Why Now Is the Right Time to Review Your Mortgage

I just wanted to quickly wrap up last week’s blog before moving on…

With the continuation of all the negativity surrounding the changes, I wanted to inject an alternate perspective.  When you have a large bonus cheque or a windfall of some kind, most of us would set some aside for a rainy day.  This could be exactly what the recent government changes equate to on a national level.  The Canadian economy is performing well (relative to our neighbours and partners around the world), so this is a great opportunity to build in some rainy day options.  When Prime went up, it built in a small cushion, the amortization was tightened and we have another cushion, now if the economy falters again, we have some tools we can use to ease the impact and indeed provide economic stimulus.

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So we’ve had a good, long run of interest rates at record lows, but with increases on the horizon it’s time to take a look at how that will affect your mortgage. Economists are forecasting steady rate increases over the next few years. Huge jumps are not expected. Rather, the industry expects small and steady increments of a quarter to a half point every quarter – barring any major disasters.

 As interest rates increase, the cost of mortgaging a home will also rise. However, a recent study found that the vast majority of Canadians are not taking undue mortgage risks and have factored rising interest rates into their mortgage decisions and with the positive outlook for employment, increased income should offset much or all of the increases in mortgage payments.

 Now is a good time to review your mortgage details with a mortgage professional.

 If you are highly leveraged and have a variable rate, it might be prudent to lock into a fixed rate.

If you are near the end of your mortgage term, your mortgage professional will find the best solution to meet your needs.

 If you get stuck with a higher rate and are feeling the pinch, the best option might be to restructure your mortgage loan to help make monthly payments more manageable.

 Rising interest rates will have an effect on your finances and investments. 

Your professional advisor can help you make the best mortgage decision for your personal situation and your overall financial goals.

Guy the Mortgage Guy!

Guy Ward is a Mortgage Associate in Calgary, Alberta with TMG (The Mortgage Group)…

WWW.GUYTHEMORTGAGEGUY.COM

So What Goes in a Full Financial Plan – Part 2 of 3

So here we go on part 2 of this 3-part series

Post-employment/work Income PlanningAll sources of potential revenue.

1) Employment pensions:
a) Type – Defined Benefit Plans, Money Purchase Pension Plan (Defined Contribution) Deferred Profit Sharing Plans, Employee Profit Sharing Plans, Employee Share Purchase Plans, Group RSP, etc. – past and present – valuations, statements, benefit formulas – early or late – contribution rates, maximums, etc.
b) Portability, commutability – formulas, etc.
c) Inflation protection – none, partial or fully indexed.
d) Pension choices available – spousal requirements, pension splitting options, etc.
e) Income buy-back availability.
f) Integration with OAS or CPP as applicable.

2) Personal retirement assets:
a) RRSPs, Spousal RSPs, Locked-In Retirement Accounts, Locked-in RSPs, Tax Free Savings Accounts, OPEN – depending on current purpose if in existence.
b) Valuations, statements, reasons for choices of investment holdings.
c) Plans for disposal of other investments/business interests/tax-shelters, etc. to supplement other retirement income assets.
d) CPP and OAS benefits statements – OAS maximization/claw-back minimization and planning.
3) Other Savings/Investments earmarked for other purposes/re-direction possibilities.
4) Review potential for partial employment or other post-retirement income supplements, potential inheritances, etc.

Education Planning – as appropriate For clients and family members as applicable.
1) RESPs, other in-trust holdings earmarked for education:
a) CESG and related possibilities including low-income education benefits for grandchildren/great-grandchildren.
b) Retiring student loans effectively.
c) Potential uses of Tax Free Savings Accounts for children.

Charitable/Philanthropic Intentions Family, living and/or posthumous recognition or benefits, donation planning.

Special needs – challenged or gifted Registered Disability Savings Plans, other government assistance plans, trusts, grants.

Wills, Codicils Inter-vivos/Discretionary Trusts, Alter-Ego/Joint Spousal Trusts, General and
Restricted POAs – including bank accounts, Limited POAs, Enduring POAs,
Representation Agreements (Living Wills), Multi-jurisdictional Wills/Multiple Wills for non-situs assets,
Planned inheritances, tax implications, contingent ownership issues etc.
choices for Executors/Co-Executors/Corporate/Contingent Executors, Guardianship
of the person and financial guardianship, conservatorships.

Marriage Marital regime, prior divorce, financial obligations from previous relationships that
survive death. Discuss domestic partnerships as appropriate.

Special tax-planning issues Restructuring cash flows, taxable inheritance planning. Review previous
personal, corporate, partnership, Limited Partnership financials, trust tax returns for missed items,
trends. Discuss Health and Welfare Trusts or Private Health Services Plans, as appropriate.

Risk tolerance assessment Separated by family member, goal specific – generic asset allocations, generic product
allocations.

Gift planning Family and others – refer back to Charitable/Philanthropic.

Intergenerational Wealth Transfer Tax effective and efficient transfer of wealth – next and/or subsequent generations.

Implementation roadmap Suggested target dates, sequences.

So What Goes in to a Full Financial Plan? Part 1 of 3

I start this series with a bit of trepidation – I have so far, in more than 20 years of doing financial planning, been able to find some sort of universal agreement on what should be covered – but here is my attempt. I fully expect some disagreement – but that is good – it means people are thinking about it seriously! Also, readers should be aware that “financial planning” is NOT about selling products – it is exclusively about helping clients create a roadmap for their lives – financial and otherwise. For brevity, I am covering these issues in point form – obviously the actual discussions drive the ultimate destination and no two clients(even spouses or partners) have exactly the same vision – which keeps life interesting! If anyone would like confirmation of what some of these abbreviations and notes mean to me – just ask!

LifestyleCurrent and future, hobbies, interests, health issues/family history, soft-facts via
non-interview. Potential for changed occupation(s), children? Where do they
see themselves in 5, 10, 15, 20 years??

Cash Flow Actual versus planned, leakage (un-accounted for loss of revenue)/budget/cash flow
Planning.
Income tax assessment/recommendations. Income splitting (CPP and other options).
Debt analysis and review – consolidation, refinance, Line(s) of Credit, Total Debt Service Ratios,
eliminate debt through use of other assets to improve cash flow, TDSR, etc.

Assets and Liabilities Including property assessments, mortgage/loan statements and schedules, details of
co-signing, credit card statements, revolving LOCs, bank accounts, GICs, TFSAs,
RESPs, all Registered Products, notes/mortgages receivable, loans to family
members, ACBs, assessments, valuations, cash flows, etc., stock options,
student loans

Risk Management Risk assessment – lives, property, automobiles and business.
Assessment of risk protection alternatives.

1) For individuals – all family members:
a) As appropriate, discussions about life insurance, disability insurance, critical illness insurance and long-term care insurance.
b) Discuss beneficiary appoints (contingent), previous spouses, blended families.
c) Review of group insurance benefits available – including life, AD & D, STD, LTD,
Medical, Dental, Vision Care, Out-of-country, HSAs, etc.
d) Current and available accident benefits, credit life insurance, disability insurance and critical illness insurance.
e) Potential for expanded benefits through ICBC re automobile injury/death.

2) For business/investment real estate/tax shelters/etc. – all involved family members:
a) Over-head Expense Coverage, Disability Buy-Sell, CII Buy-sell.
b) Grouped Executive Enhanced Benefits Plans.
c) LOC coverage as appropriate.
d) Discussion of Buy-Sell situation, liabilities, potential problems for survivor and deceased family.

3) Contingent Liabilities – all involved family members:
a) Who signed what and are the debts protected and recoverable – including review of alternatives.
b) Can contingency be removed.

4) Residence – owned, rented – reviews as appropriate:
a) Coverage for buildings, contents, scheduled items, deductibles, floaters, exclusions (earthquake), limits.
b) Voluntary medical payments, own damage, personal liability, off premises items, properties.
c) No frills, Basic, Broad Form or Comprehensive coverage.
d) Is building or contents over-insured?
e) If strata – match coverage with Strata Insurance Certificate to ensure no gaps.
f) Loss-payees.
g) Improvements updated on policy – strata and detached residences.
h) Fair Market Value versus Replacement Value updated on policy
i) Scheduled items – basket-clause application for jewelry, collectables, etc.
j) Check coverage for ATVs, boats, etc. extended re damage, theft, destruction and liability.

5) Automobiles – Government and Private insurance as appropriate:
a) Are deductibles appropriate given age of vehicles, use, driver?
b) Waiver of depreciation appropriate
c) BC residents – RoadStar eligibility/benefits.
d) Loss of use
e) Underinsured Motorist limits
f) Uninsured Motorist limits
g) Supplemental Death and Income Benefits
h) Third-party liability
i) After-market upgrades or improvements
j) Change of use
k) Experience of drivers
l) Check coverage re ATV’s, boats, etc. extended as floaters or endorsements
m) For boats – Recreational Boater operator cards, etc.
n) Coverage for personal items such computers, cell-phones, iPads, etc. if vehicle stolen or destroyed.

6) Business/Rental Properties/investments/tax-shelters:
a) Coverage limits for structures, loss payees, flood, fire.
b) Third-Party liability, voluntary medical, own damage.
c) Loss of revenue – business continuation – business financial statements.
d) Recent valuations of all assets used in the business.
e) Business cash flow.
f) Tenant damage as appropriate.
g) Revolving Lines of Credit and terms/agreements/co-signing.
h) Business agreements – shareholder, partnership, operating, financing, royalty, revenue sharing, etc. as appropriate.

Alternative Investment?

When does an “alternative investment” become a “conventional investment”.  Or maybe more important, who decides it?

My theory is that main stream media decides what should be considered alternative (i.e. less than 10% of your portfolio) and what should be considered conventional.  I suspect if the exempt market threw the amount of advertising dollars at media that the conventional mutual fund industry does, it would quickly become more mainstream.

The exempt market is a growing segment of the financial industry.  As per the EMDA, the exempt market raised $140 billion last year.  I’m not sure with those numbers, an “alternative” moniker is warranted.

From strictly a common sense perspective, should real estate, which makes up a large part of the exempt world, be considered “alternative”?  I don’t remember reading in the Old Testament where Solomon or Abraham  invested in mutual funds.  I do recall, however, quite a bit written about land ownership.  History has taught us that real estate, whether its land or buildings, if purchased wisely, has proven to be a worthwhile investment.

Clearly the exempt market is burgeoning.  Will it take over the mainstream financial industry?  Maybe, maybe not.  But do me a favour, if you are referring to the exempt market, don’t call it an alternative investment industry.

 

Marty Gunderson is a self proclaimed Exempt Market geek. He has served in a variety of leadership positions in the industry, from sales to issuer to dealer. He is the founder of www.BetterReturns.ca, a site that highlights a few quality exempt market offerings.  To contact Marty, please email marty (at) idealeader.ca