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May/June 2014

Commentary - Hans H. Mathisen

"So, you want to buy a home" – states LIFE LETTER for May. This piece offers a few valuable ideas for all home buyers.

"How to handle a large lump sum" - is the topic of the June issue of LIFE LETTER. This is good advice for those who are so fortunate as to receive a large lump sum of money. Wouldn’t it be nice if we all had that “problem”?

LIFE LETTER MATURE

How could they steal my house?” asks LIFE LETTER MATURE for May. Mortgage fraud is increasing in Canada, and here are a few ways you can protect yourself.

Financial steps to take before you retire” is the subject of LLM for June. We all will retire one day, and we strive to protect our retirement income.

THE STOCK MARKETS - At the half-way mark for 2014, the major stock markets stood as follows: Toronto’s S&P TSX was up 11.20 % and the Dow Jones gained 1.51%. In Europe, Germany’s DAX grew 3.67%; France’s CAC gained 3.84%; and England’s FTSE 100 was up 0.80%. In Asia, Japan’s NIKKEI declined 5.92% was down 2.43%.

How will the major markets perform for the remainder of the year? Here is a summary of what the economists tell us:

CANADA - We are still awaiting the global economy to improve in order to be able to buy more of our resources. This growth has been rather slow, and our economy is expected to grow by 2.3% in 2014 and 2.5% in 2015.

THE U.S. – Growth is expected to be 2.8% in 2014, up from 1.9% in 2013. The U.S. economy is projected to grow at 3.00% in 2015.

CHINA – After a slow start, the economy is now growing faster and is projected to reach 7.8% in 2014 and surpass the 8.00% mark in 2015

The EURO – area is turning the corner from recession to recovery. Growth is projected to strengthen to 1.00% in 2014 amd 1.4% in 2015, but the recovery will be uneven.

JAPAN – Annual growth is is expected to remain broadly unchanged at 1.7% in 2014, then moderating to 1.00% in 2015.

The Global Economy is projected to reach 3.7% in 2014 and rise to 3.9% in 2015.

 

HAPPY INVESTING!
Sincerely,
Hans Mathisen


 

 

 

LIFE LETTER

So, you want to buy a home

Many dream of owning their own home. In the long run, it is generally the least expensive way to put a roof over our heads. Buying a home is one of the biggest emotional and financial decisions you'll ever make.

Some things to consider to make sure the dream doesn’t turn into a nightmare are:

Down-payment - According to the Canada Mortgage and Housing Corporation (CMHC) website, “Mortgage loan insurance helps protect lenders against mortgage default and enables consumers to purchase homes with a minimum down payment of 5% with interest rates comparable to those with a 20% down payment. Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price.” Effective May 1, 2014, the premium that will need to be paid by the borrower for a mortgage of between 90 and 95% of the home value will increase to 3.15% of the borrowed amount. So, a home purchased for $400,000 with 5% down means a mortgage of $380,000 and a CMHC premium of $11,970 paid by the buyer. If added to the mortgage, $391,970 is actually financed which means interest will also be paid on the CMHC insurance premium.

Too much house - According to Consolidated Credit, your debt-to-income ratio should be 36 per cent [of before-tax income] or less. Salary.com states that, “Most lenders will finance buyers whose monthly house payment (including loan payment, property taxes and insurance) will not exceed 28 percent of their gross monthly income.” It can be very tempting to go right up to the maximum to get into that so-called dream home. The mortgage may become difficult to manage if there is an interruption in employment or if interest rates increase beyond a certain point. It may be better to start with a smaller home and move up to larger ones as equity is built up and incomes become more stable.

Needs vs wants - According to the CMHC website, "Once you have a good idea about your finances, you’ll need to think clearly about the home you’d
like to buy. Try to buy a home that meets most of your needs for the next 5 to 10 years, or [choose] a home that can grow and change with your needs." It is critical to sort out ‘needs’ from ‘wants’ when choosing a home. If something won’t really be a need for 5 years or longer, today it is just a want.

Cost of ownership - Along with other debts that are being serviced, there will be ongoing costs to keep your home operational. Remember, as a home owner, the responsibility will be entirely yours, including:
- property taxes
- utilities (power, water & sewer, heat, cable, phone)
- property insurance (usually required by lender)
- neighborhood fees (condo and/or homeowners)
- repairs and maintenance
- landscaping and fence (if a new home)
- renovations, etc.

Lifestyle protection - As your home could be your largest financial commitment ever, it is important to protect you and your family from losing it in the event of accident, sickness or early death. Speak to your insurance advisor before you buy a home.

Be Home Buyer Prepared - because it’s the responsible thing to do! Call today.

Call Hans Mathisen today at (306)242-7042.
or email -
hans@mathisen.ca

Copyright © 2014 Life Letter. All rights reserved

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LIFE LETTER

How to handle a large lump sum

Karyn won three million dollars in a lottery, a dream come true. She remembers reading about previous lottery winners and the fact that most had little or nothing to show for their luck after two years. Karyn was determined to not let that happen to her.

When his mother died, Randy was left with a substantial amount of cash from her estate. While his parents had lived frugally all their lives, Randy is better at spending money. However, he doesn't want to fritter away his inheritance.

Jayne, a new widow, received over a million dollars in life insurance proceeds when her husband, Mike, died. Its purpose was to maintain her lifestyle in just such an event. With two young children, money matters should be the least of her worries.

Most people who suddenly receive a substantial amount of money are not prepared to handle it. We have all heard about the lottery winners who vowed they would not let the money change their lives, but soon became the best customer at the local auto dealer, travel agency and electronics store.

It can be hard to resist going on a little spending spree. But all too often it is virtually impossible to stop buying until the money is all gone. It is vital to enlist the help of a professional financial advisor.

When someone "comes into some money" like in the examples above, it is important to take some time before making any big financial decisions. This may be a few weeks or several months.

It is critical to set some realistic financial goals. They should include:

1. Pay off high interest debt. With interest charges on credit card balances as high as 20% or more, these should be paid off right away.

2. Catch up on RRSP deposits. In Jayne’s case, she can even maximize her husband's RRSPs, too. This will reduce or eliminate the taxes on his final tax return. She can roll his RRSPs, tax-free, into her name and keep postponing taxes until she retires.

3. Review life insurance. It can be tempting to let policies go if there is lots of cash on hand. Your estate will still need liquidity when you die and the taxman will need to be paid. Life insurance is the best way to do this.

4. Invest most of the money for income. Think of a large amount of money as a "cash cow" that gives you milk in the form of income. If you slaughter the cow, it can't produce milk. So, if you spend all the money, it can't generate income.

Karyn can still get herself some nice things, but she can use the income from her cash cow to pay for them. By leaving the cow alone, she still has a steady income. Part of the planning that Mike and Jayne did included a home free and clear. She can use the income to continue making mortgage payments and she will still have the income when it's paid off. Randy can top up his RRSPs and buy a nice home, paid for with his new income. Hold on to Lump Sums - because it's the responsible thing to do! Call today!

Hold on to Lump Sums - because it's the responsible thing to do! Call today!

Call Hans Mathisen today at (306)242-7042.
or email -
hans@mathisen.ca

Copyright © 2014 Life Letter. All rights reserved

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Email:
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