You may ask ‘What’s the point? I never go into my bank because I do everything online’. It would take a very long time to save enough cash to buy a car or a home and so when we do want to make a big purchase, most of us go to the bank and ask them to lend us the money.

It may seem simple to us but banks look at our financial situation with a different lens basing their decision on our ability to repay the money consistently and without fuss. It’s our reliability that they’re most interested in.

How to get in their good books:

• Hold a steady job or a proven and reliable source of consistent income.
• Build a positive credit rating – if your credit history shows you may your minimum payments on time, the bank is happy.
• Grow a positive net worth – more assets than liabilities.
• If it’s a big purchase, be prepared to put it up as collateral until the loan is repaid.

Back to the original question….while the proof rests with the numbers, your banker will be happier to submit and support your application if you have established a positive financial profile.

Here are some tips:

• Choose your bank carefully and stick with it….holding an account for 10 years without a NSF (non-sufficient funds) cheque looks a lot better than opening the account 6 months ago.
• Keep your credit shiny by making your payments on time and don’t hold or apply for excessive credit.
• Be prepared to provide the information that your banker requests (pay stubs) – direct deposit pay doesn’t hurt either.

Summer is here! The July long weekend is fast approaching and summer plans are well underway.

Summer is loads of fun but the reality is that I don’t really look at our budget while we’re in busy enjoying ourselves. I make sure the bills get paid but that’s about it. Now that we have most of our plans set out, it’s time to check the cost of the fun against our budget L

There are 3 elements to our summer budget:

1. Regular Expenses – While you’re away, regular expenses don’t go away so it’s important to make sure the money is there to pay the bills.
2. Vacation and Travel – I heard on the news this morning that Canadians plan to spend an average of $1,800 on summer travel – down from $2,400 last year. Gas has gone up and air travel is always more expensive over the summer months. Of course other vacation expenses to include are accommodation, transportation, meals, activities and incidentals.
3. Additional Childcare – With school out early, many of us are already managing higher childcare expenses for June and summer camps all come with a cost. Be sure to factor this into your budget.

Often the early bird gets the worm and booking ahead can save you some money but now that we’re close to the wire, last minute deals are popping up. Flexibility is the ticket!

Organizing childcare is a challenge whether you’re returning to work or it’s school break. It’s one of the most important support systems if you’re a working parent but also one of the most difficult to get!

Do you know how much childcare costs your family each year? I think we’d all be surprised when we look at the numbers. There are many configurations and certainly one size does not fit all!

• Nanny
• Group Child Care
• Home-Based Child Care
• Flexible Child Care (Patched together because your work schedule is part time, flexible or you have family who help out)

Monthly care for full-time working parents ranges between $1,000 and $3,000 per child by the time you consider fees or wages (including deductions, benefits, vacation and pre-school).

Add a layer of complexity when your children go to school to manage before and after school, Pro-D days, school breaks, summer and strikes. How do you do it and what it the cost? I always forget that winter, spring and summer breaks mean weeks of extra child care in the form of camps or other activities and at a few hundred a week, per child, it adds up quickly. A reasonable monthly budget number is $500 per child which may not seem too much except when you multiply it by the number of children you have and add it in to everything else to keep life ticking along.

No one said it’s going to be easy peasy lemon squeezy but if getting rid of your mortgage is number one priority for you, then it can be done.

There are 2 strong motivating factors to pay off your mortgage as soon as possible:

1. No more mortgage payments = more of your pay cheque is discretionary income.
2. Paying down your debt faster = less interest paid to your creditor.

The fact of the matter is that you owe a whack of money to your bank and it won’t magically disappear but most mortgages can be repaid faster by either increasing the payments or making lump sum payments. In either case, anything paid over and above the contracted payment, goes directly to pay down the principle owing. This means a lower amount to calculate interest on each month!

Most of us receive little bits of money here and there and very often, it trickles in and it’s spent before we know it. Things like:

• Tax refunds
• Bonuses
• A small raise
• GST Refund
• Universal Child Care Benefit
• Expense reimbursements
• Overtime
• Extra income

Put this money against your mortgage they can make a big impact. Save them up for a lump sum payment or increase your mortgage payment by your raise – either way, check out how you can make extra payments with your mortgage lender.

You may say that your mortgage rate is really, really low and it’s true that if you have other debt with a higher interest rate, that should be your first target. Just think how great it would be to choose what to do with your mortgage payment each month!

I worked for one of Canada’s Chartered Banks for seven years and not once did I hand a client their mortgage discharge papers. That may not seem significant but I’ve heard stories from those in our parents’ generation who worked hard to pay off their mortgages as soon as possible, in 15, 10 or even 5 years.

I hear from friends who live outside of the Lower Mainland that they are mortgage free. Sometimes the little sarcastic voice in my head mutters….’and we pay not only a house mortgage but almost the equivalent of another mortgage in child care!’.  It’s easy to slip into the mindset that living in Lotus Land comes at the price of a forever mortgage but I think it is possible for Vancouverites to be mortgage-free too. Herein lies the opportunity…repay your mortgage more quickly once other financial obligations have ebbed (i.e. child care) or as household income stabilizes or increases.

Just imagine how much more money you would have each month if you didn’t have to pay a mortgage payment! Herein lies the motive….

No more mortgage payment = no more interest paid out of your pay cheque. Once that mortgage is gone, there is money for savings, travel and work flexibility. The positive impact on your monthly cash flow is great! Not only is it good for your bank account, it’s good for you psyche – less debt = more choices.

Whether you rent or own…we pay a premium to live in Vancouver. The question is – what can you afford to pay?

The recommendation is that you do not pay more than 32% of your gross (before taxes) monthly household income towards housing. This calculation includes the housing payment (principle and interest or rent) plus property taxes, strata fees and utilities including heat and gas. For example, if you earn $48,000 per year or $4,000 per month, 32% of the gross monthly is $1,280 per month. Whether or not you can afford to pay this much on housing depends on your other financial obligations. Do you have a car loan, pay for child care? These are all large and fixed expenditures. The bigger the chunk of your paycheck that goes to them, the smaller amount that is left for savings, lifestyle and discretionary spending.

For us, about 32% is just right, much more than that though and we’d feel the pinch each month.

Shopping for a new home is fun! But take a look past the sticker price to learn what other costs to include in your budget. Some are one-time or transaction expenses, some are an investment or upgrade and others are incremental to your existing bills. It’s a good idea to do a little research to understand which ones may apply to you.

Transaction costs may include application or appraisal fees, taxes (property purchase tax, GST), legal, moving and utility hook-up fees. You may also have to pay some extra rent, property taxes and partial interest costs and monthly maintenance fees. There are not necessarily large amounts but they certainly add up to a chunk of money when you’re already writing the biggest cheque in your life. If you don’t have the money set aside, it either comes from your down payment or must be borrowed (not advisable!).

Additional costs to your monthly budget may include higher utility costs, monthly maintenance fees, property taxes and home insurance.

Most of us don’t find a home that checks all the boxes but with all the home improvement shows on TV, you may have lots of creative ideas. Whether your ideas are low cost and big impact or costly improvements, don’t forget to set aside some money for this too.

Now that you’ve got a whole lot more information, we can take the numbers from the last three posts and boil them down to some key points:

• Know what mortgage payment you can afford.
• Make sure your budget can handle this payment plus any additional expenses such as property taxes, insurance and higher utilities.
• Have enough set aside to cover the transaction costs to buy your new home.
• Save as big of a down payment as you can (in addition to enough for the transaction costs)!
• Your down payment + the mortgage you can afford = Purchase Price

Between you and the bank, you’ll know how much you can afford for a monthly housing payment. The last post explained some of the guidelines that banks use to determine this. For you to be comfortable though, take the amount you want to spend each month and deduct any related costs such as property taxes and monthly maintenance fees. For example if you want to spend $2,000 each month on housing but must pay $200 each month in condo fees and set aside $150 per month for property taxes, $1,650 remains to pay the mortgage payment. This assumes that you’ve budgeted for your other monthly housing bills such as heat, electricity, gas, cable and internet.

$1,650 is your monthly principle and interest budget and some quick math on a mortgage calculator and you will learn how much mortgage this covers. Let’s estimate $250,000. Combine this with your down payment to get your purchase budget. Before you start looking for homes there’s one more thing to check. What is the minimum down payment you must have? It’s usually somewhere between 10 and 25%. Check with your banker to find out so that you can be confident that you’re looking in the right price range. Let’s say that you have a $30,000 down payment, add this to the $250,000 mortgage you can afford and you can buy a home for $280,000. There are some other costs to consider and we’ll take a look at them in the next post.

Some of these ‘rules’ may seem a little restrictive but in my experience they are reasonable guidelines – And who wants to stay home and worry where the money will come from for the next mortgage payment instead of meeting your friends for a night out.

A New Home – What Can I Afford?

Whether you are buying your first home or your third home, the big question is usually – What can I afford? This is a big question that is made up of two parts:

1. How much do you have for a down payment and what will someone lend you to buy a home?
2. How much mortgage will you take on and still sleep at night?

I’ll never forget the feeling I had walking over the threshold of my first home. It was one of panic and the question I asked myself was – What have I done? I owe soooo much money. Luckily it didn’t last long and it turned out to be a great decision financially and for me.

The answer to the first part of the ‘What can I afford?’ question is that your down payment must meet at least a minimum amount of the purchase price of the home and the housing payment (including property taxes and any monthly condo/home ownership fees) must not exceed 32% of your gross monthly income. Add to this any other loan and minimum credit payments and the total must not exceed 35% of your gross monthly income. 40% tops. There are other aspects of your financial life that must also fit their criteria such as a steady job, the down payment good credit and that the home you’re buying is good value.

The answer to the second part of the question is more complex because everyone’s situation is different. Your household income may be enough to cover a large housing payment but does it cover other payments such as childcare and lifestyle (vacations, entertainment and recreation)? Can you still afford the payments if there’s an expected or unexpected life event such as a lost job or a new child? How much debt do you feel comfortable taking on?

It’s a simple question but the answer is not always straightforward. At the end of the day, it’s important to remember that it’s you that has to make the payments and be able to sleep at night, regardless of what your banker or realtor say you can afford.

We’ll cover some other aspects of taking on the mortgage to buy your new home in the next post.

The bad news is … there is no easy way to do this. The saying ‘buy now, pay later’ rings true no matter how hard you try to ignore it.

The good news is … there are steps you can take to reduce the interest you’re paying, reduce your debt and ultimately be rid of it.

The quick steps:

• Understand your debt – record the amounts you owe, to who, the payments, the interest rate and the end date of the loan.
• Rank them in terms of interest rate (highest at the top).
• Review your budget to see how much you can pay towards your debt…really – after taking a hard look at your needs versus wants spending.

Formulate a repayment plan making sure that you keep making the minimum payments on all your debts, pay extra to the highest interest rate debts first and keep at it until their gone.

Here are some suggestions to speed up the process:

• Ask your creditors about lower rate options (sometimes there’s a fee for a low rate credit card but the fee is small compared to the amount of interest you’re paying).
• Ask your bank and ask about consolidation options (banks often require a co-signor for consolidation loans but you may have other options such as a line of credit).
• Consider working out an arrangement with family (if you prove to them that you can afford the payments and you will pay them interest). *This option is not ideal as keeping separation between family and finances is a good principle.

And the obvious:

• Stick to buying needs rather than wants
• Stop using credit to pay for things