Single home buyers face different challenges than couples

Recently released information from Statistics Canada shows that the percentage of Canadians purchasing homes alone is increasing. According to the recent statistics, 27.6% of all homes in Canada are occupied singly. A shift in lifestyles (including people choosing to marry later in life or not at all) combined with low mortgage rates, is believed to be a significant factor influencing this increase. In a recent Globe and Mail article, readers learn that along with the many rewards of home ownership, single home buyers will likely face challenges that differ from those couples face.

Budgeting methods are bound to change slightly when making the transition from renting to owning. Home owners are solely responsible for maintenance, repairs and emergencies that occur within a home, and saving for the unforeseen can be more difficult when there is only one income supporting the household. Mortgage payments will become the number one priority, meaning some will have to sacrifice other expenses. Experts suggest making small changes where possible, such as cutting down on evenings out or forgoing vehicle ownership in favour of public transit. Some home owners take advantage of their new property by renting out parking spots, spare rooms or basements to provide extra income.

Saving for a down payment can be one of the largest hurdles a new home buyer will face. Saving as much as possible will not only cut down on monthly mortgage payments, but will decrease the total amount of interest over the lifetime of the mortgage. One should also be mindful of the extra costs associated with purchasing a home, such as legal fees, closing costs, land transfer tax and moving expenses. When it comes to home ownership, saving as much as possible is key. For those who are still unsure if it's the right time for them to pursue home ownership, experts suggest making a detailed budget to see if they can realistically carry a mortgage. There are multiple resources available, such as online mortgage calculators and professional Mortgage Brokers, to assist in making this important financial decision.

Click here for the full article from the Globe and Mail.

Understanding your mortgage options

For many home buyers, the most important feature of their mortgage is the interest rate. As your mortgage is likely the largest debt you will acquire, paying the least amount of interest possible is important. Aside from a low mortgage rate, there are several other factors to take into account when shopping around for a first mortgage, or renewing for another term. Before settling in for five or ten years, be sure to look into the additional features of your new mortgage and whether they will fit your needs.

When deciding on a mortgage rate, it can be difficult to decide between fixed or variable. A fixed rate offers the security of always knowing what your interest rate is and what your monthly payments will be, while a variable rate offers the ability to take advantage of the lowest rate possible, depending on market conditions. Many will shy away from variable rate mortgages because of the uncertainty of fluctuating mortgage payments. However, many lenders offer the option to make fixed payments on a variable rate mortgage. If the interest rate decreases, a larger percentage of the monthly payment goes towards the principal and vice versa. This option offers the best of both worlds: the stability of the same mortgage payment each month with the benefit of the lowest possible mortgage rate.

An increasing number of Canadians are paying their mortgages off faster by periodically making lump-sum payments, also known as pre-payments. This is a fantastic way to reduce the debt, but it is important to note that lenders will normally set a limit to how much can be pre-paid. For most lenders, the limit is set at 15-20% of the mortgage balance per calendar year, but can differ from one lender to another, so find out for sure before diving in. Consulting a professional Mortgage Broker is an easy way to navigate the sea of mortgage questions. They will seek out lenders on your behalf to find not only the lowest possible mortgage rate, but also the most favourable mortgage terms based on your financial situation.

Click here to read the full article from Moneysense.

Personal Finance 101

For many, the month of September means back to school. Whether starting classes or setting kids up for their first year of college or university, this month is the time to start thinking about hitting the books. In this article from the Globe and Mail, we learn that the majority of students believe that money management should be among the subjects offered to students. On average, when students finish their tenure at a post-secondary institution, they will be in approximately $27,000 in debt, and among those surveyed, very few feel they will be prepared to manage their finances. The survey found that 69% of students polled believe personal finance should be brought to the classroom, an increase of 12% from 2009, when the survey was last conducted.

With tuition fees rising, and the issue of personal debt becoming more prevalent, students are becoming more aware of the importance of being prepared. However, the survey noted that only a quarter of respondents believe that their school supplied them with the necessary financial information. Students are saying their main financial concern is paying for post-secondary education, yet only 3 out of 10 are saving for school. Bigger financial steps like applying for a mortgage or saving for retirement may seem far off, but giving students the tools they need early on will give them a good foundation for financial success later in life. A non-profit financial literacy group, the Investor Education Fund, is assisting in the creation and implementation of a program that will introduce money management into the curriculum for grades 4-12. It is the hope that schools will begin to acknowledge that financial literacy is of significant importance for students.

Click here for the full article from the Globe and Mail.

Pros and cons of faster mortgage repayment

According to a recently released survey, the majority of Canadians who currently have a mortgage intend to have it fully paid by the time they reach 55. The thought of being mortgage-free by retirement is definitely a desirable option, and with mortgage rates at historic lows, this could be the best time to achieve this goal. Alternatively, low mortgage rates could prompt some to opt for carrying low interest debt over a longer period while using excess funds to invest. It can be argued that placing the majority of your net worth into your home is the best investment, as a home is the only investment you live in. Alternatively, the importance of investing in a more diversified way can be argued as well. Finding the balance is different in every case.

Canadians have been taking advantage of different repayment options to pay their mortgages off faster. These include accelerating payments from monthly to bi-weekly or weekly, making lump-sum payments toward their mortgage, and in many cases, both. Access to easy to use mortgage calculators allows you to easily fit accelerated payments into your budget. Each financial situation is different, so to find a repayment plan that works for you, talk to a qualified Mortgage Broker.

Click here for the full article from Moneyville.

Take advantage of your TFSA

A recently released survey shows that 47% of Canadians have opened a Tax Free Savings Account (TFSA.) Out of that 47%, only half stated they have made a contribution to their account this year. Evidence from other surveys conducted over the past few years suggests that the reason for the lack of participation stems from many Canadians not understanding exactly how a tax free savings account works.

TFSAs were introduced in 2009 by the Government of Canada. Savings in the account can be invested multiple ways, from mutual funds to Guaranteed Investment Certificates (GICs.) The account allows contributions up to $5,000 per calendar year. Any unused contribution room carries over to the following year. For example, if you only contribute $2,000 this year, you will be able to contribute the remaining $3,000 next year, in addition to the regular $5,000. This rule also applies if you require access to your savings. Any funds withdrawn during the calendar year are re-payable in the next calendar year. These are important rules to take into consideration, as those who over-contribute are subject to tax penalties.

Another reason Canadians are not taking advantage of TFSAs is believed to be they simply don't have a savings plan. From saving for a family vacation, to building a larger down payment when you apply for a mortgage, the possibilities are truly endless.

Click here for more information on TFSAs.