Sandra Winter writes from Toronto: Hi Gail. I totally enjoy your show and your website. Your advice is so sound and helpful - thank you!
In this economy, my husband and I are debating the merits of paying off individual debts (car, loan, visa) versus increasing our mortgage to create a single payment. One of us would like to continue paying our individual obligations and possibly reconsider our options when our mortgage renews next year, while the other is attracted by a recent offer from our bank. The bank calculated that a single payment would repay all of our debt in less time than if we continued one-by-one payouts. Financially we're not in any difficulty (thankfully!), and most of our obligations are reasonably low interest, but a mortgage consolidation may require CMHC insurance and we would incur a penalty for breaking the existing mortgage.
One of us thinks this simply sounds like a profit opportunity for the bank, but early debt freedom would be most welcome indeed. Is the bank's offer too good to be true? Thanks for the opportunity to 'speak' personally, and thank you in advance for your answer!
Gail Vaz-Oxlade: Sandra, I'm not sure if the bank's offer is too good to be true, only doing the math can tell you that. I will say, however, that it might be wiser to pay off the debt as it currently exists (once you've gotten your interest rates down as low as possible by negotiating or doing balance transfers) and then use the bank's strategy once the loan amount a) doesn't push you to CMHC levels, and b) the mortgage renews and there's no interest penalty. Do the math and see what works best for you in the long run. Good luck.
Neil McPherson writes from Kitchener, ON : Would you please be kind enough to let us know the top 4 or 5 things about which we should educate teenagers with respect to responsible money management?
Gail Vaz-Oxlade: Neil, I blog about teaching kids about money a lot on my site. This is one of my bug-a-boos. Go to my site and search "prepping kids." To answer your question, here are the big skill-sets I think they need:
- How to live on a budget.
- How to manage a bank account.
- How to comparison shop.
- How to manage bills and other paperwork.
- How to save for a goal.
- Credit is NOT disposable income.
Deanne writes: I am in the last five years of my current professional career before I can retire. I am planning on moving into another career when that time comes, if all goes well. I also live in a part of the country, Newfoundland, where real estate has been on a upward trajectory, with no signs of slowing down. The natural resources of this province, oil and nickel, are fueling this prosperity.
Surprisingly, I do not own a house. I do, rather, share a house with a family member, but I am not the owner. I am debt-free and do have ample resources. Am I missing the mark, by not being invested in real estate? As an investment, should I make the move?
Gail Vaz-Oxlade: Deanne, home ownership is much more than an "investment", it's a lifestyle choice. It makes sense to own a home if you're rooting. If you're likely to move around a lot, home-ownership may be more of a pain in the ass than it's worth. Only you can say if this is something you should be doing.
If you think you're ready for home-ownership than you need to save a downpayment. When I tell people they should have a minimum of 20% of the purchase price for a downpayment on a home, they balk. TWENTY PERCENT! How are we ever going to come up with that kind of money? Here¹s the thing about NOT having 20%: You immediately make the home more expensive because you have to incorporate mortgage insurance fees into the equation.
You'll also have to calculate your carrying costs. Home ownership is NOTHING like renting. You¹ll have utility costs. You¹ll have taxes. You¹ll have insurance. And then there¹s maintenanceŠ the cost everyone likes to ignore.
Don't forget to figure out your closing costs. Some experts say to estimate 1.5% of the value of your home for closing costs. There are legal fees and expenses, a home inspection fee (don¹t skimp), adjustment costs for things like pre-paid property taxes, an appraisal fee, land transfer tax, title insurance, an interest adjustment, a property survey (maybe), water quality inspection if you¹re living in a rural area, and hook-up fees for setting up your new services like a phone line. And don¹t forget GST.