The internet has helped us all raise our game in managing our finances, but home buyers and owners may have benefited the most.
You can’t overstate the benefit of being able to compare mortgage rates online. Squeezing the cost of borrowing on the biggest purchase of your life can save you tens of thousands of dollars over the years.
In this fourth instalment of the Carrick on Money Back to Basics series, I want to hammer on the importance of acing your mortgage decisions. Home price increases of the past two or so years are about to meet higher interest rates. Affordability will be stretched further than it already it is, which means getting the lowest possible mortgage rate will be vital.
You also need to consider penalties for breaking the mortgage before it matures – big banks have the stiffest penalties, while alternative lenders tend to be better. Mortgage industry estimates suggest people break a mortgage between 33 and 60 per cent of the time. We live in a time of disruption, which means people will be on the move a lot of the years ahead as they change jobs, seek affordable housing and re-examine their lifestyles. You do not want a huge mortgage penalty standing between you and a better life.
Another mortgage question concerns prepayment privileges – how much can you pay down on the mortgage per year? Also, how easy is it to manage your mortgage online, which means checking the balance and making prepayments if you want to?
My go-to mortgage rate comparison resource is RateSpy.com, which includes data for 246 lenders. A google search of “mortgage rates Canada” will give you more than you can handle for rate comparison websites.
Mortgage brokers have been making inroads into the bank-dominated mortgage market, and rightfully so. They offer access to multiple lenders, which means it’s possible they can find terms and rates that beat what your bank or credit union offers. In fact, it’s arguably irresponsible not to consult a mortgage broker as well as a traditional mortgage lender. This applies to new purchases, and renewals.
Your ultimate goal in a mortgage is affordability. You need to manage the cost of your mortgage payments plus the many other costs of home ownership, other debts, the cost of kids, saving for the future and more. To help you with that, we offer the Real Life Ratio calculator. Consult it for answers to the question of whether you can afford your mortgage, and your life.
Back to basics
Part One: Now’s the time to revisit the most basic rule of personal finance
Part Two: Would a 20 per cent interest rate get your attention?
Part Three: A month-by-month guide to excuses for not saving money
Subscribe to Carrick on Money
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
Rob’s personal finance reading list
What scares parents about having a second kid
Seven points raised here, including the cost. I wonder how many people are deciding not to have kids, period, because of the cost of housing and more. I would love to hear from readers on this – rcarrick@globeandmail.com.
Weird times in the stock market
Some big stock indexes are near their all-time highs, yet quite a few stocks have plunged in price. In an analysis on when to sell a stock that has fallen in price, an investing blogger notes that four in 10 Nasdaq stocks were down 50 per cent or more from their 52-week highs at the time this post was written. Now for a look at the ARK Innovation ETF, a one-time star of the current bull market that happens to hold a lot of the stocks that are now falling.
Welcome to the down payment hustle
A look at how young adults are navigating a housing market that gets more unaffordable month by month, with an emphasis on the importance of family wealth.
A guide to credit card emergency medical insurance
A detailed comparison of the medical coverage built into the benefits of reward credit cards. Seniors, your attention is directed the chart showing how many days of coverage you get at various ages.
Ask Rob
Q: What is the most efficient/cheapest way to remove money from a registered retirement savings plan? Transfer to a registered retirement income fund?
A: Investment firms typically charge fees for withdrawing money from an RRSP, whereas they allow you to set up scheduled RRIF withdrawals at no cost. So RRIFs would be cheaper for withdrawals, although you’re committed to minimum withdrawals on an annual basis. RRSPs have no such requirements for taking money out every year. Note: There may be fees applied to non-scheduled RRIF withdrawals, ie for a special one-time withdrawal.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
The Benefits Wayfinder is a tool to help people find government benefits they may qualify for.
The Money-Free Zone
A soul gem from the sadly overlooked Terry Callier – Look At Me Now.
Who I’m following on Twitter
Jim Buyers, Canada’s Travel Guy. I’m filing stuff away for later travel.
ICYMI
What I’ve been writing about
- How to set up a house down payment savings fund for a child
- Why young adults can’t afford houses: Hard work got you more in the past than it does now
- TD Bank adds some muscle to zero-commission stock trading
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Are your parents giving you money? • Why it’s time to stop shaming the renting lifestyle • Is now the right time to buy a house? • Why are young Canadians leaving the cities they love? • Eating in: How COVID has shifted our food spending • Crisis-proof your finances? • Can you afford to live downtown? • The cost of kids
- ✔️ The housing file: The housing boom is ripping apart the financial fabric of Canada • Shut out: A well-qualified millennial home seeker throws up his hands after losing multiple bidding wars • Big city housing affordability is over – now what? • She sold her Toronto house to retire somewhere cheaper, but it didn’t work • How young adults and the whole country win with a tougher mortgage stress test for home buyers • Can’t afford your house? It’s likely not your fault
- 📈 Investing: Robo-advisers have grown out of the novelty stage. Here’s help in finding one right for you • The 2021 ETF Buyer’s Guide: Best Canadian equity funds • The 2021 Globe and Mail online brokerage ranking: Who’s best for investing ... and answering the phone • Are these the stock market returns of a lifetime? • On the cusp of retirement and wondering about an ETF that pushes the limits on aggressiveness
- 💰 Your money: The five most important numbers for checking the health of your personal finances • Today’s freakishly low mortgage rates can’t last. What will pandemic home buyers do when they rise? • There’s a cost in money, isolation and family stress when seniors choose to remain in their own private homes • Taking CPP early can cost you $100,000 and limit your long term options • Fleeing the city for the suburbs? Watch out for higher property taxes, more cars and other costs
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
Rob Carrick