Posts Tagged personal finance
Are you Financially Ready to Own a Home?
Posted by Top Home Loans in General Banking, Investing, Mortgage Advice on November 11, 2008
You have decided that it is the time in your life to settle down and buy a house. It might be your first house or an additional property; however, before begin your search for that dream estate, the first thing you must do is figure out if you are ready financially.
This article will provide you with a few quick and easy tools that will help you to determine if you are financially prepared to purchase a property. These tools will also help you determine how much you can afford. They can also inform you if it is a good time to purchase a property, or if it is better for you to wait to find that dream home.
Once you understand all the details of your finances, then you will be ready to make an informed decision on the purchase of your property.
Introductory Calculations
Household Budget
There are many different calculations that you must consider, but the first consideration you must make is your own personal budget. When budgeting you must make sure that you have enough to cover all your expenses at the end of the month. You will also want to confirm that you have enough to cover your mortgage payment and be able to invest as well. When thinking about your housing costs, you must make that your housing payments (mortgage payments, property tax, heating, condo fees) do not account for more than 42% of your household income. The lower this amount is, the better, because if you run into a period of financial hardship, then you won’t have to worry about missing your mortgage payments.
Calculate your Household Budget (Courtesy of CMHC)
Net Worth
Another primary calculation that you should be aware of is calculating your net worth. Banks generally will feel more comfortable lending to someone who has a positive net worth, and the bigger your net worth is the better. It is always something important that you should be aware of. You should check on your net worth from time to time to make sure that it is increasing.
Calculate your Net Worth (Courtesy of CMHC)
How Much Can you Afford?
The next major consideration when trying to find out what you can buy is to figure out what you can afford. If you feel you are at this point, then it is a good idea to speak with either a mortgage broker or a mortgage professional to have them help you start the process; however, if you are not that interested in looking for a house yet and you would just like to know, then there are a lot of good calculators that can help you figure out how much you can afford. These numbers are not exact, and it is better to speak to a mortgage professional to help you see what you can get exactly, but they are good for a starting point.
Calculate how much you can afford. (Courtesy of CMHC)
Make sure that you are aware that different lenders offer different products. If the lender you speak with does not have the product you require, then make sure to speak with different lenders to find the product that you seek. The other option is to speak with a mortgage broker and have them find the product you require.
With house prices, just because you can get approved for a certain amount does not mean that you should take that amount. Instead, make sure that you analyze the payments and ask yourself ‘If interest rates changed, then would I still be able to make my payments?’
Should I Buy a House?
The final thing that you should ask yourself, ‘is it the right time for you to buy a house?’ If you plan on moving in a few years, then it is probably not the right time to buy a house because the moving costs are approximately 7-10% of the property value. Another thing that you will want to consider is if it is a good investment to purchase a property. Recently, market valuations on property have changed dramatically. Over the last several years, house prices increased by approximately 10% in a lot of areas across the continent; however, this has recently changed to a negative return on investment.
The most important question you have to think about is that, is the property a good investment for your family over your current living conditions.
Calculate if you should Rent or Buy (Courtesy of Industry Canada)
Once you have determined that it is financially appropriate for you to purchase a property, then you should begin looking into a property. For good advice on the situation, you should contact a mortgage professional to help you understand your finances. They will provide you free advice and even offer suggestions on how you can prepare for home owndership if now is not the right time.
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Debt and Money Management
Posted by Top Home Loans in Credit Information, General Banking on October 22, 2008
There are a few ways to make money in this world. The one major way that people look at gaining more money is by making more money; however, there are two other ways that you can make more money that most people do not think about when it comes down to your daily finances. The first way is by multiplying your money in the form of investments using your savings, then this can help your money to grow. The other alternative is to reduce expenses, and this is going to be the area that we will focus on.
Monthly Debt Repayment
In today’s cashless society, it is almost necessary to pay with credit cards. There are also tons of benefits that can be obtained by using this method of payment. For example, you can increase insurances, get buyers protection, reward points, cash back, roadside assistance, and other great perks; however, a lot of people use credit cards and end up accumulating a huge amount of debt, at a high interest rate, on the cards. If this happens to you, then the first thing you need to realize is that it is fine that you made a bill; however, you cannot leave that balance on the credit card and get charged interest. At the end of each month, you must pay off the balance of the credit card in full. If you do not have the money to do so, then pay off the credit card with a low interest line of credit. This will reduce the amount of money you are losing substantially if you do this every month.
Debt Consolidation
The second most important thing that you must do is consolidate all your debts into one monthly payment. This is crucial because once the monthly payments are consolidated on the lowest possible interest rate product, then you will be able to have lower monthly payments; however, you will also be able to pay more money towards your principle to pay off your balance owing quicker. The act of consolidating debt will also give you less things to worry about because you will have less different bills to pay at the end of the month.
Hierarchy of Consolidation
With so many different types of lending products available, what lending product should you use to consolidate your debt? It is important to understand that the goal is to get the lowest rate possible. This is because the less interest that you will be paying, then the more principle that you will pay and the quicker you will be able to payoff your debts. The order of the products that you should use is as follows, and based on availability:
- Mortgage Refinance: Payoff all your debts with your monthly mortgage payment, this offers usually the lowest interest rate and lowest monthly payments.
- Secured Line of Credit: If you have the available equity in your house, then you can use it to have a revolving line of credit at a very low interest rate. This is effective if you want to use it multiple times.
- Unsecured Line of Credit: If you do not have the equity in your house, or you do not own a house, then this is best option for you, because it will offer the lowest interest rate, and allow you to reuse it if needed.
- Loan: Highest interest rate product, other than a credit card, offers fixed repayment terms and a predetermined time frame to pay the debt in full.
- Low Interest Credit Cards: Sometimes, banks offer promotions where they will give you an extremely low interest rate for a certain duration of time. Make sure you are well aware of when the promotion expires, and move the money before the interest rate goes to a very high rate.
By investigating which option is best for you, then this could save you thousands of dollars in interest a year. Also, this is something that you should not wait on because the interest is accumulating daily, and the longer that you wait, then the more you will have to pay. This should be part of everyones financial strategy, so take advantage of the tools you have available before it is too late.