Tuesday, September 16th8.9°C

Power-save your way to a down payment

Part 1 of 2

1.  Move in with your parents or in-laws

Explain that you're thinking strategically in moving back home.  The quickest way to get into the housing market is to maximize savings, which is difficult to do when you're paying the cost of rent in a big city.  You'll pay your parents a token amount of rent, but most of your savings will go directly into your house down payment fund.  Tell your parents to think of the grandchildren you'll be raising in the house you're saving for!

Yearly rent at:                                          $9600 ($800/month)
Minus token rent payments to parents:   $2400
One year savings:                                   $7200

2.  Move down one level of rental
If you have a two-bedroom apartment, try going down to one bedroom.  Or, trying squeezing into a bachelor apartment.  You could also look at moving to a cheaper part of town, as long as it won't jack up your commuting costs.  Get rid of stuff that won't fit in your new, smaller place, or store it in your parent's basement.  Don't spend money on a storage unit.
Yearly rent at :                                       $9600 ($800/month)
Minus yearly rent at:                              $7800 ($650/month)
One year savings:                                 $1800
3.  Sell your car and take the bus
You'll be saving on fixed costs such as parking, insurance, gas, maintenance and possibly car payments, and you'll be protected against the risk of financially catastrophic four-figure repair bills.  Rent a car or use a car-sharing service for those times when the bus won't cut it.  A cheap bike will help you save on bus fare.

Estimated annual cost of gas, insurance, maintenance and parking:              $5000
Minus estimated annual cost of a bus pass and occasional car rental:           $1500
One year savings:                                                                                            $3500
4.  Stop buying lunch
A pain, but worth it.  You'll have to think ahead by either picking up the right groceries to make your own lunch, or by scooping up after-dinner leftovers.  Healthier than your food-court lunch, which you're probably sick of anyway.
Estimated cost of buying lunch at $8 or so per day:                                      $2000
Minus cost of spending about $15 per week for stuff to make your lunch:    $  750
make your lunch:
One year savings:                                                                                          $1250
With these four habits you will be saving $13,750 per year.  Stay tuned in two weeks for another 4 ways to save more.


How much mortgage should you carry?

There are several things to consider when deciding how much home to buy.


1.  Draw up a budget including the new mortgage payments.

While the rules used by most lenders require that the mortgage payment along with property taxes and heating costs not exceed 32% of your household income, this is not suitable for every borrower.  I have had some clients who do not have other loans or debts and so can afford a much higher payment while other clients, enjoy going out frequently and so this may be too high a payment for them to manage.

So even though your bank or mortgage broker may tell you based on the lender's or insurer's guidelines that you qualify for a certain sized mortgage based on your income, you need to look at your own budget needs.  I good guideline is your current rent.  How easy is it for you come up with the rent and still have money for other expenses?

The monthly, weekly or bi-weekly payments can also fluctuate if you are in a variable rate product as interest rates change,  so be sure you have some extra money at the end of your month.  With a fixed rate term you could also be looking at an increase in your payment when your mortgage comes due if rates have risen since you locked in.  One way I protect my clients from this, is through an email system which alerts them when rates are going up and sets a plan to protect them from payment shock at maturity.


2.  Reconsider the old idea of buying a starter home now and moving up down the road.

The larger home slightly outside of town although cheaper than the same sized house in town, may have all sorts of extra costs for many homebuyers.  You need to look at the entire situation.  For example, are the extra gas costs to commute into work really worth it?  Yet buying a bigger home now could be a better decision if you know that you will be graduating to a larger home anyway.  Everything from property tax and transportation costs should be at least considered.  A $50,000 difference in selling price between two homes may not be that much if you are sure that you will most likely be spending more time in a larger home.


3.  Don’t get carried away comparing mortgage rates.

I find that banks and brokers have done a poor job of educating consumers about what to ask as far as the mortgage is concerned, so we have made it all about price.  The products vary so much from lender to lender that it is so important to understand what you are getting.

In particular most of my clients are not aware of collateral charges. Many banks such as RBC and TD Canada Trust register mortgages as collateral charges which the banks tell clients allows them more ease in taking out a line of credit from the house, yet this type of charge cannot easily be transferred to another lender at maturity without costs.

This also happens when you take out a line of credit with your bank.  The balance of a line of credit is re-advancable unlike a regular mortgage and so cannot easily be moved from one lender to another if the rate offered at maturity is not competitive.

The lenders are finding these collateral charges are increasing their retention of business at maturity.  But is it really in your best interest?


4.  Prepayment options can save you thousands.

The ability to prepay extra on your mortgage.  For example:  20% of your outstanding balance on any payment date and increase your payment by 20%, can save thousands of dollars over the life of the mortgage.  Sometimes the lower advertised mortgage rates restrict these extra payments.


You are always best to deal with an Accredit Mortgage Professional (AMP) who has your best interests in mind.  Please feel free to call 250 862 1806 or email mtggal@okanaganmortgages com.

VERICO: a decade later...

VERICO Canada celebrates its 10th year in business and makes strategic plans to compete and win in the next decade.

As we come up to VERICO’s 10th year in business, we are pleased to announce that B2B Bank will be making an equity investment in Verico Financial Group.

“This investment is great news and supports VERICO Canada and independent mortgage brokers,” says Colin Dreyer, President and CEO of VERICO Canada. “VERICO Canada is committed to investing and further developing innovative tools and systems that enhance our competitiveness and expands the opportunities available to our Mortgage Brokers now and in the future."

Both VERICO Canada and B2B Bank will continue to operate as separate companies, with no changes to the staff or management of either organization.

Verico Financial Group Inc. has an exceptional track record of strong growth – evolving from just a single member broker firm in 2005 to what is now a network of over 200+ independent broker member firms, in 300+ locations and with 2,000+ agents producing more than $12 billion in mortgage loan volumes annually. A privately held Canadian company with members in every province, the VERICO Mortgage Broker Network prides itself on professionalism, excellence, and ethical standards and as a result has earned a reputation that is coveted in the industry.

“I am personally very excited about B2B Bank’s investment in VERICO Financial Group. This reinforces our commitment to independent mortgage broker distribution, and also provides us with an opportunity to invest in a successful Canadian company with a reputation that’s coveted in the industry,” says François Desjardins, President, B2B Bank.

B2B Bank is, and will continue to be, one of VERICO’s strategic lending partners. VERICO’s business model of working with a wide variety of lenders will not change – enabling our brokers to continue to act independently and provide the product solutions that best suit their clients, regardless of the lender.

If you have any questions regarding this investment or your own mortgage please call us at (250) 862-1806 or email [email protected].


Take charge of your debt

Ways to reduce your Debt:

Make a budget and get budget counseling

A basic first step for debt reduction is to prepare a budget and plan your spending. Once you have a budget, you must stick to it. When you follow a budget, you can take any extra money you have each month and put it toward your debts. This will lower your total debt and save you money on interest fees.  Don’t spend money on items that are not in your budget. Eventually, if nothing else changes, you will be able to pay off your debts.  If you find this hard to do, see a professional budget counsellor for advice on planning a budget.

Combine your debts

A debt consolidation loan is a loan (usually from a bank) that lets you repay your debts to all your creditors at once. This means that you only have one monthly payment, often at a lower interest rate than you are paying now. This saves you money on interest fees and lets you pay off your loan faster.

Contact your creditors

One way to lower your debt is make new arrangements with your creditors. Make a list of your creditors and contact each one with a proposal for one or more of the following:
  • Lower monthly payments
  • Longer time period to make your payments
  • Lower rate of interest
You can also ask a debt management advisor, such as a credit counsellor, to do this for you.

Work with your mortgage lender

The Canada Mortgage and Housing Corporation (CMHC) suggests contact your mortgage lender right away when you run into mortgage problems. You can then work with your lender to find a solution.

Sell a possession

A personal possession is something that you own and do not owe money on. Selling a personal possession can get rid of some of your debt. If you cannot earn more money or cut down your expenses, selling a personal possession can be a good idea.
Remember we are always here to answer any of your questions on this or anything else (250) 862-1806 or email [email protected].

Read more Home Finance articles


About the author...

Laurie Baird is a Mortgage Broker with Verico Complete Mortgage Services. She has been in the mortgage business for 17 years starting as a lender with Royal Trust. She later worked at the Royal Bank as a Mortgage Consultant and 11 years ago became a Mortgage Broker. As a Mortgage Broker she is able to match her clients' needs with a lender who will provide them with competitive rates and products. Laurie has a Bachelor of Education degree from UBC.

Contact her at 250-862-1806 or by fax 712-0209 or visit:

Visit Laurie's blog at: http://www.okanaganmortgages.com/blog.html


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet presents its columns "as is" and does not warrant the contents.

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