The last weekend of summer has come to an end and the kids are all back to school. We hope everyone has had a safe an happy summer! Make sure you note the new School Zone signs (now in effect until 9PM). With school back, it seems appropriate to share some money tips for kids and the final quarter of 2014 is great time to do a quick review of what has been happening in the mortgage and housing markets over the past year. There has been a continuation of government regulation and mortgage default insurers (primarily CMHC), pulling back on product offerings, the same old low rate story, and a hot real estate market (especially in Alberta). Is this record on repeat, or what?
MONEY TIP FOR KIDS
One of the best life lessons my parents taught me was the value of a dollar. From a very young age, I had a comprehensive concept of budgeting, savings, spending and prioritizing. Although there were a lot of methods my folks used to teach, the simple mantra from my father was “put money in your kid’s hands early.” They figured out what they spent on me annually and put that money in my control. By the time I was ten years old, I was responsible to pay for everything (school clothes, hockey registration, entertainment-everything.) There was a limit on the money I had, and this forced me to really understand what things cost. The cool shoes became less important, when I realized they ate up half my school clothes budget (besides they would go on sale in October, so I could wait until then to snag them). My parents let me fail and make stupid purchases-better to do this at 15 than 30! They gave me support and advice, but the money was mine. I am sure if I suddenly didn’t want to be active and play sports and just spent my money on candy and toys, they would have stepped in. However, the great thing is my mind had developed to create a sense of responsibility, self worth and self-reliance. The result, I made the right choices more often than not. I am a strong believer that children can handle money concepts and teaching needs to start early. Financial literacy is not something that can easily be learned in your twenties or beyond. A good first step is to set up a pay plan. By 4 or 5 years old, a child can earn money with chores and then learn how to use this money. With my own young children, we have a chore chart and weekly allowance. From this allowance, a portion goes into spending, a portion into savings and a portion for charity and giving. The savings portion goes into their own bank accounts. The spending portion is fine to be in a piggy bank (and if they want to buy a slinky, or save it to purchase a lego set, so be it). The charity portion allows them to develop a great sense of humanitarian responsibility and actively choose where they want to contribute. It may sound cliché, but kids are the future, it is our responsibility to ensure they are prepared.
WHAT-YOU CANT DO THAT ANYMORE?
Over the past few years we have experienced many changes in lending policy for both insured and conventional mortgage financing. Some of this is a directive from the Finance Minister and some is from OFSI (the governing body over seeing all federally regulated lenders). From reduced amortizations, further limitations on equity take-outs and home equity line of credits, lower maximum house values for insured mortgages, complete removal of certain products and tougher underwriting guidelines-the bottom line is getting a mortgage is tougher now. Some more significant changes are happening and will be fully implemented by the end of 2014. These have to do with OFSI’s B20 and B21 requirements for residential mortgage lending. The biggest change that impacts borrowers is how secured and unsecured debts are calculated. It is now required that a 3% payment on any balance for unsecured debt is used for debt servicing. So if someone has a 20,000 dollar line of credit that has minimum payment of 100 dollars, when applying for a mortgage, a qualifying payment of 600 dollars needs to be used. This effectively eats up 120,000 dollars worth of mortgage financing. Also, any secured line of credits have a payment calculated based on available funds-so if you have a line of credit on your home with zero balance, but 100,000 dollars available, a payment based on the loan being fully drawn is calculated. This is a big change, with pretty major impacts.
RATES HAVE NO WHERE TO GO BUT UP, OR DOWN, OR MAYBE JUST STAY STATIC:
The boy has cried wolf so many times in the past 4 years, no one is even listening anymore. The fear of rising rates is hard to believe when all warnings have fallen short of fruition. The Bank of Canada held the overnight rate again this week and current popular opinion is that rates will start to rise (for real this time), by the last quarter of next year. Also, rising rates, means they will go up somewhat, but this does not mean we are heading to high rates. A significant jump in rates would have 5 year money under 4% and variable pricing under 3.50%. If you know someone who owned a home in the 80s-do not tell them you are concerned about high rates (unless you want to get slapped). That said, the scary thing is how many household budgets are based on these extremely low rates. Now is the time to use your mortgage as a financial tool to effectively manage debt. You can really crush your principal, or build wealth in other investments with the low rate environment we have been living in. Talk to your mortgage broker at MCI to make sure your strategy is working for you.
PAYING LIST PRICE AND WITH COMPETITION.
What a wild housing market! In markets such as Calgary, it has been full steam ahead for most of 2014. There are perhaps some signs of a slight seasonal slowdown, but we have had a much busier summer than normal. Here are the latest real estate stats. We are still experiencing multiple offers and contracts written at, or even above list price. Year-over-year, the number of sales and prices continue to rise to new record levels. We are starting to see a slight decline of pending sales, but active listings have continued to rise compared to this time last year. We should be in for a fairly busy close to 2014. See the most recent Calgary statistics here.
If you want to review your current mortgage, or have other real estate plans that you need advice with, please drop us a line. Also, please Like Us on Facebook.