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The Money Project is interested in connecting you to online information and resources about money and personal money management. Whenever we find information that we think will interest you, we list the most current items here. You can also visit our news and events archive.

 
 


  • Not happy with your bank? Things to consider before you switch

    Oct 07, 2014, 16:19 PM

    David Friend, The Globe and Mail

    Soured by problems with the bank he had been using for years, Johnny Hollick was looking for a good reason to take his money elsewhere, and a free iPad seemed like the perfect incentive.

    One of the other big Canadian banks was offering the tablet device — an incentive used by some big financial institutions to attract new customers — but Hollick said in retrospect he shouldn’t have been enticed by fancy electronics.

    “I do regret it,” the Toronto resident said. “If I could go back in time, I wouldn’t have done it.”

    Hollick was switching banks because he was dissatisfied with the customer service. It’s a common complaint, but financial advisors say there are more important considerations to make before you pack up your longtime savings and migrate to a new financial institution.

    Uprooting your accounts can be an arduous task and without the proper planning it can actually cost you money, with expenses ranging from break fees associated with mortgages to losing interest by cashing out certain investments early.

    Even forgetting to update automatic bill payments can be a costly mistake when you find out the wireless and electricity bills weren’t paid on time.

    “That’s, by far, the most significantissue that causes Canadians to pause and think hard about whether they want to go through that pain,” said Paul Battista, advisory leader of Canadian Financial Services at EY, the consultancy agency formerly known as Ernst & Young.

    “You have to think about all the various expenses and bills you’ve set up.”

    Despite the hurdles, many people are still making the move.

    Over the last five years, about 4 million Canadians left their primary financial institution to join a competitor, according to a survey released earlier this year by EY. The study also found that 70 per cent of respondents said switching banks was easy.

    What’s harder to determine is whether the change actually made a positive impact on their finances, because often it doesn’t, said Aaron Keogh, president of Greendoor Financial Inc. in Windsor, Ont.

    Keogh said that’s easily one of the most overlooked factors, and one that he encourages his clients to ask themselves right away.

    “I like to know, based on where they’re thinking of going, if they are going to have the same experience at the new bank as they had at their old,” he said.

    If you’re migrating your accounts only to face similar interest rates and fees at your new bank, think twice about the entire process. Consider that even if you’re getting lower fees at the new bank, those rates could still increase with little notice.

    “We often deal with the banks that our parents dealt with because maybe they opened up an account for us when we were young,” Keogh said.

    “If we change banks, we often just change to another bank that gives you the same type of account.”

    Hollick found that moving from one major bank to another left him experiencing even more customer service woes.

    “Every other week for two months, I got a different call offering me some sort of service,” he said, listing everything from credit and identity theft protection to insurance for critical injuries.

    “The calls themselves were really frustrating. They wouldn’t take ‘No’ for an answer.”

    But the kicker for Hollick was when the new bank charged him monthly user fees that pushed his account into overdraft status, and froze his transactions, even before a new debit card arrived in the mail. He said bank employees couldn’t explain why it happened.

    The fumbles proved this new financial institution wasn’t for him, and Hollick decided he’d rather move his money back to his former bank.

    Jumping from one major bank to another typically doesn’t offer a significantly different experience, and that’s why Keogh suggests Canadians look beyond the big financial institutions that dominate the landscape.

    “There are some great specialty accounts provided by boutique banks,” he said. “Some of these accounts assist them in maximizing their cashflow capabilities.”

    Examples of alternatives include Manulife’s high-interest Advantage Account or services offered by financial professionals through B2B Bank, he said.

    Most people leave a huge chunk of their paycheque sitting in their accounts for up to 20 days before its used to pay a bill, Keogh said.

    “That money should be put to work,” he said. “Your chequing account should be paying top interest. Think about the lost savings.”

    Credit unions offer another alternative that some Canadians find appealing because clients are members of the organization that own a stake in its future, and the business model tends to emphasize the banking experience.

    However, most credit unions lag behind the big banks when it comes to online banking tools and, with fewer branches, users sometimes say they’re paying extra service fees to withdraw cash from the nearest banking machine, which is often owned by a major bank.

    Before deciding where to go, it’s always best to consult a financial planner who can help you decide which options best fit your needs. In many cases, you still may find your current bank is basically offering you the same options as everyone else, which means it probably isn’t worth the hassle to switch.

    “If we said service is equal all over, generally, then why be with this institution over that one?” Keogh said.

    “There’s got to be a compelling reason.”

    View original source article.



  • How this 23-year-old grad tackled $53,349 in student and car loans

    Oct 07, 2014, 16:19 PM

    By Roma Licuw, The Globe and Mail


    In the fall of 2011, shortly after finishing university, Jordann Brown realized she owed $53,349.

    “My story isn’t one about spending with abandon or being irresponsible,” says the 23-year-old, who works in marketing and provides content for a mortgage rate comparison website. “I did what every millennial is told to do after high school, and that put me up to my eyeballs in debt.”

    Ms. Brown’s university experience is likely similar to that of many other students. She studied commerce at Dalhousie Unversity in Halifax. Because her family lives in a small New Brunswick town, she was forced to pay for an apartment. And although her parents did help her a little, she had to pay for the bulk of her own schooling.

    She always had summer jobs, but income from that was limited. Instead, she relied on student loans to cover her university and living costs.

    “I did all the normal student stuff: I went out, ate out, and yes, I borrowed to the max,” she says. “It never occurred to me to try to not borrow as much as I could, it never occurred to me not to spend it all. I thought that going into debt was normal, that this is what everyone did.”

    By the time she graduated, Ms. Brown’s student loans had soared to $42,082. Around that time, her fiancé’s car was totalled and they had to buy another one. Adding in the $11,267 car loan, she was now on the hook for more than $53,000.

    “When I got the bill with the final amount I owed for my student loans... and what my monthly payment would be. It was shocking. I was totally unprepared. I was still living in Halifax and I was working full time. But when I started doing the math – when I put together a budget – it did not add up. I could not afford rent, the car, groceries and student loan payments on my entry-level salary and have enough to live off of.”

    Instead, Ms. Brown decided to make debt reduction her number one goal. She moved into a small cottage in her home town of Petitcodiac , slashing her monthly rent from $1,100 a month to $350. She researched and applied for as many grants and benefit programs as she could find, and stumbled on a government program that forgives New Brunswick residents all of their student loans down to $26,000 – provided they graduate on time.

    “That was amazing, it knocked my monthly payments down from over $500 a month to around $300,” she says.

    But there was no easy out for the remaining $37,987.65 in debt. To repay that, Ms. Brown buckled down and did without: no haircuts, no buying clothes, no lunches or coffees out. She exercised – yoga and running – at home, stuck to a strict grocery budget with little meat, and picked up side jobs to accelerate her debt repayment. A few large tax rebates, including this one, helped lower the balance.

    “The results are worth it,” Ms. Brown says. She paid off her student loans in June 2013, one week before she got married, and plans to eliminate her car loan in November, exactly two years after her debt repayment journey began.

    Oh, and her wedding? It cost $4,500 and the frugal newlyweds paid for it – in cash.

    Pat White, executive director of Credit Counselling Canada, says many people they see who have large amounts of student debt struggle to repay it because they can’t get a good-paying job in their chosen profession. The financial repercussions can linger for years and years, she says, hampering their ability to meet major life milestones like buying a home or starting a family.

    “This girl was very determined and she did extremely well,” Ms. White says of Ms. Brown’s extreme focus on shedding her debt.

    But the path towards debt freedom is by no means easy, Ms. Brown says. “The biggest struggle is getting tired of always paying off debt. A lot of people think that having debt is the norm, so it can get frustrating to hold myself back from spending when I don’t see anyone else doing it.”

    Her blog, My Alternate Life , has been a huge source of support and motivation. “It keeps me on track and helps me from feeling like a frugal weirdo.”

    Surprisingly, there are things that Ms. Brown does not miss – like the big city with all of its expensive temptations, the luxury of a second car, or a living space that is more than 400 square feet. “I am still very happy,” she says. “I am comfortable and I have great friends. Once I pay off my debt, and I don’t foresee us changing our life too much.”

    Once all of her debt is gone, she’d like to build an emergency fund. She might beef up her entertainment budget a touch, or buy some clothes. And travel is certainly a priority. Long-term, she wants to save money for a down-payment on a house.

    Her advice for other debt-laden grads?

    “Even if you think that life is supposed to start now, you don’t need to succumb to lifestyle inflation and you can get by on a lot less than you think. Knowing that will help free off so much cash and let you pay off your debt.”

    View original source article.



  • In today's hot housing market, first time buyers can't afford to get in

    Oct 07, 2014, 16:19 PM

    By Rob Carrick, The Globe and Mail


    First-time buyers are the housing market’s pinata.

    People buying a first home are essential to the real estate market. But when the federal government periodically tries to cool home sales, its go-to strategy is make it tougher for first-timers. We’ve seen that in the rollback of maximum amortizations to 25 years from as many as 40 and in tighter requirements to qualify for a mortgage.

    Housing consultant Steve Pomeroy says the focus on first-time buyers is both unfair and ineffective in addressing a major contributor to rising home prices. “First-time buyers are being marginalized when they’re not the ones driving house prices,” Mr. Pomeroy said. “It’s the resale buyer that is driving prices.”

    Our housing policies as a country have been designed to aggressively promote home ownership, yet they’ve created a market where young people can’t afford to buy in. Mr. Pomeroy’s report gives us a little more insight on why this is.

    Even with ultra-low interest rates, first-timers live in a world of precarious affordability. Every month prices rise, and so do the down payments they have to save and the mortgage payments they’ll make when they buy. Move-up buyers love rising prices because they mean more equity help finance the purchase of a bigger home.

    Mr. Pomeroy created an example of a family with a modest annual income in 2001 of $47,000, enough to purchase the average-priced Canadian home at $172,000. The house is bought in his example with a 5-per-cent down payment, which means a mortgage of $163,000 and monthly payments of $1,175 based on prevailing rates back then of 7.3 per cent.

    At the national average rate of price increase over 10 years, the home would have grown in value by 95 per cent as of 2011. Add in repaid principal of about $34,000 and you have equity of $207,404 to use for the purchase of a larger home (assumes no extra payments and the same mortgage terms for the whole period). With rates in 2011 down to 4.55 per cent, Mr. Pomeroy figures a $420,000 home is easily doable for this family.

    That’s based on their income in 2001. Using average income gains over the decade ahead, Mr. Pomeroy estimated the family would qualify for a mortgage of $275,000 and a maximum house price of $480,000. Flash ahead to 2014, and he projects this family would be able to buy a house costing $684,000 as a result of further increases in house prices and income that now comes in at $65,800.

    In a column last summer, I calculated that a first-time buying family would need income of $89,363 to qualify to buy the average-priced $416,584 resale home with a 5-per-cent down payment. Mr. Pomeroy’s example has a family with a much smaller income moving up to something quite a bit more expensive.

    There’s a name for the psychology of rising house prices – they call it the wealth effect. We feel rich when our houses rise steadily in price, and so we act that way. It’s well documented how people have used home equity lines of credit (HELOC) to capitalize on rising home values. A Bank of Canada report of a few years back called HELOCs a main driver of rising household debt.

    But move-up buying isn’t as well understood or discussed, said Mr. Pomeroy, who in addition to running Focus Consulting is also a research associate at the Carleton University Centre for Urban Research and Education. Part of the problem is that there’s not a lot of data showing the breakdown between move-up and first-time buyers. The closest Mr. Pomeroy has come is a survey by the Canadian Association of Accredited Mortgage Professionals that indicates first-timers accounted for about 55 per cent of purchases in 2013.

    There’s also the question of what can be done to inhibit move-up buyers in particular. First-timers are an easy mark because there are so many ways to adjust the rules on qualifying for a mortgage. The precedent in our mortgage market is that once you’ve qualified for a mortgage loan, you can renew it without any new hurdles being introduced.

    Interest rate increases would cool the entire housing market, but first-time buyers would be hit the hardest. For a first-timer with a 5-per-cent down payment, the average-price resale house in Canada would today require borrowing of more than $390,000 including mortgage insurance premiums. The more you borrow, the more vulnerable you are to rising rates.

    It may be that the best check on move-up buyers will be weak demand for their homes from first-timers. “We are really constraining the ability of young kids to get into the market,” Mr. Pomeroy said



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Not happy with your bank? Things to consider before you switch

Soured by problems with the bank he had been using for years, Johnny Hollick was looking for a good reason to take his money elsewhere, and a free iPad seemed like the perfect incentive.


How this 23-year-old grad tackled $53,349 in student and car loans

In the fall of 2011, shortly after finishing university, Jordann Brown realized she owed $53,349.

“My story isn’t one about spending with abandon or being irresponsible,” says the 23-year-old, who works in marketing and provides content for a mortgage rate comparison website. “I did what every millennial is told to do after high school, and that put me up to my eyeballs in debt.”



In today's hot housing market, first time buyers can't afford to get in

First-time buyers are the housing market’s pinata.

People buying a first home are essential to the real estate market. But when the federal government periodically tries to cool home sales, its go-to strategy is make it tougher for first-timers.