Monthly Archives: February 2010

Odette Morin
Terry Broaders

Ottawa Tightens the Mortgage Rules

In order to forestall the possibility of a housing bubble and subsequent housing market crash the federal government has tightened up mortgage lending regulations. The following changes are to be effective April 19, 2010 but it is expected that most banks and lending institutions will implement the changes effective immediately. These rules apply to all government backed (CMHC) insured mortgages. The new rules are as follows.

-Borrowers are required to meet the standards for a five year fixed rate mortgage even if they actually choose a mortgage with a lower interest rate and a shorter term. For example you may wish to borrow $200,000 amortized over 20 years with a one year fixed rate mortgage at 2.65% which results in a monthly mortgage payment of $1,035. Well under the new rules you will have to prove that you have the finances to afford a $1,260 monthly mortgage payment which is what a fixed five year mortgage would cost at the current 5 year rate of 4.5%.

-The maximum amount that consumers can borrow to refinance their mortgages is being lowered to 90% of the value of their home, down from 95%.

-Investors wishing to buy investment or rental property in which they do not live will now have to have a 20% down payment instead of the current 5% required to get a government backed mortgage.

We feel that these rules make sense. If a person gets in over his head and can’t pay the mortgage he has a big problem.  If many people get in over their heads and can’t pay their mortgages then we all have a big problem. Look what happened in the U.S.

Odette Morin

Afraid of becoming a Wal-Mart greeter in retirement?  Invest for your lifestyle

Canadians are fortunate to enjoy one of the best lifestyles in the world.  The comfort and luxuries we are accustomed to are the envy of many other societies.

A new client came in for a meeting.  I asked her, “ what is the most important financial issue on your mind currently “ .  She answered jokingly:  “I am here to ensure that I don’t become one of those Wal-Mart greeters in retirement”. 

Not that there is anything wrong with being a Wal-Mart greeter but there is a big difference between having to be and wanting to be a greeter.  This may seem an extreme scenario but really, could this be the reality of some? 

To preserve your lifestyle, you need to plan and most importantly, save enough and early enough.  Many recent studies clearly show that Canadians do not save enough.  Most will need to continue working well past their 60s and will even see their lifestyle drop when the paycheques stops. The amount of money required to fund one’s lifestyle for 20, 30 and even sometimes 40 years, will be, for most, over $1million.  It takes time and discipline to achieve this.

Saving adequately and investing wisely is required to preserve lifestyle.  If it weren’t for inflation, cash and bonds would be all you need. But even with modest inflation of 3% a year, your buying power would be cut in half in about 25 years, so you need to invest for future growth, too. We all have to turn to equities to provide the inflation protection we need for that lengt h of time.

Invest consistently to ensure that your nest egg grow with your lifestyle!  For most, an RRSP is the best place to save for retirement.  Make your contribution by March 1st 2010!