Using Common Spending Habits to Accelerate Mortgage Repayment

Matt Chan • Nov 03, 2017

Whether you are looking to save a downpayment for your first home or you would like to pay down your existing mortgage just a little more quickly, the secret to getting ahead might just be in managing your spending habits.

Nestwealth , a Canadian wealth management company; who has a really good blog, recently released an article called “6 Common Spending Habits you Don’t Have to Follow”. The article has been published with permission below, have a read through their suggestions to see if you have any money you could use to either save that downpayment, or put down on your existing mortgage!

If you have any questions about mortgage financing, don’t hesitate to contact us anytime!

6 Common Spending Habits You Don’t Have To Follow

Our frivolous spending is often formed out of habit. And since habits are made up of actions we don’t realize we are doing over and over, it makes sense that our common spending habits are usually the hardest to identify and break.

But it doesn’t have to be that way.

Sometimes all you need is a gentle nudge from someone else to help kick those pesky spending habits to the side. Check out the top six common spending habits that you don’t (and shouldn’t) have to follow.

1. Treating yourself to lunch or dinner … every day.

Life is busy and sometimes it feels like it’s moving faster than we can keep up with. In those instances, it’s easy for us to grab lunch on the go or allow the takeout containers to pile up from dinners we simply didn’t have the time to make ourselves.

This spending pattern not only takes a toll on our bank account, but our health as well. You can alter this behaviour by planning your meals ahead of time, which can include treating yourself when necessary.

2. Charging a vacation to your credit card.

Oh how sweet life would be if we could afford endless vacation. That isn’t the case for most and yet, so many of us end up traveling on credit because it’s just so easy to do.

Breaking the habit here is simple. If you can’t actually afford to get there and have a good time, you shouldn’t be going in the first place. Sound depressing? It doesn’t have to be. Be realistic with your budget and start putting aside money in your vacation fund.

You will enjoy your time away so much more without the debt.

3. Impulse buying … everything and anything!

We’re all guilty of impulse purchasing. It’s how the retail business was built after all. It can be even more challenging to avoid when you’re in the company of friends and family that have the very same habit.

But sometimes we have to pull back and have that difficult conversation with ourselves where we admit that we don’t truly need that new shirt, shoes, or home accessory.

4. Paying for unused services.

So, you got stopped on the street and signed up for a membership to somewhere, for something — and never looked at it again. Or how about that gym membership you pay for every month … but never set foot in.

Don’t worry, it happens! What better time than now to cancel those memberships and redirect that money somewhere else — like back in your bank account.

5. Falling victim to fees.

It’s so easy to get caught up in the rush of doing things quickly and conveniently. More often than not, convenience comes at a price.

Think about how many times you’re cashless and fall victim to those pesky ATM fees, or maybe you overdo it on the e-transfers and gasp at your bank statement when you see how much that seemingly little convenience cost you.

Plan ahead by pulling the cash you need for the week and be aware of what these tiny habits are costing you in the long run.

6. Avoiding the small pleasures.

On the flip side of all that we’ve mentioned, it’s super important that you do in fact indulge in that latte, as opposed to desperately trying to save your way to wealth by avoiding the small stuff.

While this might seem counter-intuitive, we actually discuss the science behind this in more detail by breaking down the ‘latte factor’ in our podcast ‘The Smart Money’.

Start changing your spending habits now, so you can afford more in your future.

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Credit and Mortgage Financing

By Matthew Chan • 24 Apr, 2024

Credit. The ability of a customer to obtain goods or services before payment, based on the trust that you will make payments in the future. When you borrow money to buy a property, you’ll be required to prove that you have a good history of managing your credit. That is, making good on all your payments. But what exactly is a “good history of managing credit”? What are lenders looking at when they assess your credit report? If you’re new to managing your credit, an easy way to remember the minimum credit requirements for mortgage financing is the 2/2/2 rule. Two active trade lines established over a minimum period of two years, with a minimum limit of two thousand dollars, is what lenders are looking for. A trade line could be a credit card, an instalment loan, a car loan, or a line of credit; basically, anytime a lender extends credit to you. Your repayment history is kept on your credit report and generates a credit score. For a tradeline to be considered active, you must have used it for at least one month and then once every three months. To build a good credit history, both of your tradelines need to be used for at least two years. This history gives the lender confidence that you’ve established good credit habits over a decent length of time. Two thousand dollars is the bare minimum limit required on your trade lines. So if you have a credit card with a $1000 limit and a line of credit with a $2500 limit, you would be okay as your limit would be $3500. If you’re managing your credit well, chances are you will be offered a limit increase. It’s a good idea to take it. Mortgage Lenders want to know that you can handle borrowing money. Now, don’t confuse the limit with the balance. You don’t have to carry a balance on your trade lines for them to be considered active. To build credit, it’s best to use your tradelines but pay them off in full every month in the case of credit cards and make all your loan payments on time. A great way to use your credit is to pay your bills via direct withdrawal from your credit card, then set up a regular transfer from your bank account to pay off the credit card in full every month. Automation becomes your best friend. Just make sure you keep on top of your banking to ensure everything works as it should. Now, you might be thinking, what about my credit score, isn’t that important when talking about building a credit profile to secure a mortgage? Well, your credit score is important, but if you have two tradelines, reporting for two years, with a minimum limit of two thousand dollars, without missing any payments, your credit score will take care of itself, and you should have no worries. With that said, it never hurts to take a look at your credit every once and a while to ensure no errors are reported on your credit bureau. So, if you’re thinking about buying a property in the next couple of years and want to make sure that you have good enough credit to qualify, let’s talk. Connect anytime; it would be a pleasure to work with you and help you to understand better how your credit impacts mortgage qualification.

Notes on the Federal Budget

By Mortgage Plan • 19 Apr, 2024

Sherry Cooper has done a great analysis of the upcoming Federal Budget. You can see it here: Sherry Cooper Federal Budget 2024 One of the key themes of the budget is to tax the wealthy namely through increase taxes on capital gains. Currently, 50% of capital gains are taxed. Under new proposal, 50% capital gains tax will still apply for the first $250,000 but will rise to 66.6% on income above $250,000. Implications to real estate investors: - the tax is targeted to the wealthiest Canadians BUT there will be impact to the middle class real estate investors and can lead to higher taxes for middle class Canadians. - disincentive for Canadians to buy investment properties - disincentive for Canadians to buy under a corporation as corporations and trusts are taxed for entire capital gains at 66% rather than just the gains over $250,000 for individuals. With these changes, it is important to work with a team of professionals (mortgage broker, realtor, financial advisor and accountant) that can properly advise and help you navigate the intricacies of buying and selling investment properties. Be sure to consult with a great team of knowledgeable professionals when looking to buy and sell real estate. The other changes: - increase amortization to 30 years for new builds Likely minimal effect on affordability as it likely will increase demand - increase in RRSP withdrawal limit to $60,000 from $35,000 In my career, I rarely see a first time buyer with over $25,000 in RRSPs so likely a very minimal impact on actual first time buyers Reach out to me if you have any comments or questions.

Understanding the Recent Housing Affordability Measures in Canada

By Matthew Chan • 18 Apr, 2024

In recent years, housing affordability has become a significant concern for many Canadians, particularly for first-time homebuyers facing soaring prices and strict mortgage qualification criteria. To address these challenges, the Canadian government has introduced several housing affordability measures. In this blog post, we'll examine these measures and their potential implications for homebuyers. Increased Home Buyer's Plan (HBP) Withdrawal Limit Effective April 16, the Home Buyer's Plan (HBP) withdrawal limit will be raised from $35,000 to $60,000. The HBP allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to use towards a down payment on a home. By increasing the withdrawal limit, the government aims to provide young Canadians with more flexibility in saving for their down payments, recognizing the growing challenges of entering the housing market. Extended Repayment Period for HBP Withdrawals In addition to increasing the withdrawal limit, the government has extended the repayment period for HBP withdrawals. Individuals who made withdrawals between January 1, 2022, and December 31, 2025, will now have five years instead of two to begin repayment. This extension provides borrowers with more time to manage their finances and repay the withdrawn amounts, alleviating some of the immediate financial pressures associated with using RRSP funds for a down payment. 30-Year Mortgage Amortizations for Newly Built Homes Starting August 1, 2024, first-time homebuyers purchasing newly built homes will be eligible for 30-year mortgage amortizations. This change extends the maximum mortgage repayment period from 25 years to 30 years, resulting in lower monthly mortgage payments. By offering longer amortization periods, the government aims to increase affordability and assist homebuyers in managing their housing expenses more effectively. Changes to the Canadian Mortgage Charter The government has also introduced changes to the Canadian Mortgage Charter to provide relief to homeowners facing financial challenges. These changes include early mortgage renewal notifications and permanent amortization relief for eligible homeowners. By implementing these measures, the government seeks to support homeowners in maintaining affordable mortgage payments and mitigating the risk of default during times of financial hardship. The recent housing affordability measures announced by the Canadian government are aimed at addressing the challenges faced by homebuyers in today's market. These measures include increasing withdrawal limits, extending repayment periods, and offering longer mortgage amortizations. The goal is to make homeownership more accessible and affordable for Canadians across the country. As these measures come into effect, it's crucial for homebuyers to stay informed about the changes and their implications. Consulting with a mortgage professional can help individuals explore their options and make informed decisions about their housing finances. If you're interested in learning more about these changes and how they may affect you, please don't hesitate to connect with us. We're here to walk you through the process and help you consider all your options and find the one that makes the most sense for you.