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September/October 2004

Commentary - Hans H. Mathisen

Is Credit Balance Insurance a Rip-Off? - LIFE LETTER for September gives the answer to the question: YES, it is a rip-off. It makes much more sense to have individual insurance policies - you then have control. Please call me for details and a comparative quote.

Should You Lock In Your Mortgage Rate Now? - The October issue of LIFE LETTER illustrates how we pay less interest in the long run with a variable rate mortgage than a fixed rate one. Financial columnist Garth Turner has also written in favor of the variable rate mortgage in recent columns. My associates with Sentinel Mortgage Division will be pleased to work out for you the potential savings you will realize by having a variable rate mortgage. Why not call?

THE STOCK MARKETS - On September 30, 2004, the three quarter performance of the major stock indexes are: The S&P TSX Composite is up by 5.44%; Dow Jones is -3.57%; the S&P 500 Index is up 0.24%; and the NASDAQ is at -5.32%. Other major indexes range from a high of 4.33% (Hong Kong's Hang Seng) to a low of-1.82% (Germany's DAX).

WALTON INTERNATIONAL - You have recently received invitations to Walton International's informational meetings, and the response has been positive. Many clients of Mathisen Financial, Inc. are excited about the 25 year performance record of this investment opportunity: Average annual return of 18.00%! With this rate of return, money invested doubles
every 4 years. (My wife and I own two Walton properties in Alberta)..

Here's the bi-monthly update on my two personal portfolios, which are carefully constructed, based on my own research of the markets and my conservative investment approach:
PORTFOLIO #1: March 7, 2003 to Sept.30, 2004: The return is 21.1%
PORTFOLIO #2: April 28, 2003 to Sept.30, 2004: The return is 28.0%
These returns certainly beat current GIC returns. Please call for details of this strategy..

Hans Mathisen





Is Credit Balance Insurance a Rip-Off?

Graham, like millions of other Canadians, has and uses credit cards. He often carries a balance from month to month and is concerned about making the monthly payments if he becomes disabled or gets seriously ill. Graham doesn't want to stick his family with the balance if he dies before paying it off.

The credit card company offered him Credit Balance Insurance (CBI) that would take care of these concerns. After looking over the offer, he
wondered if it was such a good deal.

Credit Balance Insurance is just that - insurance. And insurance requires a premium. According to the Financial Consumer Agency of Canada, the average monthly premium for this type of insurance is about
90 cents per $100 of monthly credit card balance. If Graham carries a $5,000 balance on his credit card, he will pay a $45.00 monthly premium - that's a whopping $540.00 per year. He may also have to pay
provincial sales tax on this premium.

His credit card carrier will simply add the monthly premium to his outstanding balance. Regular credit card interest rates are about 18% annually, calculated monthly. So, if Graham continues to carry a balance forward and opts for the balance insurance, the premiums will also attract interest charges.

Premiums are paid to the credit card provider and an insurance company provides the protection. The credit card company takes a cut of the premium. At the end of 2003, some 22.2 million Visa and MasterCard accounts in Canada carried a balance.

This type of insurance is provided by a group policy arrangement between the credit card provider and an insurance company. Either party can cancel it at any time, and Graham will have no say in the matter. Information provided by the big five banks indicates that there are "limitations and exclusions" that will be revealed after he signs up.

Graham learned that:
- CBI life insurance maximum benefits range from $1,000 up to $50,000 with most in the $10.000 range.

- CBI disability protection only covers the minimum monthly payment for a limited period and you must be totally disabled to qualify for benefits. Interest will still be charged on the outstanding balance.

- CBI critical illness insurance typically covers only a few conditions, typically cancer, heart attack and stroke. Personal plans cover these and many more.

- CBI job loss protection only covers the minimum monthly payment for a limited period and interest will still be charged on the outstanding balance.
- Depending on the credit card provider, CBI coverage is only available until age 65 or 70.

Graham learned mat he can get much better protection with few, if any, limitations or exclusions through his insurance advisor. He won't have to
worry about any unexpected premium increases or losing his coverage all together.

Want your credit card debt taken care of in case of death, disability or illness?

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright 2004 Bowen Financial Inc. All rights reserved

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Should You Lock In Your Mortgage Rate Now?

Judy was wondering if she should choose a fixed rate mortgage in light of a recent interest rate increase. She likes the idea of a fixed monthly
payment, but wants to know if there is a better way.

A recent survey of homeowners and potential homebuyers indicated that most felt that now is the time to lock in rates. But the feeling was much the same a year ago and even two years ago. Who knew that interest rates would get this low?

One of Canada's foremost authorities on personal finance. Dr. Moshe Milevsky, studied fifty years of mortgage rate data (1950 to 1999). He concluded that anyone who locked in at a fixed interest rate paid
more than they should have for their mortgage. The average interest savings on a $100,000, 15-year mortgage would have been over $22,000 using a floating rate mortgage.

During the above noted period, you would have been better off with a variable rate 88.6% of the time.

Does a variable rate mortgage still make sense? According to CIBC mortgage and lending vice- president Paul Mims (CanWest News Service,
September 2, 2004), "with interest rates expected to head north, the natural instinct is to lock in, but if [you are] comfortable with the variation, [you] may be better off over the longer term with a variable rate mortgage." Mims also said that rates would have to rise, by at least two percentage points, and stay at that level for someone to do as well with a fixed rate mortgage as with a variable rate.

Interest rate fluctuations can be a cause of concern or stress. What can Judy do?

Judy will need to choose a mortgage strategy that will allow her to sleep at night. It can still be a variable rate mortgage.

She has already qualified for an amount based on current 5-year mortgage rates. By choosing a variable rate mortgage and milking the same monthly payment as a 5-year fixed rate, she protects herself from interest increase surprises and will actually pay down her principal more quickly. She could accelerate the drop in principal even more by calculating the 5-year
payment with a higher interest rate.

To illustrate, let's say Judy gets a 5-year rate of 5% and a variable rate of 3.5%. Her monthly payments would be about $657 fixed and $579
variable for a $100,000 mortgage over 20-years. This means that Judy would actually pay a $78 per month premium for the "privilege" of a fixed rate.

If she made payments of $657 on her variable rate mortgage and rates stayed the same for one year, she would have reduced her principal by almost $1,400 more than had she chosen a fixed rate. Still keeping
the payments the same and assuming her variable rate went up to 4.25 for one year, she'll still be about $750 further ahead a year later. If Judy uses a monthly payment of $712, based on a 6% mortgage rate and her variable rate is 4%, she will be almost $1,600 further ahead after one year. Either way, she'll be in a very good position to weather rate changes.

Want help with your financial strategies?

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright 2004 Bowen Financial Inc. All rights reserved

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Mathisen Financial, Inc.
335 Redberry Road
Saskatoon, Saskatchewan S7K 4W5
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