Monday, November 16, 2009

Eliminate credit card dependence!

In a recent survey by TNS Canadian Facts, Personal Risk Assessment and Risk Literacy, 52% of Canadians said they would tap into their designated emergency fund should the need arise. Twenty-eight percent of respondents said they would rely on their credit card to get them out of a jam, however, making Canadians the most plastic-dependent national group. By contrast, only 20% of Americans and Brits said they would use a card for emergencies.
That number should be a reality check for many of us. Rock-bottom interest rates mean one thing - in terms of our expenses, there's nowhere to go but up. Having cash on hand for an emergency will reduce the chances of falling into the credit card debt spiral.
Here are a few tips to eliminate credit card dependence.
1. Tackle your high-interest debt first.
It's difficult to get ahead of the game when you're bogged down with credit card payments. Use the luxury of today's low interest rates to pay down your high interest debt. If you're due for a mortgage refinance, you might want to consider rolling your high credit card balances into a lower interest mortgage.
2. Make a budget.
Okay, budgeting isn't fun. But it's an integral part of financial health. Determine your regular expenses, variable expenses (like groceries and gas) and irregular expenses (like car maintenance). Be honest.
3. Create a few savings accounts.
The most important step in the journey of credit card independence is establishing a substantial cash cushion. The first cash cushion should be for irregular expenses - or those things you would typically buy on credit. Think Christmas and birthday gifts, housing expenses, and clothing. Estimate what you would spend on these irregular expenses in a given year and divide by 12. Stash that amount away monthly in a high interest savings account.
The second cash cushion should be an emergency fund - something to access if you or your spouse lose your jobs. Calculate your monthly living expenses and aim to save at least two months' worth. Ideally, you'd probably want to save about six months' worth.
The third cushion should be for your goals - either your retirement, vacations, a wedding or your children's education. Since these are longer-term savings, you might want to consider higher interest investment accounts, or government tools like RRSPs, investment savings accounts, etc.
Companies like ING Direct offer unique options for savings in that they allow you to create an automated savings plan. Every month, the bank will deduct money from your regular bank account. Because the bank is branchless, it's a little more difficult to access the funds because they have to be transferred back into your regular bank account - so you're less likely to tap into them on a whim.
4. Try the envelope method.While it doesn't work for everyone, the envelope method is a way to better control your variable expenses - and thus limit your unplanned credit card spending. Every month, withdraw the appropriate amount of cash for your variable expenses that is laid out in your budget. Create different envelopes - labeled 'groceries', 'gas', 'eating out', etc - and pay for each of the corresponding items with the designated cash. If you're constantly running out of cash before the end of the month, evaluate your spending habits - there may be areas you can trim, or you may have to revamp your budget.
-Axiom Mortgage Partners

Friday, November 13, 2009

Autumn house hunting, how far will your money go?

I love these fun comparisons by Macleans. Click on the following image to view the real estate you'll be able to purchase with 150k, 350k, 500k and 1 million in various Canadian cities!

Tuesday, November 10, 2009

Proposed Edmonton budget calls for 6.5% propertry-tax hike

It sounds like the city is getting ready to raise some more funds courtesy of local homeowners!

Monday, November 9, 2009

IMF Says Canadian real estate market's okay

Is Canada's housing market overvalued? According to the International Monetary Fund (IMF) - an international organization that seeks to ensure global financial stability - the answer is 'not really'.
The organization's recent working paper, which was released in October, reveals that while many parts of the country were reaching levels of housing overvaluation in 2007, that's not the case anymore. Basing its conclusions on the CREA price index, the IMF suggests that, unsurprisingly, the Western provinces - namely, British Columbia, Alberta and Saskatchewan - are slightly overvalued, but not to an extent where there's going to be a major crash.
The report says part of the influx in Western housing prices that have occurred over the past decade has been in response to the "underreaction" of housing prices during the 1990s. The hot housing markets in the 2000s brought these three regions to equilibrium, although they started to become overvalued in 2007. At this time, the IMF estimates Alberta housing prices were about 25% above equilibrium, and BC and Saskatchewan were about 17% above where they should have been.
Things started to slow down at the end of 2007 and early 2008, causing a large contraction. According to the report, housing prices in BC and Alberta are now around 8% overvalued, and those in Saskatchewan are approximately 5% higher than they should be.
This overvaluation is relatively small in the grand scheme of things, the IMF notes, and it's unlikely that there's going to be a large negative impact. The fact that the housing market is already showing strong signs of revival in these regions, in addition to the fact that commodity prices have increased compared to 2008, further supports this fact.
-Axiom Mortgage Partners

Monday, November 2, 2009

Bubble protection

If you're looking to buy, you're likely wary of the effect a hot real estate market can have on your investment. After all, not only are bidding wars frustrating, but get too caught up in them and you can wind up paying far above the accurate value of your property.
To protect yourself before entering a bidding war, consider calculating the price-to-rent ratio to determine a safe purchase price. While this calculation is typically used by investors- allowing them to compare the going price of real estate with what they can realistically redeem in rent- it's a great way of making sure your property price is in line with historic averages.
The calculation itself is simple. Visit a site such as or to determine the going monthly rental rates of similar properties in your area. Multiply that number by 12, to get the annual rental rate, and divide your proposed purchase price by the annual rental rate.
The equation should look like this:
Price-To-Rent-Ratio= Purchase price/Annual Rent
Between 1987-2007, the average ratio was about 15. During the US real estate bubble between 2005-2007, that number skyrocketed to over 20 in some areas.
Paying more than what a property is worth doesn't only have dire consequences if a potential real estate bubble bursts, but it can also prevent you from obtaining financing. If a lender believes you've overpaid for a property, they don't have to approve your mortgage for that property!
-Axiom Mortgage Partners