Blog

March 1, 2022 Mortgage

March Mortgage Madness – Introduction to Mortgage Terms: Part 1

Hello, and welcome to my first post on mortgage terms. There are A LOT of things to consider when you want to get a mortgage, but jargon, unfamiliar terms, and acronyms can overwhelm getting a mortgage! So I’m here today to run through two of the most important terms with you – I’ll cover some more terms next week.

  1. Rate of interest – adjustable (variable) or fixed
  2. Mortgage Term

1. Rate of interest

There are basically two choices regarding mortgage rates – you can select a fixed rate or an adjustable or variable rate.

A fixed rate is exactly what it sounds like – it will stay the same for your entire mortgage term (more on that soon!). So if you are quoted a fixed rate of 3% interest on your mortgage, and your mortgage term is five years, you will never pay anything other than 3% for your entire term. A fixed term has a lot of advantages – you always know how much your mortgage payments will be, and you don’t have to worry if interest rates go up. The main disadvantage is that you could have paid less with a variable-rate mortgage if the variable rate is consistently lower than the fixed rate.

A variable rate mortgage is exactly what it sounds like -the rate of interest you pay will vary. It is quoted as being more or less than the “Prime” rate. The prime rate is a set interest rate that all central Canadian banks use to set interest rates for loans and lines of credit.

If you have a variable-rate mortgage, your mortgage rate will change with the prime lending rate. Your lender will quote your rate as prime plus or minus a specific amount, such as a prime of 0.40%. Even though the prime lending rate may fluctuate, the relationship to prime will stay constant over your term.

For example, the prime rate is 2.5% for six months. And the terms of your mortgage indicate you pay prime – 0.40%. That means your actual interest rate for those six months is 2.1%. If the prime goes up – to 3.0%, you pay 2.6%.

The advantages and disadvantages of a variable mortgage are the exact opposite of a fixed-term one. With a variable mortgage, you don’t know what your mortgage payment will be for the length of your term – so if you’re on a fixed income or a worrier, a variable rate mortgage may not be the best option. The advantage of a variable-rate mortgage is that if the prime rate stays low, you may pay less over the long term than you would with a fixed-rate mortgage.

2. Mortgage term

A second phrase you’ll hear a lot is “mortgage term.”  This is the amount of time that you are committed to:

  • A mortgage rate (as covered above – this is fixed or variable)
  • A lender – this is likely a bank or credit union
  • Any conditions set by your lender (e.g. if you are allowed pre-payments – I’ll cover these in my next post!)

In Canada, the most popular mortgage term tends to be five years. After the five years, you can renew your mortgage (unless you’ve paid it off!) with your existing lender or go to a new one (although this can be complicated). The interest rate and conditions you had in the previous term are no longer applicable.

The more you know!

Now you’ve learned what two of the most important terms associated with a mortgage mean:

  1. Rate of interest. This is the amount of interest you’ll pay on your mortgage, and it can be fixed (it will never change) or variable (it can go up and down).
  2. Mortgage Term – this is the amount of time you are committed to a lender. The most common term in Canada is five years.

Come back next week, and I’ll cover more terms! Let me know in the comments if any of this information is new to you!

 

February 15, 2022 Debt, Making money

Finding extra cash to pay off debt

Photo by Sharon McCutcheon on Unsplash

This month I’m focussing on paying off debt! Over the past two weeks, I’ve talked about how to figure out how much you owe and determine the best approach for you to pay off your debt!

I understand – you’ve already put so much work in just taking care of steps 1 and 2. But you’ve made so much progress – so keep pushing on! Now you know how much you owe and how you want to pay it off – the next step is to figure out how you’ll come up with extra cash to pay off your debt faster.  There are two main ways to come up with extra cash:

  1. Earn more
  2. Cut back

I’ll put my suggestions below – and I’d love to hear yours.

1. Earn more

While there are definitely drawbacks to living in a “gig” economy, the good news is this enables you to find easy options to earn extra money.  Here are some:

  1. Driving – all kinds of choices here. You can deliver packages (Amazon), food (GrubHub) or people (Uber)
  2. Paper route (yes, they still exist)
  3. Temp agency – Find extra work for your days or evenings off
  4. Surveys – more details in my post here
  5. Sell stuff – more details in my post here.
  6. If you’re creative – you can try to sell things on Fiverr or Etsy.
  7. Rent out a room on Airbnb.

There are lots to choose from here – just depends on your skills and resources.  (e.g. if you don’t drive, then working for Uber is not going to happen :)).  Also, think about what’s reasonable for you – if you live in a major city, the stress of delivering packages or food may not be worth it!

2. Cutting back

You’ve figured out a few ways to bring in some extra bucks – but you still want to throw more at your debt. Now it’s time to figure out if there are any areas to cut back in:

  1. Daily expenses – I know everyone always tells you to cut back on your daily coffee. But sometimes, you truly need that coffee trip to keep your sanity! You can consider less expensive coffee or buy it once a day instead of cutting it out altogether.
  2. Bigger expenses – take a look at how many streaming services you have or if you’re truly using cable TV. I’m not advocating you cut your entertainment options down to nothing. BUT if you have 5 streaming services, you may be able to do without 1 or 2 of them!
  3. Renegotiate! Call your cable or credit card company and see if you can get a better deal or lower interest rate. This is one of the quickest ways to save money without sacrifice.
  4. If you have good self-discipline, you can consider transferring your balance to a 0% interest credit card. You have to be sure you won’t run up a balance on your new card or, worse yet – not pay it off before the 0% rate ends, and you get hit with a huge charge!

Moving forward

You may find it easier to cut back than earn more money – after all, we all have a lot of interests and responsibilities outside of our main jobs, so taking on more work may just not be an option for you.  I think you’ll be able to find 1 or 2 things on both my lists that work for you and will help you start paying off debt that much faster!

Happy earning or saving – or both! Let me know what approach works for you in the comments!

 

 

February 1, 2022 Debt

Debt Avalanche vs Debt Snowball – which is right for you?

Photo by Holly Mandarich on Unsplash

Last week, I covered the first step in paying off your debt – knowing just how much you have! The next step is figuring out how you are actually going to pay off the debt! Next week, I’ll talk about finding extra money (whether it’s through earning it or cutting back), but this week I’m going to talk about figuring out what approach to paying debt is best for you. I’ll cover two of the most popular strategies:

  1. Debt avalanche
  2. Debt snowball

1. Debt Avalanche

With the debt avalanche route, you first target your debt with the highest interest rate. You don’t target the debt you owe the most (or even the least!) on – instead, you target the debt you are paying the most interest on.

For example – you have two credit card balances:

  • On Card 1, you owe $5,000 at 10% interest
  • On Card 2, you owe $2,000 at 20% interest.

With the debt avalanche approach, Card 2 is now your priority to pay off, even though you owe more on Card 1 than you do on Card 2. If you can put an extra $100 over the total minimum you are paying on Card 2, you will pay off Card 2 much faster. Once you have completely paid off Card 2, you can then put that extra money towards Card 1.

The main advantage of going the debt avalanche route is that you are saving more money by first tackling debts with the highest interest rate. So the debt avalanche route is excellent if you are concerned with paying as little interest as possible.

1. Debt snowball

With the debt snowball route, you prioritize your smallest debt, no matter the interest rate. For example, you have three credit card balances:

  • On Card 1. you owe $5,000 at 10% interest
  • On Card 2, you owe $2,000 at 20% interest.
  • On Card 3, you owe $1,000 at 5% interest.

With the debt snowball approach, pay off Card 3 first (throwing any extra money at it that you can), even though the interest rate on Card 3 is lower than it is on the other two cards. After you have paid the balance on Card 3, you move on to Card 2.

The main advantage of the debt snowball route is that you get the “win” of paying off debt quickly. So the debt snowball approach is great if you need a constant boost to help keep you on track.

What’s best for you?

That depends on your personality! If you’re the kind of person who needs to have a quick “win” in order to keep yourself motivated, then I recommend the debt snowball approach. If you hate the idea of paying extra interest and know you can keep yourself motivated, then the debt avalanche is the route for you!

To get started, check out this great calculator that can tell you how fast you’d be out of debt using each approach. No matter how you pay off your debt, you’ll feel better the sooner you get started!  Tell me in the comments which route you prefer!

 

 

 

 

 

 

January 15, 2022 Debt

Figuring out how much money you owe

Welcome to step 1 of debt month – figuring out how much money you owe. It’s important to do this, even if you think it’s going to scare the heck out of you! The longer you ignore it, the higher your debt will be – and the scarier the final total will be!

So it’s time to buckle down and figure out just how much money you owe. There are two main steps to this:

1. Figuring out all your debts.

2. Recording details about them such as amount, payment date, etc.

1. Figuring out all your debts

Yup, all of them! Try to think of it as a treasure hunt for adults, with the eventual prize being peace of mind. In order to do this, you need to track down information about all your debts.

  1. Gather any paper copies you have of unpaid bills, student loans, mortgage payments, due, etc.  Basically, any record that shows who you owe money to and how much.
  2. If you don’t have hard copies, go online and print out the information you’ll need (payment amount, the overall amount due, payment due date, etc.). It may seem wasteful to print out the information you can access online, but having a copy of ALL your debt information in one place will help make sure you don’t miss anything.
  3. If you don’t have either a paper copy or an online copy you can print out, or that information is out of date, you may need to make some phone calls. It may take time to track down details on student loans, but persevere – and make sure to take notes so you have all the primary details about your debt recorded.

Now you’re ready for step 2.

2. Recording details about your debt

The good news is – you’ve done the hard part. You’ve gathered all the information you need to figure out how much you owe. Now you have to record details about you owe. I suggest you do it in a spreadsheet or Word document if possible as it’ll be easier to update, but if paper and pen work better for you, then go that route. You need to record the following information about your debt:

  1. Who you owe it to (e.g. Bank, Credit Card company, etc.)
  2. How much you owe overall – e.g. your entire mortgage amount, your entire student loan amount, etc.
  3. What interest rate you’re paying on it.
  4. What your monthly payment is for your debt.
  5. How much your monthly payment is.

After that – put together a total of how much you owe overall (e.g. 200,000 on a mortgage, 40, 000 on credit cards etc.) and how much you owe each month in total monthly payments.

Now what?

You’ve collected information about all your debts and recorded them in one place. You know how much you owe overall, and how much you owe in monthly payments. Now comes the next hard part – figuring out how you’re going to start paying your debt off.  I’ll cover that topic next week, so stay tuned!

 

 

December 15, 2021 Lessons Learned, Uncategorized

What’s your biggest money mistake?

I know it’s not the most fun topic to think about. But just about everyone has made a money mistake.

Today, I’ll talk about:

  • What qualifies as a money mistake?
  • What I consider my biggest money mistake.
  • How to move on from a money mistake.

What qualifies as a money mistake?

A money mistake isn’t something small like dropping five bucks on the ground and not noticing until later! Instead, it’s something big, like forgetting to pay a bill for months. Here are some examples of money mistakes:

  • Transferring a balance to a zero-interest credit card but not paying off the balance before the interest rate increases.
  • Letting a bill go to collections when you had the resources to pay it off.
  • Not knowing how much interest you owe on a debt.
  • Jumping into a “hot” investment opportunity without really checking it out.
  • Buying more house than you can afford!

These are just a few examples of money mistakes.

What do I consider my biggest money mistake?

I’d say my biggest money mistakes are as follows:

  • Spending little bits of money on impulse shopping here and there. I always feel like I NEVER spend money except on things I truly need, but my credit card statements at the end of the month tell another story.
  • Sticking with a stock too long. I was lucky enough to work at a company during the tech boom and bought stock when it went public. But I got greedy and hung onto the stock, thinking it’d keep going up and up. So while I did make a profit, I could have made more if I’d cashed out earlier.
  • Sticking with a financial planner for years. He did very little for me and talked down to me. Much happier now that I just do online investing.

How do I move on from a money mistake?

That’s a great question that there’s no easy answer to. It depends on the mistake and, of course, how severe the damage is! Sometimes, it’s just forgiving yourself for making a mistake and moving on. In other cases, you need to consider selling a bad investment or paying off a bill and fixing your credit record.

There’s no one-size-fits-all solution, but your best bet is to determine what went wrong, what your course of action should be, and then get moving!

Let me know about your biggest money mistake.

As the saying goes, misery loves company! It’s always nice to know you’re not alone when making a money mistake. Tell me about your biggest money mistake in the comments.

 

 

December 1, 2021 Cryptocurrency

3 big-name businesses that accept Bitcoin

Image by MichaelWuensch from Pixabay

Cryptocurrency, particularly Bitcoin, is a hot topic these days. You’ve likely heard of it, and maybe even know how you can buy it or “mine” for it. But did you know you can actually spend it on physical goods or services? The answer is Yes! Here are three big-name businesses that accept Bitcoin.

  • Microsoft
  • Overstock
  • Etsy

Spending Bitcoin on Microsoft

Yes, one of the world’s biggest companies is keeping up with the times! You can put funds into your Microsoft account using Bitcoin. Some things to consider before you do this though:

  • You can’t use Bitcoin to purchase anything in the Microsoft online store or to buy gift cards. So you can’t buy the latest version of Microsoft office using Bitcoin.
  • You can use Bitcoin in the Windows Store and Xbox Store for items like apps, games, and movies. So if you’re an avid gamer or a movie junkie, this is great news for you!
  • Any money you add to your Microsoft account using Bitcoin will not be refunded.

If you’d like to learn more about how to spend Bitcoin with Microsoft, check out Microsoft’s help article on using Bitcoin.

Spending Bitcoin on Overstock

Overstock sells everything from home decor to clothes. And now you can buy all those items using Bitcoin! In fact, they were one of the first major companies to accept Bitcoin and quickly surpassed 1 million dollars in Bitcoin sales.

Here are some details on paying with Bitcoin on Overstock:

  • Overstock has partnered with Coinbase (a Bitcoin platform) to support Overstock in accepting Bitcoin as payment
  • It’s very simple to pay with Bitcoin! Just select Pay with Bitcoin in the Payment Information section of their checkout page
  • You can use Bitcoin with Overstock.com gift cards, in-store credit, Club O rewards, or coupons.
  • You can also get a refund in Bitcoin! If you ask for a refund, it will be issued at the full USD value of the order and then processed at the Bitcoin exchange rate.

To learn more about spending Bitcoin on Overstock, check out their help article on using Bitcoin.

Spending Bitcoin on Etsy

Etsy describes itself as a “global marketplace for unique and creative goods.”.  You can find everything on here from hand-crafted jewelry to vintage toys.  Accepting Bitcoin as payment is up to the individual seller – no one who sells on Etsy is obligated to accept Bitcoin as a form of payment. The buyer must select “Other payment” when they check out and then coordinate with the seller on how to pay via Bitcoin.

You’re ready to start spending!

BItcoin is just for mining and then holding on to – you can also spend it. Using Bitcoin, you could buy:

  • The latest Xbox games from Microsoft
  • A new chair to play Xbox in from Overstock
  • Socks from Etsy that display your love of Xbox and inform anyone walking by not to disturb you. Yes, those really exist.

Without leaving your couch or touching your credit card, you’ve just upped your gaming to a whole new level!

November 15, 2021 investing

The yield curve – a primer

I listen to a great NPR podcast called Planet Money. It takes various aspects of the economy and explains them in a fun, down to earth way. I highly recommend it.

One of the things they talk a lot about on Planet Money is the yield curve. I’d never heard about the yield curve before listening to Planet Money, but it’s a key economic indicator that can help forecast if a recession is imminent! Today, I’m going to tell you about:

  1. What the yield curve is
  2. What the shape of the yield curve means

1. What the yield curve is

The yield curve is just a line – but it’s a very important one. It shows the yield or interest rate that is associated with securities that have the same credit quality, but different maturity dates. Credit quality is basically what it sounds like – it lets you (the investor) know how high the risk of default on the bond. A maturity date is when a bond comes due – that is, when the investor will get the money back they put into the bond!

Typically, bonds with longer maturities – those that require investors to wait longer before redeeming them – pay more than those with shorter maturities.

The most common way to determine a yield curve is with U.S. Treasury securities. The following is taken into consideration when building a yield curve:

  • Having securities with similar characteristics – such as risk. For U.S. Treasury securities, the risk is generally low
  • The interest rate for a series of bills or bonds – anything from a six-month Treasury bill to a twenty-year bond

2. What the shape of the yield curve means

The slope of the yield curve gives an idea of future interest rate changes and economic activity. There are three main types of slopes:

  1. Normal – an upward sloping curve
  2. Interveted – a downward sloping curve
  3. Flat – there is no slope

Normal yield curve

In a normal or upward sloping curve, longer maturity bonds have a higher yield compared to shorter-term bonds due to the risks associated with time. A normal yield curve is the most common yield curve shape – it is often referred to as the “positive yield curve.”

Inverted yield curve

An inverted yield curve occurs when shorter-term yields are higher than the longer-term yields. This kind of yield curve can be the sign a recession may occur in the near future.

Flat yield curve

In a flat yield curve, well – there’s not much of a curve! A flat yield curve occurs when short-term and long-term rates for bonds of the same credit quality are basically the same. Like the inverted yield curve, a flat yield curve can often be the sign of an approaching recession.

So now what?

Now you know a key indicator in investing – the yield curve! You can keep an eye on it to determine where it seems like the economy is heading. If it looks like a recession may be imminent, it may time to rebalance your portfolio!

 

 

November 1, 2021 Student Loans

What happens if I can’t pay my student loans back?

So you’ve finally graduated, but you haven’t had any luck finding a job. Or your job just doesn’t pay enough that you can afford to start paying off your student loans. So what do you do? If this is your situation, you may want to apply to the government Repayment Assistance Plan.

What is the Repayment Assistance Plan?

The Repayment Assistance Plan (RAP) is a program designed by the government to help you if you can’t afford to pay back your student loans. If you decide to apply for the RAP, you must be able to prove that you can’t afford your monthly student loan payments.

You must re-apply every six months for RAP, but there is no limit on how long you can use the program. RAP has two stages – interest relief and debt reduction.

How does the interest relief stage of the RAP work?

The interest relief stage is available for either 60 months or until you are ten years out of school, whichever comes first. The government will calculate an “affordable payment” based on your income. Your affordable payment will go towards paying down your loan principal and interest if there’s any money left after paying the principal. If your payment isn’t large enough to cover the interest, the government will cover the interest instead.

For example, you have a student loan payment of $400. Of this amount, $100 is interest, and $300 is principal. The government determines you qualify for RAP and calculates your “affordable payment” to be $200. Your monthly payment pays down your loan principal by $200, and the government pays a total of $100 toward the monthly interest amount.

How does the debt reduction stage of the RAP work?

You will proceed to this stage of the RAP after you’ve been part of stage 1 (interest relief) for a minimum of 60 months or you’ve been out of school for ten years, whichever comes first.

During this stage of the RAP program, you either continue to pay an “affordable payment” (as calculated by the government) or no payment at all. This will depend both on your income level and your family size. Your payment will go towards paying down your loan principal and interest (if there is enough money to do so). The government will cover any remaining monthly interest and principal amounts.

For example, your monthly student loan payment is $500. Of this amount, $100 is interest, and $400 is principal. Your affordable payment is $100. Therefore, you would pay $100, and the government would pay $300 per month toward the principal amount of the loan and $100 towards the monthly interest.

The Takeaway

You do have options if you can’t afford your student loans. Be proactive and be aware of all the steps involved in applying for the RAP, so you’re ready if you need to apply for it.

October 15, 2021 Student Loans

What You Need To Know About Paying Your Student Loans Back

So you’re ready to start paying your student loans back? Great! Make sure you have all the information you need so you don’t miss any crucial deadlines!

What do I do if I have a government student loan?

If you have a Canada Student Loan, you’ll have a six-month grace period before you’ll have to start paying off your student loan.  Any of the following can trigger a grace period to start:

  • You graduate from school.
  • You decide to take time off from school or leave it completely.
  • You transfer from full-time studies to part-time studies.

You don’t have to wait to start paying back your loan. If you graduate with a job waiting, and you have low living expenses (e.g. you can live at home rent-free), then try to start paying back your loan as fast as possible!

You may be able to make adjustments to your loan payments, such as lowering them – but this means that it’ll take longer to pay back your loan. Contact the National Student Loans Service to find out more information about what you owe and how to pay it back.

What do I do if I have a private student loan?

The process for paying back a private student loan will vary depending on who you borrowed money from. Before you graduate from school, you should:

  1. Make a list of all the banks or credit unions you borrowed money from.
  2. Find out how much you owe, and when you’ll be expected to start paying it back.
  3. Make a plan on how you’ll budget so you can start paying your loans back.

Don’t wait for lenders to contact you! It’s important to be proactive when you have loans to pay back so you don’t accidentally miss any payments. The last thing you want to do is to incur fines or penalties on top of your student loans.

What about student loan forgiveness?

Depending on the type of profession you studied for, you may be eligible for some student loan forgiveness – meaning you don’t have to pay back all of your student loans.

Family doctors and nurses working in areas considered “remote” may be eligible to have some or all of their student loans forgiven. A few things to keep in mind:

  • Loan forgiveness is only available for outstanding Canada Student Loan balances. If your Canada Student Loan has been converted to a line of credit or private loan, it’s not eligible for loan forgiveness.
  • Loan forgiveness only applies to the federal portion of a student loan, not the provincial or territorial portion of a student loan.

Don’t assume you’ll just be eligible for loan forgiveness. You can find more details about how to get started with applying for loan forgiveness here.

The Takeaway

It’s critical to be on top of paying back your student loans. Don’t wait for the government or your private lender to contact you – it’s your responsibility to be aware of what you owe, and when you’ll have to start paying it back!