Archive for category Retirement Planning
How to Live off of Investment Income Only
Posted by Top Home Loans in General Banking, Investing, Retirement Planning on June 28, 2010
In 1930, if you had invested $50, today you would have over $10,000 dollars. This money would have grown over 200 times the initial investment amount over the past 80 years. This shows that even with a little bit of money, investments can pay off greatly in the long run. The question is how can we live off our investments?
There are three factors that need to be considered with our investments, income, inflation, and growth. Income is the amount of money you want to take out of your investments annually. Inflation is the amount that currency depreciates over time. Growth is the amount of money that you want your investments to increase in value.
To begin, the average annual return on investment over the last twenty years has been in the 6%-8% range. The next thing is to calculate inflation. In Canada, inflation has remained around the 2% range. This means that you have around 4%-6% income and 2% inflation. You will also want to factor in growth, so 1% is a good estimate. This leaves one with 3%-5% for income.
With a 3%-5% income level, you mus t next calculate how much you want your annual income to be. For example, if you needed a $50,000 income, then you would have to have at least 1,000,000 in the bank at the 5% level, and at least 1,600,000 at the 3% level. This also ranges on how investments are doing as well. Higher returns, can create the need for lower savings. Also, if you need a lower income, then the required investments will depreciate.
At the end of the day, determining your income level, and your return on investment is up to you. The more cash you need, the bigger investments you need to make. Keep in mind that stock investing is not secure, and even big dividend stocks can lose their value.
Do you have a savings goal? How are you working to achieve your savings goals?
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CMHC Rule Changes; What you Need to Know about Investment Properties
Posted by Top Home Loans in Landlord Guide, Property Management, Retirement Planning on April 14, 2010
Investment and rental properties have usually been a great investment for both middle and high income individuals; however, these properties have become harder and harder to be approved for.
The most recent change to rental and investment properties has been the amount that you would have to put as a down payment. In the past, an investor could purchase a property for as little as 5% down payment; however, CMHC has decided to change that rules, effective April 19, 2010.
Instead of using 5%, the insurer will now require a minimum of 20% down payment for the purchase of an investment or rental property. This makes it much more difficult for individuals to get into the real estate market due to the increased barriers to entry.
Different lenders have imposed different rules as well to disqualify investment borrowers as well. These rules can range from minimum equity requirements to minimum liquid assets.
With these changes to investment properties, less and less individuals are able to purchase these types of properties.
Was this a good idea from CMHC? Would you buy an investment property in our current economic climate?
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Skip a Payment and Rainy Day Options; How to use these Options Effectively
Posted by Top Home Loans in General Banking, Mortgage Advice, Retirement Planning on September 26, 2009
When you get a mortgage, it could come with several different features and options, one of those options will most likely be the skip a payment option or the rainy day option; however, very few people know what this option is or how to use it effectively. When you get a mortgage, make sure you have this option because it may be critical to prevent missed payments or financial hardship in the future.
What is a Skip a Payment Option?
Skip a payment allows you to usually skip a months worth of payments (principle and interest) every year. In order to qualify for this, your mortgage must not be in arrears, and you have not missed any mortgage payments in the last 12 months. You will still be responsible for paying your usual insurance premiums and property tax installments, where applicable.
There is usually no fee to using this option, and your mortgage payments will not change during the course of your term. The interest that would have been paid will be added to your mortgage balance. When skipping payments, you can either skip one monthly payment, two consecutive bi-weekly payments, or four consecutive weekly payments.
Additional requirements apply for CMHC-insured mortgages.
If you decided to skip any payments through out the course of your term, then you can repay the interest that was added to your principle at any time using the lump sum payment option.
How to use a Skip a Payment Option Effectively?
There are several reasons why someone would want to skip a mortgage payment. Some of these reasons include the following:
Financial Hardship: If you have an unexpected major expense and you need the money to cover the expense, then this is the best time to skip a payment. Make sure you inform your bank before your mortgage goes into arrears. If your mortgage is in arrears, then the bank cannot proceed with the skip a payment request.- Lowering yourAnnual Mortgage Payments: If your monthly mortgage payments are $2000/month, and your budgeting suggests that you cannot afford that high of a mortgage payment, then you can use your skip a payment option to reduce your effective annual payments from $24,000/year to $22,000/year.
- Job Loss or Disability: If you cannot work for a short period of time, then you can use this option to avoid your mortgage payments until you get back to work. Make sure your mortgage is not in arrears if using this option.
- Renovations, Debt Repayment, or Major Purchase: If you know that in a month you have to make some renovations or major purchases, then you can skip a payment and use your mortgage payment to pay for these items instead of charging it to your credit card. Also, if you find your credit card bills are getting high, then skip a payment to pay down your credit cards instead of your mortgage payments.
If you plan your use of your skip a payment or rainy day options effectively, then you can ensure that you do not fall behind on your finances; however, the interest that you would have paid that month is added to your principle balance,s o it is in your best interest to pay off this interest as soon as you have extra money. This will allow you to pay off your mortgage faster and keep your finances in check.
Do you know any other effective ways to use skip a payment options? What are some other good mortgage options?