magazine, you’ll find an addictively good read that delves into the absolute madness we call the Toronto housing market, which hit an unhinged new high this past spring. You’ll meet a couple from Australia who dropped nearly $1.5 million on a home right at the giddy peak, paying 46% over asking. It’s possible they had some buyer’s remorse as well.
In hindsight, buying my house was the right thing to do, but not because the market happened to catch fire after I did. It was the right thing to do because, after years of renting, I wanted a place of my own that I could pay off before I retire. And besides, I could afford it. Now that I’m a homeowner, I realize that the value of your house is a pretty abstract number. If you’re not planning to sell, and you can make your mortgage payments, it doesn’t matter all that much where the market is going.
If I’d twigged to that sooner, I would have bought years ago, and I’d have a smaller mortgage today. But I was a personal finance editor at the time and, like most of my colleagues, I had been preaching against buying into Canada’s frothy real estate market for years. Far better to rent, I counselled our readers, because if you rent rather than buy, your monthly payments will be lower, and you can invest the difference. You’ll take on less risk, and you can build your net worth just as fast as you would by buying real estate, as your money compounds over time.
That argument sounded convincing to me, but over the past 10 years, it simply hasn’t been true. Not only has Toronto housing vastly outperformed the stock market—average house prices are up by 130%, versus about 10% for the S&P/TSX Composite—but I now realize that real people, as opposed to soulless money robots, generally don’t invest the difference; they spend it on Vitamixes and trips to Cancún. Even if they do sock away the money, most are terrible investors. According to a study by Dalbar, the average annual return in the real world over the past 20 years has been less than 3%.
My financial situation today is much healthier than it was just three years ago because I ignored my own advice, and that’s pretty humbling. The crash I’ve been predicting for years hasn’t happened, and even if prices plunged by 25% tomorrow, I’d still come out ahead. It bothers me that some pundits still insist that people should rent rather than buy. It was bad advice 10 years ago, and who knows? Even in this unbelievable market, it could be bad advice today.
Source: www.theglobeandmail.com email@example.com or on Twitter @robmagca
Sunday, July 9, 2017
Even homeowners who do all their homework before buying are occasionally surprised by how quickly the many expenses of home ownership add up each and every month. But rest assured; if you stick to your budget and make a few sacrifices here and there, it is possible to save money and maybe even pay off your mortgage a few years early!
Mortgages are compounded with hundreds of payments to slowly reduce both your principle loan as well as interest charges, so you can expect interest-heavy payments for the first five to seven years as your bank makes lending you all that money worth their while. But there are ways to pay down your mortgage faster and save money in the long run!
Bi-weekly is best - Opting for an accelerated biweekly payment schedule will not only allow you to make 26 payments a year, it will also reduce both your interest rates and principle amount faster. Lenders may charge you an additional fee, but this is money well spent.
Round it up – Did you know that a hypothetical increased payment of $1,000 instead of $830 could save up to $48,000 over the course of the mortgage? That’s nearly eight years of payments! Ask your lender if this is an option for you.
Make a lump payment – If you get an annual bonus or consistently receive a substantial income tax return, consider using the windfall as a lump payment at the time of your mortgage renewal or sooner if your lender allows it.
When it comes to saving money, it’s common to have difficulty during your first few years of homeownership as you adjust to the added expenses. But it can be done. Here are a few simple ideas to help you cut back:
- Online grocery shopping. How many times do you walk into a grocery store with nine or ten items on your list and leave with a cart full? Instead, do your shopping online and simply drive to the store to pick up your order – no more impulse buying! Check your local retailers to see if the service is offered
- Make your own lunch and coffee every day
- Use public transportation if available
- Install a programmable thermostat to save on energy bills
Wednesday, December 7, 2016
Community News and Events Financial Health Real Estate Market