Even as we witness all the trials and tribulations of a hectic housing market here in KW and across the country there are certain basic elements to a sound financial plan for you and your family. Our home and the mortgage attached to it are most couples’ largest investments.
Knowing that – you have probably come across the issue of mortgage insurance. “Buy insurance to pay off your mortgage if you die. It sounds simple enough. But I want to tell you it’s not and there are other options I want to share with you. Other options I think are better for you, your family and your overall financial well-being.
Last month I shared my thoughts with you about the importance of doing proper estate planning – before it’s too late. Now I want to return to the topic of preparing for death in a way that will protect, and insure, your family and your most important asset – your home.
Insurance – It Plays an Important Role
You get insurance because you don’t want your family to be financially ruined when you die and your ability to earn money disappears. Your family needs to be able to find a way to keep going without you. You want to make that as easy as possible. After all, that is why you got insurance in the first place, right?
But let’s get something straight. You need to ensure your life, not your mortgage. Let me lay out for you what I mean and why I think it’s important so that you can decide what is best for you.
Mortgage Insurance vs Life Insurance. What’s the Difference?
The name of each of these kinds of insurance explains their role. Let’s look at them and compare
Mortgage insurance is generally arranged through the bank that holds your mortgage. Its benefit is that it is easy to set up and doesn’t take a lot of extra thought. For a small additional fee your mortgage is insured so that if you die while you still owe money on your mortgage, the mortgage will get paid off and you will not have to worry about that anymore.
But the problem with mortgage insurance is that your family has no flexibility around how to use that money. When you die your family’s first priority might not be paying off the mortgage. Other expenses or concerns could be more important.
With mortgage insurance, your family has no options. Yes, your mortgage has been paid, but that’s it.
Term Life Insurance Gives You Flexibility
With term life insurance, your family can figure out how best to use the proceeds. If they choose to pay off the mortgage, they can. And depending upon the amount you still owe on your mortgage on that fateful day, this might leave a fair bit for the other things in life. And if they decide you maintain their mortgage payments and use the payout that can also help cover the other costs you have beyond your mortgage.
And what happens when you finish paying off your mortgage? Do you still want life insurance coverage? Well, you’re going to have to go elsewhere now to get it. As you can imagine, beginning the process of looking for life insurance as you enter your “golden” years can be more expensive than you want. Getting and keeping term life insurance can be much more cost-effective. And the options for conversion to whole life insurance can also be beneficial.
Besides, you can also decide to change your coverage as your life circumstances change – something else that mortgage insurance allows for. When you remortgage your home or move your mortgage insurance needs to be reviewed and renewed. That isn’t really what you were looking for when you chose to move to a new neighbourhood was it?
Get the Insurance That Fits Your Life – Not Your Mortgage
If you want to talk about your insurance needs, your retirement savings, or even saving for your children’s college or university – send me an email at [email protected] or call me at (519) 279-0186.
Talking about your life insurance needs or how to plan for your estate can be challenging. I can help make it a little bit easier.
I look forward to hearing from you. To talk about your financial plans and to hear about your plans for the barbecue or the lake.
Sometimes it’s hard to imagine that it’s June already and we can look forward to another glorious Ontario summer. Let me start by wishing you my personal summer greetings as we begin to come out from under the COVID “winter” of the last 2 ½ years.
Enjoy the barbecue, beach, or campground of your choosing as we get ready to soak up the rays and bask in our glorious summer sunsets.
It can be difficult to believe that we will eventually be enjoying the summer sun as we bundle up to go out and scrape ice of the windshield in January, but the arrival of summer is inevitable. Just like the arrival of snow in January (oops, sorry about that).
While the arrival of each succeeding season is inevitable, so too, as the saying goes are “death and taxes”. And one of the major purposes of a good financial plan is preparing those eventualities.
Preparing for the inevitable
We’re all used to the annual ritual of preparing for tax season, each and every spring. After that - summer. But many Canadians don’t do much about planning for the other eventuality – death. While you might not be there for it, you still don’t want to make things more difficult for your loved ones after you’re gone. Or for yourself as you “get on in years”.
Building the elements of an effective financial plan includes estate planning – it has to…
What does your financial plan need?
An effective financial plan includes many different elements:
Although it’s only one element of an effective financial plan, it is generally the one that people pay the least attention – until it’s too late. And because of that I want to spend some time briefly talking about the main elements of a well-structured estate plan.
What does your estate plan need?
Like so many elements of an effective financial plan, most of us know what an estate plan should include:
Your Financial Plan needs a full team
As your investment fund advisor my goal is to provide you with my expertise in investment planning. And I can work with you to decide on your insurance and put the products in place to cover your insurance needs.
But you need to include other professionals on your team, to give you the expert advice you need on every aspect of your financial plan.
You need the advice of a lawyer as you plan your will, choose your executor, and decide on your bequests and final wishes. Although you might think that’s obvious, I need to say it. Find a lawyer and prepare your will as soon as you can. Go ahead and do it. Now!
And while you’re at it, find an accountant that can help you plan for your tax liabilities and sort out options regarding RRSPs and TFSAs, etc.
Once you have all of that in place, I can work with them to make sure the plan you have is right for you. Together we can make it happen. I do it for my clients all the time.
So, your job is to find a lawyer to prepare your will, find an accountant to review your tax needs, and come back to me to plan out investments.
And if you have done all of that already, thank you. I want to thank you. Your family want thanks you. And once you’re done you will definitely want to thank yourself.
As usual, if you have any questions, email me at [email protected] or call me at (519) 279-0186. I look forward to hearing from you soon.
And have a great summer.
Last month I wrote about the state of the housing market in Canada. Housing prices in Canada in the last couple of years had been increasing dramatically – some would argue dangerously. Along with the overheated housing market, we are now witnessing inflation rates that haven’t been seen in Canada in close to 50 years.
So, to deal with these twin crises Tiff Macklem, the Governor of the Bank of Canada, announced an increase in the prime rate of 50 basis points on April 13. This raises the Canadian prime rate to 1% and is the single largest rate hike in over twenty years.
The inflation rate needs to come down
Macklem explained that the Bank of Canada had determined that “Inflation is too high. We need higher interest rates.” He blames much of the current inflationary environment on global events – specifically the war in Ukraine. This has driven up the price of commodities like oil.
The Bank of Canada want to manage expectations
According to the governor, one of the other factors affecting the bank’s decision was their need to make sure Canadians don’t begin to expect these inflationary conditions to continue. Once our expectations become fixed, breaking the inflationary cycle will become increasingly difficult to break.
We’ll have to see just how long the war in Ukraine continues and what its long-term impact on the world economy will be. Clearly Macklem is hoping these pressures ease soon and allow the Canadian economy to return to the Bank’s expected inflationary rate of about 2%. Current rates in the range of 6% are simply unstainable.
It seems interesting to me that things like the price of housing in Canada (which I wrote about last month) and the ongoing challenges to the global supply chain caused by COVID-19 got very little mention in the clips of the Governor’s announcement that I watched.
How much of the inflation we are currently seeing would still be hitting the Canadian economy if Putin had never decided to head for Kyiv? Would there have been any announcement or rate hike if we had never got to know Volodymyr Zelenskyy?
What is the impact of inflation on your pocketbook?
You and I know that inflation has hit Canadians hard in the spring of 2022. You just have to go fill the tank, wondering if you can afford to get an EV after all, or look around the produce department deciding between romaine and iceberg lettuce.
These rate hikes have already had a cascading effect on the price of borrowing. Mortgage rates have increased, and the housing market has begun to cool off. AS always, we will have to watch carefully to see how the economy continues.
If you think it’s time for a re-evaluation of your investment products or your overall economic expectations, let me know. As always, universal conditions affect each of us differently. You can only decide how to decide how to proceed by examining your own circumstances. Go ahead, let me help.
It’s hard to ignore the skyrocketing cost of property in Canada. The Canadian Real Estate Association says that the average price of a home in Canada has increased by 52% over the last two years.
And things are no different anywhere in Ontario. Housing prices in March across Ontario rose by 18% and by 11.2% across the country. In fast the average price of a home in Canada has increased by 52% over the last two years.
Right in my hometown, the Housing Price Index (HPI) in Kitchener Waterloo increased by 36.8% between February 2021 and February 2022.
Have things topped out? Maybe they have. Last Wednesday, the day before the recent federal budget, there was a story in the The Record describing how housing prices had dropped over ten percent in March.
What Should Someone Hoping to Enter the Real Estate Market Think?
Maybe you own a house and speculate about how much it’s worth, compared to one or two years ago. Or even a few months ago.
Maybe you’re hoping to buy a home or know someone who is hoping to by a home. Are current trends pricing you out of the market? Is there anyway you can afford the million dollars that the average house in Kitchener Waterloo is now valued at?
It’s almost impossible to keep up with the escalating estate prices in the region. At this point it’s impossible to predict how prices are going to go over the near future.
And it’s not like you can hunker down in your rental apartment and wait it out. Average rents in KW are also up – around 15% in the last year as well.
So where do we go from here? Well, that’s exactly what people were wondering as we watched federal Finance Minister Chrystia Freeland present the 2022 budget on Thursday.
Efforts to Offer Housing Affordability in the Federal Budget
Provincial and municipal governments across the country (including KW) are lauding the efforts described in the 2022 federal budget to address housing affordability. The measures are being described as positive steps forward but are accompanied by a wish to see how details unfold.
The federal government has announced additional measures to address real estate speculators and foreign buyers. But this is considered a minor issue in the overall problem in the Canadian real estate market.
More Homes Needed
Most agree that the real problem is the lack of actual housing stock across the country. To address this the federal government has announced a $4 billion housing accelerator fund to encourage the construction of an additional 100,000 houses across the country over the next five years. On top of that they are putting $1.5 billion into their social housing efforts and $3.9 billion to repair existing affordable housing units.
FHSA? What’s That?
Another measure getting lots attention is the new Tax-Free First Home Savings Account (FHSA). First-time buyers can save up to $8,000 a year, tax-free to a maximum of $40,000 toward the purchase of their first home. While some are happy to see the new tool in place, other some are criticizing it as terribly inadequate when a 20% down payment on a million-dollar house (the average cost of a home in KW) is five time that, at $200,000. Others suggest it will simply drive up the price of houses as more money becomes available to home purchasers.
Mortgage Rates: Something We’re All Familiar With
By the time you read this the Bank of Canada may have already announced a rate hike. Most analysts are predicting a rise of 50 basis points. Others are suggesting they’ll stay put. We’ll have to see.
As you well know, Canadian’s are witnessing high levels of inflation. A trip to grocery store will make that clear.
Interest rates are a major tool in any efforts to cool inflation. And interest rates play an obvious role in the mortgages that new home buyers can afford to take out when looking for a home. So, higher interest rates generally lead to lower size mortgages. But then you already knew that.
What Does the Future Hold?
As we prepare for a post COVID world (or not) we are also trying to understand a world where working-from-home is a permanent option. This has had a profound affect on “cottage country” properties and on communities outside the immediate GTA.
So much has changed in the last two years. It’s impossible to know what impact these changes are going to have in the long run. All we can do is wait it out and see if the combination of the recent federal budget and rising interest rates have an impact on the housing market.
Even though we count on February to be our shortest month it hasn’t felt like that this year. It’s hard to believe that the Truck Convoy arrived in Ottawa at the very end of January. Then the truckers and their supporters, bouncy castles and portable hot tubs planted themselves on Wellington Street and took over our nation’s capital. The story then filled news broadcasts here in Canada and around the world for the next three weeks.
And just as the truckers were removed from Parliament Hill, we were confronted with Putin’s attack on the Ukraine. And as I get ready to post this story it is difficult to know just how this story is going to unfold.
Both stories have real life consequences. They have meaning in our lives and the lives of everyone around us. But it’s important to get past the chaos these stories have generated.
Things like this happen - there is always something else around the corner. But when we are in the midst of them, we cannot properly understand their long-term consequences - which could be very different from their immediate impact.
You need to keep in mind that your retirement and investment portfolios should be treated as long term entities with a shelf life that extends over decades, not weeks.
Events in the news affect the markets – In the short term
You will see lots of stories about market fluctuations caused by events like this. It’s the kind of reactions that investment fund advisors warn their clients about all the time.
Back in January I wrote about the potential impact the Omicron variance could have on the market. And now, as of the first of March, we are seeing Ontario lift vaccine passports.
I don’t mean that events like this and many others are meaningless. Far from it.
But we need to recognize that a particular event’s long-term impact is affected by other events – events that never stop happening.
Yes, Omicron set back many efforts to reopen issues around the supply chain. Canadians are seeing inflationary pressures we haven’t seen since the 1970’s. The Truck Convoy reinforced that point, even though the vast majority of Canadian truckers chose to become vaccinated and were able cross the border. Whether they had anything to haul, or there were enough truckers to do the actual hauling is another issue.
It’s always something – Just stay the course
As a matter of fact, in recent months we all were fixated on a ship blocking the Suez Canal (You remember that don’t you). And now there’s another ship with millions of dollars worth of cars that keeps on burning and no one can put out the fire. These too, shall pass.
And the market is appropriately jittery about event in the Ukraine and its impact on Europe. But we don’t really know how that will roll out, do we?
The possible impact of events in Ukraine on ESG
In fact, I have seen stories about the need for Western Europe to accelerate their efforts to cut back on Russian natural gas. This might become a triggering event in our effort to cut back on fossil fuels and beef up renewables. But that’s just speculation on my part – for sure...
But what about inflation?
The important point to remember is that we have to look at what has a long-term economic impact and what doesn’t. Yes, we are seeing inflationary pressures that affect what we pay in the grocery store.
And, the Bank of Canada may have to increase the prime rate, triggering a rise in mortgage rates and the cost of capital.
But many analysts (some even smarter than me) think that these pressures may be short lived – caused larger by supply chain issues caused by the COVID shutdown and alleviated by its demise.
Build for the future you want to see
Here is where current events should affect your investment decisions.
Let me help you to choose investment vehicles that encourage positive economic and environmental change. And let me show you how you can use regular contributions to your investment portfolio (often called dollar cost averaging) to iron out those wrinkles that current events trigger.
Remember, we’re in this for the long haul.
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