In personal finances, as in fighting COVID-19, keep your guard up this fall. Contain the risk in your investments, look for opportunities to cut spending and get out in front of your debt problems. Here are five ideas to get you going.
Ask about breaking your mortgage
You may be able to cut your payments and pay less interest by breaking your mortgage and locking in at today’s historically low rates. A five-year fixed-rate mortgage can be had in the range of 1.75 to 1.99 per cent these days, which compares with roughly 2.4 per cent a year ago. People who got mortgages within the past five years could be paying as much as 3.25 per cent or so.
Veteran mortgage broker Ron Butler said penalties for breaking a mortgage are significant enough that 20 per cent of people who inquire actually go ahead. “Four out of five say that penalty is unbelievable – I’m not doing it.”
The rate comparison website RateSupermarket.ca has a calculator that can show you whether it’s worthwhile to break your mortgage, and many lenders have similar online tools. The Financial Consumer Agency of Canada offers a useful primer (bit.ly/FCAC-penalties) with tips on minimizing penalty costs. For example, most mortgages allow you to prepay a limited amount per year without penalty.
Take some of the risk out of your investment portfolio
We’ve had an accumulation of days lately where major stock indexes fall by hefty amounts. We haven’t strung enough of them together yet to suggest stocks are set to fall in a sustained way, but this possibility can’t be dismissed with so much uncertainty ahead for the economy.
A simple rebalancing may be all you need. Sell enough of your stocks or equity funds to get back to your target asset mix and put the money in bonds or guaranteed investment certificates, or cash if you prefer. If you’re a senior who plans to make your annual mandatory withdrawal from a registered retirement income fund, make sure you have the cash on hand to do so now. Don’t risk having to sell falling stocks or equity funds to raise cash.
Contact your lender if you’re not going to be able to afford your mortgage or debt payments when your deferral ends
Canada Mortgage and Housing Corp. reports that more than 750,000 people have either skipped or deferred a mortgage payment in the pandemic, with total deferrals adding up to roughly $1-billion a month. Those deferrals last six months, which means they’ll be ending soon for those who applied in the early spring.
If your deferral is ending and you don’t think you can resume payments, talk to your lender now as opposed to waiting until the deferral is actually done. “Some lenders may grant extensions,” Michelle Pommells, chief executive officer of the non-profit agency Credit Counselling Canada, said by e-mail. “By reaching out now, you will have extra time to seek help in the event your lender declines an extension.”
Exploit the opportunity presented to renters
The September rent report from the website PadMapper shows rents are down as much as 12 to 14 per cent on a year-over-year basis in Toronto and Vancouver, and Montreal is down as well. Another estimate shows downtown Toronto condo rents may be down nearly 20 per cent on average.
Rents are falling because the pandemic has reduced demand for the many condos that were purchased in recent years to rent out. The falling-rent trend appears to have momentum, which means there’s an opportunity for people paying high rents to give notice and find something cheaper.
Falling rents may make it economical for roommates to find their own place, and for young adults living at home to move out.
Boomers who have mused about selling a home and renting, we have an interesting opportunity emerging here. High-rise living in a pandemic may not look very appealing – think about getting on crowded elevators. But you have a chance to sell a house at the peak of the market and rent at a low point.
Squeeze all the juice possible from your savings
It’s way more fun to talk about how stocks have soared and hot housing, but the dominant personal finance trend of the pandemic is a monumental increase in savings. Trouble is, a lot of this money is sitting in savings accounts paying next to no interest or, worse, in zero-interest chequing accounts.
In mid-September, you could still choose from among a half-dozen or so alternative banks, trust companies and credit unions offering savings accounts paying 1.5 per cent or more. Inflation has come in at 0.1 per cent in the past two months.
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