Wednesday, July 30, 2014

Paying off your mortgage faster can pay huge dividends

Mortgage holders can save thousands and be mortgage-free years earlier

Paying down your mortgage faster. It's one of those boilerplate suggestions that financial advisers love to make to their clients.  After all, throwing extra money at the biggest debt most Canadians have can result in big interest savings and being mortgage-free years sooner.
So why isn't everyone doing that?
According to a spring analysis by the chief economist at the Canadian Association of Accredited Mortgage Professionals, only 35 per cent of Canadians with mortgages took some kind of action in the past year to speed up the date of their "burn the mortgage" party.  That suggests that almost two-thirds of those mortgage holders paid off their mortgages as the contract dictated, at least over the previous year. 
    A recent survey (carried out on May 21-22) commissioned by CIBC and carried out by Angus Reid found that only 55 per cent of the 1,509 online respondents with mortgages had taken some kind of action to repay their mortgages faster since they'd originally bought their homes.
    Since mortgage payments are made with after-tax dollars, putting extra money down on a debt with an interest rate of 3.49% is equivalent to getting a guaranteed, risk-free return of over five per cent. If your mortgage rate is higher, so would the return be.

    Why not?

    So why the seeming reluctance by many to do this?   
    Mortgage experts say personal circumstances are often at the top of the "why not" list.
    "Young families or first-time buyers are in an expensive period of life and are unlikely to have much free cash to put towards their mortgage," points out Jason Scott, a mortgage associate with TMG The Mortgage Group in Edmonton and author of Approved! Mortgage Advice for all Stages of Life.
    Others, he says, may be sensibly tackling other debts first. "If they have more expensive debt, like credit cards, it's better if they pay off the more expensive debt first," Scott told CBC News.
    Industry players say it's also true that, in these days of lower mortgage rates, it may be a tougher sell to persuade consumers that it's worth tackling mortgage debt at all.
    You also won't have to dig too deeply to find people who tell you that, regardless of today's lower rates, they just don't have the extra money to tackle their mortgage debt.

    I owe, I owe...

    After all, we're repeatedly told we're in hock up to our eyeballs. We've all seen the comments tut-tutting Canadians about their debt levels.  
    The governor of the Bank of Canada scolds us. Bankers, regulators and politicians wag their fingers in warning. We'll be sorry, they say, when interest rates go up if we still have these big debts.
    The debt stats do seem daunting: The level of household debt relative to disposable income was a near record 163.2 per cent in the first quarter of this year, Statistics Canada says. That means Canadians owe just over $1.63 for every $1 in disposable income they earn in a year.
    That can make it tough to whittle away at the $1.1 trillion (that's trillion, with a "t"), that we owe on our mortgages, especially when we have another $507 billion in higher-interest consumer credit debt on top of those mortgages.
    Viewed against this backdrop, it may then be somewhat of a minor miracle that, in the midst of such a supposedly bleak financial landscape and the competing demands for our extra money (like saving for retirement and the kids' education), many Canadians are actually taking steps to pay down their mortgage debt faster than their mortgage contracts dictate.
    And make no mistake. Paying off your mortgage faster can pay big dividends.
    How much money can you save? It depends on which strategy you use.
    Here are four that can put a surprising amount of extra money in your pocket over time:

    Strategy 1: Increase the amount of your payments

    Throwing just $100 a month extra at your mortgage can result in formidable savings.  Let's assume a $250,000 mortgage at 3.49%, amortized over 25 years. Monthly payments would be $1,247.
    Boost that payment to $1,348, and something magical happens.  You'd save $15,400 in interest charges over the life of the mortgage (assuming a constant interest rate of 3.49%) and you'd pay it off three years sooner.  

    Strategy 2: When you renew, keep your monthly payments the same

    Let's assume you took out a $250,000, five-year fixed mortgage in 2009 at an interest rate of 5%. Your monthly payments have been $1,454. Now, it's time to renew and your bank is offering you 2.99% for the next five years. As a result, your monthly payments would drop to $1,224.
    Great! But what if you keep on with the $1,454 payments you're used to? That extra $230 a month over the remaining life of the mortgage will allow you to pay off your mortgage four years sooner and you'll save $15,700 in interest. Not bad for just maintaining the status quo.

    Strategy 3: Choose an accelerated payment option

    This is almost painless. Let's use the example of the $250,000 mortgage described in strategy one. Your monthly mortgage payment is $1,247. Divide that by two, and you get $623.50. Now arrange to pay this amount every two weeks.  Because a pay-every-two-weeks strategy results in 26 payments of a half-month's mortgage payment, you end up paying the equivalent of 13 monthly payments a year – or an extra monthly payment every year.
    This is what's known as an accelerated bi-weekly payment. Don't just opt for bi-weekly – you want the method that forces you to pay the equivalent of an extra monthly payment each year.
    This strategy alone would save the borrower more than $16,300 in interest over the 25-year life of the mortgage. And that 25-year mortgage would also be paid off in a little more than 22 years.  

    Strategy 4: Make a lump-sum payment

    Most closed mortgages (but not all) allow borrowers to pay off up to 10%, 15% or 20%  of the original principal in each calendar year without penalty.  
    Thanks for nothing, you say. "I don't have $50,000 to throw at my mortgage." The good news is that you don't need to pay down the entire 20 per cent. Throwing even a few hundred dollars at it here and there can make a big difference.
    One popular suggestion is to put your tax refund to work this way. Assuming we have the $250,000 mortgage described in strategy one, and applying a $1,600 annual payment that the Canada Revenue Agency says is the size of the average refund, that manoeuvre alone would see that mortgage paid off three and a half years early and the mortgage holder would save $20,000 in interest. 


    When using an online mortgage calculator, make sure it's a Canadian one. American mortgages are calculated differently.
    Combining two or more of these strategies would result in even bigger savings.
    Fortunately, it's easy to virtually play around with various payment scenarios. Most financial institutions, banks, and mortgage brokers have online mortgage calculators that can spit out the savings for you.

    Why Buyers Are Annoyed With New Homes

    An increasing labor shortage among homebuilders reportedly is causing more new homes to be delivered late, and buyers say they're getting frustrated that builders don't come back to fix common issues such as sticky doors and loose floor tiles after they move in.
    "Builder tardiness" is a growing problem because the economic downturn drove hundreds of thousands of craftsmen and laborers away from housing and into other industries — and they've yet to return to construction, the Los Angeles Times reports. The labor shortage has become "substantially more widespread" since last year, according to the National Association of Home Builders.
    Learn the Building Process
    "The incidence of reported shortages is now surprisingly high relative to the current state of new-home construction," NAHB economist Paul Emrath noted in a recent report.
    About two out of every three builders report paying higher wages due to the labor shortage. What's more, nearly as many say they've had to raise home prices, too. Builders report that their direct labor or employee costs have risen 2.9 percent over the last six months, while subcontractor costs have increased 3.8 percent, according to NAHB.
    On average, single-family builders employ about 25 trades when constructing a residential house, and more than half of builders subcontract at least 75 percent of the construction work, according to NAHB. Builders report the greatest shortages in carpenters and framing contractors.
    The shortage means that new-home buyers may have to be more patient, housing experts say. Some builders may require subcontractors who did the original work to follow up on any callbacks from buyers for requested repairs. Large builders often send their own maintenance crews to handle callbacks and may be able to respond more quickly to such requests. But for builders seeing an increase in construction and facing a labor shortage, they're response may be delayed and new-home buyers may find they'll have to be patient and follow up frequently.

    Tuesday, July 29, 2014

    8 Ongoing Homeowner Expenses And How to Prepare For Them

    Interest rates remain historically low, and according to Trulia’s latest Trends Report, homes are affordable for the middle class in 80 out of the 100 largest metros. But let’s put it all on the table, just so there are no surprises: if you plan to purchase a home this summer, next summer – or ever, you’re committing to costs both upfront – and after you own. Home ownership is a major financial commitment, so you need know exactly what those costs are in order to be prepared.

    When making the decision to buy, the most important component is determining what you can afford. So many first-time buyers make the critical mistake of assuming that if they can afford the mortgage payment each month, they can afford the house. But that’s only one piece of the puzzle.
    Financial output does not stop the moment you walk away from the closing table, so make sure each of the following eight expenses are entered into your monthly housing budget.

    1. Mortgage Payments

    You’ll be able to figure out in advance what your monthly payments will be based on the price of the house, how much you’re putting down, and the interest rate you’re paying. Give Trulia’s Mortgage Calculator a try by clicking here.

    2. Property Taxes

    These are usually paid twice a year, but the property tax laws vary state by state and even by county. In Hunterdon County, New Jersey, for example, residents pay about 1.89 percent of their home’s value to property taxes, while inWestchester County, New York, homeowners pay about 1.45 percent.California residents, on the other hand, enjoy lower property taxes – typically around 1 percent of their original purchase price.

    3. Homeowner’s Insurance

    This varies by state and region as well. Depending on where you live and what kind of coverage you buy, insurance can run you anywhere between $500 and $1,500 a year. It helps to bundle your homeowner’s insurance with other types of insurance, like auto and life, as many companies offer discounts for doing so.

    4. Hazard Insurance

    This entails coverage for earthquakes, floods, or hurricanes, depending on what area of the country you live in.

    5. Condo, Co-op, or Homeowners Association Fees (HOAs)

    If you own a condo, co-op, or town house, you’ll pay an annual or monthly fee to maintain the building and grounds. Single-family homes may also have dues if they’re located in a particular neighborhood or subdivision with common property. If you purchased in a gated community with security guards, a swimming pool, clubhouse, playground, tennis courts, and so on, you’re likely to incur regular expenses for those amenities.

    6. Utilities

    You’re probably paying them as a renter anyway, but chances are, you may have a few extra bills – including gas, water, sewer, and trash removal, in addition to electric – and they may be a bit more costly now that you’re running an entire home.

    7. Routine Maintenance

    Things break, things wear out, and unplanned expenditures pop up. It happens. You’ll want to keep some emergency money handy for a leaky roof, clogged kitchen sink, or dripping hot water heater. Budget a couple hundred bucks a month for these “unexpected” costs.

    8. Pool And Yard Care

    Depending on how much there is to maintain, you’ll need to earmark extra dollars to cover routine outdoor expenses. Even if you decide to take care of your pool or large back yard yourself, you’ll still need to hire professionals from time to time for heavy-duty tree trimming or the occasional repair of your pool’s filter system.

    Saturday, July 26, 2014

    Pillow Talk: How to Use Pillows in Staging

    By Audra Slinkey, Home Staging Resource
    I gotta say it, I LOVE pillows! I’ve seen so many spaces transformed with the simple addition of pillows that I had to share some of my favorite photos of pillow inspired spaces, as well as my top six tips to styling and staging with pillows!
    My friend HSR Certified Gregg Churchill, an amazingly talented Australian Home Stager and Designer knows the art of pillow placement, so I’m using some of my favorite photos of his work exclusively to give you my top tips and to conclude with some of my favorite places to buy pillows …
    Tip #1 – You Can NEVER Have Enough Pillows, so Go Big!
    Photo credit: Gregg Churchill, Mr. Home Staging & Design,
    Can you imagine if this furniture were not dialed in with pillows? This is a perfect example of how the right placement and selection of pillows can transform couches.
    Tip #2 – Don’t Get “Matchy Matchy.” Mix It Up!
    Photo credit: Gregg Churchill, Mr. Home Staging & Design,
    As a designer, there are things you want to “match” to add calm and symmetry to a space (like the tables and lamps above). BUT when it comes to pillows, have fun and get a little crazy! I love how Gregg completely breaks the rules here with his color and pattern choices to make this otherwise boring, white space…POP!
    Tip #3 – Use Pillows to Guide the Eye in Staging
    Photo credit: Gregg Churchill, Mr. Home Staging & Design,
    Okay, imagine this room without the pillows. Again, Gregg breaks some rules beautifully by drawing the eye up and away from the dated terra cotta tiled floors to the colorful, selection of pillows contrasted against the white couches. Not only does he distract but he connects the floors with the space through the choice of two similarly colored pillows….love it!
    Tip #4 – A Square for Every Chair
    Photo credit: Gregg Churchill, Mr. Home Staging & Design,
    I have to say, I love the on-trend, coral pillows on the end chairs of this dining room as a way to connect the art with the space. By using a clean, bright, color palette of similar tones it all just flows well together, so add those pillow squares to the chairs when it works like this.
    Tip #5 – Add Drama and Go “Colorless”
    Photo credit: Gregg Churchill, Mr. Home Staging & Design,
    This is probably my favorite photo because Gregg removes all the color from the space for dramatic effect, so the buyers walk in and go…whoah! The reason this works so well is because he cleverly inserts plenty of textures and pattern (fuzzy rug, platinum lamps, geometric throw and pillows). Gregg deleted the color from the space, which allows a buyer to notice the architectural elements they are buying that are special in this room, i.e. the wainscoting and hardwood floors.
    Tip #6 – Pillows Make Spaces Happy!
    Photo credit: Gregg Churchill, Mr. Home Staging & Design,
    This room without the pillows? You would have zapped all the “happy” out of the space.
    Okay, I admit it…I’m a pillow junkie! This is why I like to buy pillow covers at for “pillow covers” and look for good reviews), which means I can store them better. I also look for pillows with zipper enclosures for easy washing and storing.
    I shop at HomeGoods, Pier1, BurkeDecor, WayFair, BallardDesign, and PotteryBarn (most of which I get my “To the Trade” Discount)

    Friday, July 25, 2014

    9 Basement Revamp Mistakes to Avoid

    Help your buyers and sellers dodge renovation obstacles to make the most of their basement space by converting it to a home office, hip lounge, gym, theater, or wine tasting room. The sky’s the limit.
    Basements once were the second-class level of a home — a place where some families hung out, but not as a first choice. And home owners rarely spent a lot of money to fix them up.
    But necessity may be the mother of invention as more home owners have seen the basement as underutilized square footage that can be improved, and for less than adding to an upper level. Given a new, fancier moniker, too, of “the lower level,” these spaces can improve resale.
    In many areas of the country, basements aren’t a given. But in regions where houses are rarely built without them, such as the Northeast and Midwest, not having a basement may actually hurt a sale, says Christopher J. Masiello, president and CEO of Better Homes & Gardens Masiello in Keene, N.H. “It can mean $10,000 or $20,000 less in value for comparable properties,” he says.
    Since the housing market stalled, the basement has garnered more attention. Those in need of more living space looked to this otherwise unused level versus spending double or triple the cost to add space on, depending on their site’s topography, labor costs, and the choice of finishes, says architect Duo Dickinson, author of Staying Put:Remodel Your House to Get the Home You Want (The Taunton Press, 2011).
    Basement renovations also can offer excellent return on investment. According to the 2014 Cost vs. Value Report, midrange basement redos, which average almost $63,000, bring a 77.6 percent payback, among the top 10 returns on projects.
    Yet, nothing’s a slam-dunk. Ensure your clients are making a good investment when they’re finishing a basement by helping them steer clear of these nine obstacles:
    1. Low ceiling height. Older home basements were often built with low 7-foot ceilings, which could make some people feel uncomfortable. And excavating to gain more height can prove expensive and sometimes structurally challenging, says Chicago-based architect Allan J. Grant. Help your clients understand which basement facelifts are within their budget by bringing in an expert you trust to give an accurate cost estimate.
    2. Water damage. Another huge challenge in basements is water, which should be eliminated as a possibility before your clients make any further progress such as planning expensive improvements and shopping for furnishings. Even if a basement doesn’t have standing water, check to see if it’s present in the yard near the home’s foundation walls. Negative slope grades toward the house may bode ill as well, says Randon Gregory, director of franchise acquisition and development for Ram Jack, a foundation repair company.
    A waterproofing expert or contractor may suggest many remedies, such as wider gutters pitched away from the house, wider downspouts, soil raised up near the house, exterior or interior French drain tiles, a sump pump with battery back-up and generator if the power goes, and a dehumidifier to eliminate excess moisture. When furnishing the room, home owners should consider engineered wood or porcelain or carpet tiles, since they stand up better to wetness and are easier to replace than real wood or wall-to-wall carpet. Certain paints and finishes with low or no VOCs also help remove excess moisture.
    3. The dark cave. Romantic settings are nice, but not if they’re because a room lacks ample windows and lighting. Most basement transformations call for additional natural  or artificial light. If it’s not illuminated well, a basement won’t be used, says Decorating Den designer Valerie Ruddy of Verona, N.J.
    Some window wells can be enlarged or larger windows can be installed. The American Lighting Association’s consulting director Joseph A. Rey-Barreau suggests artificial light from multiple sources for the greatest effect. Newer LEDs, LED tape, and CFLs make lighting more energy-efficient and cost-effective over the long term, even if the initial purchase price is higher than incandescent lights.
    Home owners can take a plan of their proposed changes to a lighting showroom or a certified consultant for recommendations before the room is completed to be sure there will be suitable lighting, with sufficient lumens (a measure of brightness) and the right number of strategically located outlets, Rey-Barreau says. He advises using ceiling tiles to access wires rather than permanently close it up with drywall.
    4. Awkward floor plan. Because of utilities and floor drains, the basement level often presents obstacles to work around that can lead to oddly shaped rooms or layouts. Tell home owners not to chop up the lower level excessively, or they’ll start to feel claustrophobic, says Grant.
    5. Noisy hub. Since a home’s mechanical systems are usually placed on the lower level, it’s good to choose sound-absorbing materials for floors, ceilings, walls, and doors to deaden noises.
    6. Too specific or over-improved. While nobody knows the style preferences or interests of a future buyer, transforming a basement into a home office, family room hangout with a big-screen TV, or a visitor suite generally hold wider appeal than a more limited use such as a photographic darkroom, for instance. Also, buyers of a more modest home are unlikely to spend more to gain a fancy media room or well-equipped gym that never was in their budget, says Ruddy.
    7. Design continuity. Furnishings should reflect some continuity in quality and style with the rest of the home, says Scott Lauri, broker-owner at ERA Levinson, REALTORS®, in Monroe Township, N.J. But the basement can also be a place to be more adventuresome, as Decorating Den designer Lynne Lawson in Columbia, Md., showed when she transformed a catch-all space into an entertaining hub. “The house was pretty traditional, but we made the lower level cooler and funkier so it resembles a hip lounge,” she says.
    8. Unappealing descent. If possible, home owners should improve the stairwell descent into the basement. Removing a sidewall, offering more head room, and sometimes introducing a turn or curve will improve the journey down, Lauri says.
    9. Taking the rental plunge. While earning rental income may be appealing, home owners should verify that their municipality permits it; some don’t allow multifamily dwellings in certain zoning areas. If your clients do decide to convert their basement into a rental unit, a typical must-have is large windows or wells for entry and egress. Kathryn and Steven Van Asselt’s 700-square-foot basement in their Portland, Ore., home has become a popular home away from home for travelers. They attribute the success of their rental space to their home’s location, colorful modern Ikea furnishings, good coffee maker, comfortable mattress, stereo system, laundry equipment, and separate stairwell and entryway.
    The bottom line: Even if buyers and sellers don’t want to fully finish a basement, doing so partly, perhaps for seasonal storage or upgraded laundry facilities, still adds greater value and makes upstairs life more pleasurable.

    Thursday, July 24, 2014

    10 things everyone should know about money

    Starting from scratch.
    Americans tend to score poorly on financial literacy tests, but it'snot entirely their fault: School systems don't generally require personal finance classes, and many parents feel ill-equipped to pass on big lessons about spending, saving and investing to their kids. Here are 10 basic tenets you should know in order to navigate today's financial world:
    You have to earn more than you spend.
    At the end of the day, you have to earn more than you're spending in order to come out ahead. Sure, short-term loans and credit card debt can get you through a crunch period, but on average, you have to bring in more than you're shelling out to stay solvent.
    Saving early will help you save more.
    You probably remember hearing about compound interest back in elementary school. The gist is that the earlier you start putting money away -- for retirement, a house or just an emergency fund -- then the more will accumulate, thanks to the growing powers of compound interest. Just make sure the money is in an interest-bearing account, or, if it's in the stock market, that you can handle the inevitable ups and downs in the short term.
    Higher rewards mean higher risk.
    If you want to keep your short-term savings in a safe spot, like a bank account, then you'll sacrifice higher returns in order to do so. If you're willing to take on more risk in the stock market, you will probably earn more over the long term. That's why bank accounts and more conservative investments are best for short-term savings, and riskier securities (via a diversified portfolio) are better for longer-term savings.
    Diversification is your friend.
    You've probably heard of the adage warning against putting all your eggs in one basket. Well, the same is true of investments. If you put your money in a single stock or even a single sector, you face a greater risk of losses if that sector faces hard times. That's why financial experts recommend putting savings in diversified portfolios, like an index fund.
    Protect yourself from scam artists.
    Identity theft is a real problem in the financial services sector, and one of the best ways to reduce your risk of being a victim is by monitoring activity on your accounts. By reviewing your monthly account statements and checking for any charges you don't recognize, you can quickly alert your bank if you see a problem. Then, the bank can replace your cards or account numbers if necessary.
    Insure yourself against rainy days.
    Americans tend to underinsure themselves, partly because we're an optimistic bunch. Nobody likes to dwell on the worst-case scenario. But by taking out appropriate amounts of renters insurance, disability insurance, homeowners insurance, health insurance and life insurance, you can help yourself, and family members, survive tough times. In the meantime, you'll enjoy the peace of mind knowing that you and your loved ones are protected.
    Automate savings.
    When savings are automatically subtracted from a paycheck or bank account and redirected into aretirement or savings account, it's easier to build up significant savings over time because you don't have to think about transferring the funds. You also avoid the risk of spending the money before you save it. Many employers and banks make this kind of automation easy.
    Minimize your debt load.
    Debt isn't always a bad thing; it can enable people to go to college or buy a home that they otherwise couldn't. But people get into trouble when they take on more debt than they can handle, or fail to make their monthly payments on time.
    Track your credit score.
    Credit scores are increasingly important in our lives, and they often determine the interest rate you can get on loans. That's why it's important to get your free annual credit report once a year at You can check for any errors and make necessary corrections.
    You're never done learning.
    The financial services industry is constantly changing, with new products, new fees and new ways to save and spend money. To make sure you're making the best decisions for your own finances, it's a good idea to read up on any changes to your own account policies as well as stay abreast of changes in the law or industry that might impact you.

    Majority of Buyers Unaware of True Costs of Home Ownership

    While the majority of home buyers recently surveyed say they feel financially prepared for home ownership, many admit they aren’t sure what purchasing a home will actually cost them, according to a poll of more than 1,000 prospective home buyers conducted by Discover Home Loans.

    At What Cost Ownership
    Eighty-seven percent of the buyers surveyed say they know what type of property they can afford, but only 52 percent have actually determined what their projected monthly mortgage payment would be, the survey found. Forty-one percent say they haven’t yet calculated their down payment, and nearly half — 48 percent — say they don’t know how much their mortgage payment would be if they chose a more or less expensive property, according to the survey.
    The majority of home buyers say they find the financing process overwhelming, which was most evident for those under the age of 30, where 76 percent reported feeling overwhelmed by the amount of information available on home financing. Seventy-six percent of first-time buyers said they felt overwhelmed compared to 54 percent who previously owned a home.
    “The sheer amount of information can lead to confusion and stress,” says Cameron Findlay, chief economist at Discover Home Loans.
    However, the survey found that many home buyers are turning to real estate professionals even more so than other sources of information, such as family, friends, and even mortgage bankers, to get a better understanding of the financial aspects to home ownership. For example, of the home buyers surveyed, 66 percent said they consulted a real estate agent for help and information to assess whether purchasing a home will be a good investment, compared to 56 percent who said they consulted family or friends and 39 percent who went to a mortgage banker