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How to keep your debt down as interest rates go up

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This story is part of a series we’re calling Debt Nation looking at the state of consumer debt in Canada.

As interest rates rise, so does Canadians’ anxiety over their debt.

For close to a decade, homeowners have enjoyed rock-bottom interest rates. However, that’s slowly changing. This week, the Bank of Canada raised its key rate by a quarter-point for the fifth time since July 2017, pushing up borrowing costs for consumers.

To put it into perspective, mortgage rate-comparison site RateHub crunched the numbers. It found that before July 2017, the lowest available variable-mortgage rate was just 1.75 per cent. After this week’s increase, it jumped to 2.7 per cent. The rate change translates to $186 extra in monthly payments on a $400,000 mortgage.

It’s expected rates will continue to rise next year — at a time when Canadians have piled up near-record levels of household debt.

Here, financial experts offer their advice on how to not let your debt get you down.

Consolidate

If you’re facing sky-high interest rates — such as 20 per cent on your credit card debt — you may be able to lower your monthly payments by consolidating your debt into one loan at a lower rate.

Homeowners can typically secure some of the lowest rates available by borrowing against the equity in the home. Their two options are refinancing their mortgage or getting a home equity line of credit.

But these loans come with some caveats: They include legal and home appraisal fees which can add up to hundreds of dollars. There’s also a penalty fee for breaking a fixed mortgage early. 

Financial adviser Allan Tran suggests that people in need of smaller, short-term loans consider an unsecured line of credit, also an option for non-homeowners. The interest rate will likely be higher, but there are typically no added fees.

“If it’s short-term borrowing, so I only need $5,000 and I can pay it off because my bonus is coming up at the end of the year, an unsecured line of credit is the way to go,” said Tran, an adviser with Meridian Credit Union in Hamilton.

Pay down debt

Financial planner Rona Birenbaum warns that consolidating loans only makes sense for people with a solid financial plan.

“Unless they change their spending habits, within a few years, that credit card will be run up again,” says Birenbaum, with the firm Caring for Clients in Toronto.

She suggests a more effective way to wipe out debt is the “avalanche” method, where people pay down loans with the highest interest rate first.

“When they know they’re paying a lot of interest, they’re more determined to get it paid off.”

Financial planner Rona Birenbaum warns that consolidating loans only makes sense for people with a solid financial plan. (CBC)

Tran cautions that if you’re using savings to pay down debt, you should still set some aside for emergencies such as surprise home repairs.

But if you do have extra cash available, he recommends also putting some toward your mortgage, as long as you don’t incur a penalty. The move could potentially save you thousands of dollars over the mortgage’s full term.

Tran says the faster you make extra payments, the more money you’ll save. “Interest is calculated on a daily basis. If you can afford it today, why not?”

Make more money

If you’re already cash-strapped, where do you find the extra money to pare down your debt?

Birenbaum suggests making a list of your expenditures to figure out where to cut that fat.

“Identify where your money’s going,” she said. “When we get our clients to actually crunch the numbers, they’re universally blown away by how big the number is.”

If you find you can’t cut much from your expenditures list, it may be time to search for another income.

Many people don’t have time for a second job, but thanks to the power of the internet, there are other ways to generate extra cash, such as by selling unwanted furniture on Kijiji or even renting your car.

Sean Cooper torches his loan papers at a mortgage burning party in Toronto in 2015. (CBC)

Sean Cooper gained attention in 2015 for paying off his $255,000 mortgage in just three years. To generate extra cash, he lived in his basement and rented the rest of his Toronto home.

Cooper understands that’s not practical for most people, but suggests with online services like Airbnb, homeowners can rent out rooms or their entire house for short periods, such as when they go on vacation.

“There’s definitely ways you can be creative about it. You don’t have to be a full-time landlord,” says Cooper, author of  the financial self-help book Burn Your Mortgage.

Shop around for a mortgage

Many people haven’t yet felt the full effects of recent rate hikes because they have a fixed-rate mortgage — the most popular type in Canada.

When it comes time for renewal, Cooper recommends shopping around for the best interest rate.

“It’s so easy to just sign the renewal papers, but you’re probably costing yourself a tonne of money.”

Birenbaum suggests consulting a mortgage broker who, for no fee, will do the shopping for you to try to find the best deal.

“It’s both time-saving and money-saving.” 

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Real Estate

Window repair or replacement is the responsibility of the condo corporation

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If the windows in your condo are hazy, drafty, or have rotting frames, it’s an indicator that they need repairs or outright replacement.

However, under the Condominium Act, it is the responsibility of the condo’s board to carry out such changes as a replaced window is a common element.

“Under the Condominium Act, a declaration may alter the maintenance or repair obligations of unit owners and the corporation but cannot make unit owners responsible for repairs to the common elements,” said Gerry Hyman is a former president of the Canadian Condominium Institute and contributor for the Star.

“A declaration for a high-rise condominium invariably provides that the unit boundary is the interior surface of windows. That means that the entire window — whether it is a single pane or a double pane — is a common element. Necessary repairs or replacement of a broken pane is the obligation of the corporation.”

According to Consumer Reports, selecting an installing windows replacement can be very overwhelming for homeowners. Therefore, if you aren’t covered by your condo’s corporation, it would be necessary to hire professional hands.

Wood, vinyl and composite windows need to be tested on how they can withstand various natural elements. For wind resistance, a window can be very tight when it’s warm but get quite cold too—especially when it begins to leak a lot.

Whatever the case may be, the bottom line remains that replacement windows can save you heating and cooling costs, but it’s best not to expect drastic savings.

Additionally, while getting a new window might help you save on your electric and gas bills, due to their expensive cost, it may take a long time to offset their cost.

Mid-last-year, the government withdraw a $377 million Green Ontario program that provided subsidy on windows to installers and repairers. Window companies had to install energy-efficient windows in order to qualify for the government subsidy that pays for up to $500 of a $1,000 to $1,500 window.

Due to the largely generous subsidies from the government under the Green Ontario program, a lot of window dealers were fully booked for months—even after the program had ended.

“We’re fine with the program ending, we just need more time to satisfy consumers,” said Jason Neal, the executive director of the Siding and Window Dealer Association of Canada, the industry group representing window dealers in a report.

According to Neal, the Progressive Conservatives acted hastily, making massive changes with no prior notice.

“No notification was given to us by anyone,” he said, noting he learned about the change through one of his dealers.

“It’s created a ripple effect.If they had just given us notice we would have pushed that down the line from the manufacturer right into the dealer right down to the consumer.”

Neal noted that he wasn’t particularly sad to see the Green Ontario program end, as it was “the worst rebate program in the history of the window industry.”

“It’s been horrible,” he said. “$500 a window has created such hysteria.”

However, despite the program ending about a year ago, numerous homeowners have been contacting window dealers consistently with concerns that they might not be able to afford replacement windows without the government’s subsidy.

“I understand their concern,” said window dealer Chris George. “I would suggest they reach out to their local representative of the government in their riding and let them know about their concerns.”

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7 Vancouver Real Estate Buying Tips

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The real estate market in Vancouver is turning around for good for everyone looking to purchase a home.

Previously soaring prices are now beginning to ease up, making it a perfect time for buyers—with real estate agents already getting ready for a very busy spring and summer season.

However, before splashing cash on a new property, there are some very important tips you need to know to ensure you make the most of the buyer’s market.

Here are some few expert tips that would guide you when purchasing a home in the sometimes frustration Vancouver seller’s market.

  1. Get adequate financing

It is very important that before you make the move to purchase a property, you put into careful consideration your credit score.

Normally, home buyers with lower scores use the secondary mortgage market to finance their purchase, as they’re more likely to pay a higher interest rate.However, it is advisable to get loan approval long before purchasing the house. This way, you are fully aware of how much you are able to spend—but never be tempted to borrow the maximum amount of money available.

“What’s your mortgage payment that you’re comfortable with? And take into the fact the taxes you’re going to have to pay, if it’s a strata – what the maintenance fees are, if it’s a home what type of maintenance are you going to have to pay in the future?” said Phil Moore, president of the Real Estate Board of Greater Vancouver in a report.

Always be careful of the type of loan you secure and ensure that you can comfortably afford it over a long period of time.

  1. Get a real estate agent

Buying a property without professional help is a very risky move and can be likened to choosing to represent yourself in court without a lawyer. While you might trust your negotiation skills, only realtors are permitted to present offers directly.

Therefore, it is necessary to get a professional real estate agent in the area to represent you. So, screen a few agents and select the best one who has in-depth knowledge of the markets and has a great reputation.

“They’re there to protect you. They’re there to walk you through each step of the process,” Moore said.

  1. Sign up for automated alerts

Most—if not all—realtors have access to the Vancouver real estate board’s database which is updated approximately two days before the public MLS website.

Therefore, you can request from your realtor to sign you up for automatic real-time alerts of all new listings. Doing this gives you an edge as you’re among the very first to know about new properties.

  1. Do a thorough inspection

After receiving an alert for a new listing, it is necessary to push almost immediately for an inspection from your realtor. In this current market, buyers now have time to make an inspection.

Making a quick inspection eliminates any surprises—as there could be major maintenance or repair issues that could spring up. Therefore, you can now table your offer based on the outcome of the inspection, with clauses about claiming your damage deposit back if everything isn’t as was advertised.

Additionally, if you notice that renovations were done, you need to be sure that it was permitted work and carried out appropriately. Failing to do this would ultimately lead to further cost down the line and simultaneously affect the resale value.

  1. Have a back-up plan

There’s always the possibility that everything may not go as smoothly as you’d want. From the inspection being a failureto the property not living up to your expectations—or not being able to agree on the closing date that matches with your needs.

However, a professional real estate agent will definitely help you get past all of these things. If you plan on selling the property as you buy, you can table that and make it part of the deal.

“You’ve got an option, especially in a buyer’s market: you can put in an offer subject to selling your place. So maybe you want to have a place lined up,” Moore added.

Additionally, building contingencies into your buying plan is necessary. Things such as unexpected delays in closing the deal, closing cost and moving costs that could result in added living expenses if that’s your permanent home.

  1. Don’t fall for the buyer frenzy

The Vancouver market buying frenzy that caused a serious climb in the prices a couple of years ago has ended. Thus, it is important not to get caught up in bidding wars with properties that have been deliberately under-priced—with the hope of initiating multiple offers.

“Some of the sellers have been on the market for over a year and they’re eager to sell. So what I’m saying to consumers is: you have a lot of choices, you’re in the driver’s seat, let’s go out and take a look at what’s available,” said Moore.

  1. Never be wary of multiple offers

When purchasing a property, don’t be afraid of multiple offers as you have the same opportunity as anybody else.

Typically, there are just a few offers below the asking price: a couple priced fully, and two or three above the asking price—depending on how close the fair market value is from the asking price.

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Real Estate

Do you know what kind of condo you’re buying?

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(NC) Condominiums can come in all shapes and sizes. But it’s important to know that not all condos are created equal when it comes to warranty coverage.

Whether you’re buying a condominium townhouse, loft-style two-bedroom or a high-rise studio, they are all classified as condominiums if you own your unit while at the same time share access (and the associated fees) for facilities ranging from pools and parking garages to elevators and driveways, otherwise known as common elements.

The most common types of condos are standard condominiums and common elements condominiums. The determination of how a condominium project is designated happens during the planning stage when the builder proposes the project and the municipality approves it.

When you’re in the market to buy, you need to know how your chosen condo is classified because it affects the warranty coverage under the Ontario New Home Warranties Plan Act. Standard condominiums have warranty coverage for units and common elements, but common elements condominiums only have unit coverage.

How could this affect you as the owner? If your condo complex has underground parking and, for example, there are problems with leaks or a faulty door, the condo designation will determine whether there’s warranty coverage.

If your unit is a standard condominium development, then the common elements warranty may cover the repairs. If it’s a common element condominium development, then repairs might have to be covered by the condo corporation’s insurance, which could impact your condo fees or require a special assessment on all the owners.

To avoid surprises, you should have a real estate lawyer review the Declaration and Description attached to your purchase agreement to be sure that you know the designation and boundaries of the unit you’re looking to purchase. Find more information on the types of condos and their coverage at tarion.com.

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