January 2012
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Jan 9, 2012 8:38 PM
Rona Birenbaum
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Effective January 5th, 2012 students in Ontario are getting a financial boost from the provincial government.
Students in a university or college degree program will save $1,600, while students in college diploma and certificate programs will save $730. These amounts are 30% of the average tuition in Ontario, which is the formula being used to establish the amount.
Your children are eligible if they are:
- A full-time student at a public college or university in Ontario
- It’s been less than four years since they left high school
- They are in a program that they can apply to directly from high school
- Their parents’ gross income is $160,000 or less
- They are a Canadian citizen, permanent resident or protected person
- They are an Ontario resident
The deadline to apply for the term starting January 2012 is March 31, 2012.
How to apply
If your child already receives OSAP no application is necessary. They will be automatically considered and the student will receive the grant by cheque or direct deposit by the end of January.
For those that do not receive OSAP, an application must be completed and requires the following information:
- Student’s Social Insurance Number
- Parents’ Social Insurance Number(s)
- Line 150 from each parents’ 2010 tax return (if a 2010 tax return has not been filed yet, the grant will not be available)
Then you’ll need to:
- Register for an OSAP Access Number
- Fill out and submit the online grant application
- Print the declaration and signature pages which the student and parents sign.
- Mail or fax the signed pages to
Student Financial Assistance Branch
Ministry of Training, Colleges and Universities
P.O. Box 4500
189 Red River Road, 4th Floor
Thunder Bay, ON P7B 6G9
Fax: (807) 343-7278
For more information, check the FAQ's or call the toll-free hotline at 1-888-449-4478.
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November 2011
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Nov 21, 2011 3:33 PM
Rona Birenbaum
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Royal Bank’s latest housing survey found that one-third of Canadians who are 55 or older have at least 16 years left on their mortgage term. That reality doesn’t line up with the average Canadian’s desire to be mortgage free by age 65.
The survey was picked up by the major media and splashed across both print and online news outlets.
Claude Demone, RBC’s director of strategy for home equity financing stated the obvious, “Canadians want to be mortgage-free as they approach retirement age and beyond, but the reality is that it takes prudent planning and the right advice to stay on track.”
My father forwarded the article to me. He regularly sends me information that he thinks would be of interest to his financial planning daughter. My response to him on the article about the RBC report was,
“It’s a real problem....and the banks are not helping”.
He asked, “How are the banks getting in the way?”
My answer to him was:
In spite of what the banks say in the media, I see what they do in practice every day.
1. Encourage people to borrow more than they can afford
2. Approve amortizations that are too long
3. Encourage the use of home equity lines of credit vs. mortgages
This is how I see the above playing out in my practice daily.
Over-borrowing
The banks will approve credit based on a simple formula called “Total Debt Service Ratio” (TDSR). If your total monthly debt payments (mortgage, loans, credit cards, lines of credit) divided by your monthly before tax income is less than 40% that is acceptable. This assumes that your credit history is good and that you live in a perfect world.
There is little or no consideration for whether you are:
- Saving enough for retirement
- Saving enough for your children’s education
- Adequately insured for disability or death
- In a position to have enough money left over to pay for other ongoing expenses like home repairs, supporting aging parents, a new car etc., etc.
The bottom line is that it is generally not a good idea to borrow as much as you qualify forif it puts other important financial priorities at risk.
Extended amortizations
Mortgage amortizations are typically based on current interest rates. I gave an example of how a modest increase in interest rates can blow up your repayment strategy in a prior blog posting here.
“Never out of debt” lines of credit
There is a trend towards the banks encouraging home equity lines (HELOC) of credit instead of conventional mortgages. The theory is that a HELOC provides greater flexibility to deal with fluctuating income and expenses by only requiring interest only payments. The theory is sound, but for the majority of Canadians the result is slower (or no) progress on reducing the principal outstanding. Why? Because life is imperfect and invariably, an event will occur that will interfere with your ability to reduce principal. Worst of all, the banks have your house as security for the debt, so they win even if you make no progress towards your debt retirement objective.
So, what are some solutions?
• Consider all of your financial goals, not just your home ownership goals, when determining how much you are prepared to borrow
• Do your own cash flow analysis and be sure to include expenses that only arise from time to time as opposed to on a monthly basis. Make sure to include room for savings at a level that will meet your long term retirement objectives. If you are not sure what that amount is, try out an online calculator or ask your financial advisor.
• If buying real estate, make sure that your real estate agent knows clearly what you upper price limit is and don’t waver!
Being mortgage free takes planning. Make sure that you are in charge of the plan, not the banks.
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August 2011
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Aug 16, 2011 9:19 AM
Rona Birenbaum
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Before your child heads off to University this fall, give them a chance to earn their first “A” by having them complete a Caring for Clients Student Cash Flow Worksheet.
In fact, it’s a great project to complete together with your child, since you are likely a big part of the income side of the equation.
Completing the worksheet has the following benefits:
1. Reduces the chance of a “cash call” towards the end of the school year.
2. Helps the student see how individual expenses that seem minor add up to a really big annual number.
3. Identifies shortfalls that you and your children can discuss. Ask your child how they suggest closing the gap. (Part-time job perhaps? Contribution from their summer earnings?)
4. Begins teaching them the importance of budgeting since they don’t teach that in University. (High Finance doesn’t help you balance a personal budget!)
The worksheet is sufficiently detailed to ensure that all possible expenses and sources of income are taken into account.
Have a gold star sticker in your back pocket to put on the finished project. You may get a roll of the eyes, but don’t kid yourself, your child will be proud of themselves.
Let’s get started! You can find the worksheet here.
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February 2011
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Feb 6, 2011 1:50 PM
Rona Birenbaum
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Mortgages are more often sold than bought. Evidence of this truth is best illustrated by the number of Canadians choosing to buy into the TD Collateral Mortgage structure.
Now, TD isn’t the only bank offering Collateral Mortgages, they just seem to be the most aggressive in their sales approach with clients.
If you have a TD or Scotia bank STEP mortgage, you likely have a collateral mortgage and you might want to know what that means. Likely the bank told you about all of the advantages of such a structure, but they may not have emphasized the drawbacks.
First, let me distinguish between a Collateral Mortgage and the traditional Regular Mortgage. I asked Bob Woods, of Assured Mortgage Services (www.assuredmortgage.ca/bob) to clarify the differences.
He said, “A collateral mortgage is a loan attached to a promissory note, and backed up by the collateral security of a mortgage on a property. These are not new in Canada and historically have been used in the granting of secured lines of credit. They work well by allowing the balance of the loan to float up or down depending on the customer’s needs.”
So I asked Bob what are the downsides of such an approach for a conventional mortgage. Here is the list that he gave me:
- Collateral mortgages appear on your personal credit bureau, while Regular Mortgage Charges generally do not. Even when Regular mortgage charges do show up, they do not affect the credit rating. Bob has seen individuals with Credit Scores in the low 700’s drop to less than 630 after the promissory note loan/collateral mortgage showed up on the credit bureau. The reason for this is that 30% of Equifax’s Beacon Score is attributable to balance limit rations. A $300K limit and a $300K balance can do some serious damage to a person’s credit score.
- A collateral mortgage is often registered for the total value of the property. TD is known to be offering up to 125% loan to value. This offers the customer the “convenience” of applying for additional credit when the value in their property appreciates, without additional legal or registration fees. Personally, I don’t see this as an advantage at all, since it facilitates taking on more debt rather than paying it down.
- It gives the bank more power as it relates to other unsecured debt (credit cards, lines of credit etc.) that you may have with the lender. A Collateral Mortgage allows the lender to seize equity (mortgage payment) and or re-direct that payment to cover other debts that you have with that lender. So in essence, you are securing all of your loans with your collateral mortgage.
- A collateral mortgage cannot be transferred under a “no fee” offer by a competitor bank at maturity. To transfer the mortgage would require new legal fees, re-registration of the mortgage etc. This is a disincentive to transfer your mortgage in order to get a better rate from a competitor.
- Finally, if your collateral mortgage goes into default, even briefly, the bank can revert to the registered face rate. Check your paperwork; this is likely to be Prime plus 10%.
I have no problem with banks changing their product structure or creating different borrowing options. What I do object to is the lack of transparency in explaining the pros and cons to the ultimate consumer.
Rona
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September 2010
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Sep 19, 2010 8:22 PM
Rona Birenbaum
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Caring for an ill parent brings many challenges; emotional, logistical, physical and financial.
On the financial front, in spite of our government funded health care system, caring for an ill parent does result in costs that are not covered by provincial health care programs. Some of these costs include:
- Lost wages for time taken to care for your parent
- Private care from a registered nurse or personal support worker (PSW)
- Medication not covered by provincial health care plans
- Medical devices to facilitate quality of life
In this article I outline a range of sources of funds that can help fund some of the costs associated with caring for an ailing parent.
Private Insurance Plans
Your parent may be a member of a private insurance program that funds a portion of some of these expenses. This could be the health benefits that accompany pension plan benefits, or stand alone privately paid for coverage. I have seen children fund health care expenses all the while the parent had insurance coverage that would have paid for some or all of those costs.
Also inquire if your parent purchased Critical Illness, Disability or Long Term Care insurance. They may be eligible for benefits through these plans.
Tax Credits
Attendant Care Credit
If your parent qualifies as disabled and requires the services of an attendant to enable them to function, they may be able to claim some or all of the costs of the attendant. The attendant must be at least 18 and not a spouse. The deduction cannot be claimed where the expenses were claimed for the Medical Expense Tax Credit (explained below).
Disability Tax Credit
This credit is available for disabled persons and is 15% of $7,239 or $1,086 for 2010. The credit can be transferred in certain cases.
Medical Expense Tax Credit
A credit for medical expenses not covered by other sources is available. The amount of the credit is for expenses in excess of the lesser of $2,024 or 3% of the person’s net income in 2010. The credit can be transferred in certain cases. Provincial credits are also available.
Infirm Dependent Credit
Where your parent is dependent on you due to physical or mental infirmity you may be able to claim this credit. The amount of the credit depends on your parent’s net income and is a maximum of $633.45 in 2010 (15% X $4,198). Provincial credits are also available.
Caregiver Tax Credit
This credit is available to taxpayers who are providing in-home care for a relative over the age of 65. The amount of the credit will be related to the dependent’s net income and is a maximum of $633.45 in 2010 (15% X $4,223). Provincial credits are also available.
Government Pensions
If your parent has been a contributor to the CPP during their working lives and are less than age 65 they will probably be eligible for some CPP disability pension. To receive the pension they will need to meet the CPP definition of disability. The maximum current CPP disability pension is just over $1,100 per month and is considered taxable income. Your advisor can assist you in describing the specifics of the program and how an application can be made.
Private Pensions
If your parent was a member of a private pension plan and has not yet started receiving benefits, most pension plans will provide an early pension if they meet the plan definition of disability. The pension sponsor should be approached to determine the specific benefits provided.
Caring for an ill parent is a big responsibility that can at times feel overwhelming. Hopefully this information will help you tap into additional financial resources that will relieve some of the financial burden you and/or your parent may be facing. |
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August 2010
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Aug 17, 2010 2:46 PM
Rona Birenbaum
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Fighting about money is one of the most common reasons for divorce in North America. Many couples face an overwhelming task when creating and managing the household income. These couples find themselves frustrated when it comes to combining their financial styles, and, as a result, both their net worth, and relationship suffers.
So how do you prevent money stress from eroding your relationship? Here are five common situations that we see in our Financial Planning practice, and some suggestions for overcoming the difficulties.
“We don’t discuss money, we fight about it”.
To prevent a money discussion from turning into an argument, make it a planned discussion. Most couples bring up the subject of money when they are unhappy about something and so the conversation turns into an “I’m right, you’re wrong” debate. For example, spouse buys an expensive item (flat screen tv, fancy new clothes etc.) while the other spouse feels the funds should be going towards the mortgage. What starts as a discussion turns into an argument about which use of funds is “better”. That’s a no win debate.
I recommend that couples meet regularly to discuss finances when they are calm, not at a time of crisis. A quarterly meeting on the weekend, or in the evening over a glass of wine works best. The fewer the distractions the better.
“We’ll never retire at the rate we’re going”
Uncertainty about the future can be very stressful for some people. To alleviate the anxiety, find out where you stand and assess your financial reality. Prepare a net worth statement and prepare a cash flow review. There are many retirement calculators on the internet that will give you some idea as to how close your retirement goal is. Email me at info@caringforclients.com for a monthly Budget Tracker that will help you calculate your current cost of living and start the dialogue.
“I’m a saver and he/she is a spender, that’s the problem”
The problem is actually thinking that you can turn a spender into a saver or vice versa. Compromise and moderated behavior is the key. Rather than labeling one another, consider this line of thinking, “We both spend but on different things. Let’s budget”
Create a spending plan together that addresses your individual and combined financial needs and goals. This will often mean having a joint account for “family” expenses and individual accounts for personal spending. The budget should be a reflection of both spouse’s current and future lifestyle needs.
“You worry too much!”
It can be frustrating when a spouse worries constantly about money. In my experience the worry comes from a lack of information about how money is being spent, or whether certain financial goals are being achieved. Even if the worry is unfounded, the solution is complete disclosure. Regular meetings to review the family finances will eliminate the mystery and set the stage for constructive, joint decision making and goal setting.
“We aren’t making any progress”
Hire an objective third party to help facilitate dialogue and develop a financial plan that respects both spouse’s concerns and goals. The Financial Planner should have experience working with couples that are having difficulty having constructive conversations about finances. The planning process and ongoing, regular meetings with the planner will help diffuse the inter-couple stress and keep them focused on working together constructively.
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July 2010
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Jul 12, 2010 9:20 PM
Rona Birenbaum
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For most Canadians, a mortgage is the largest debt they ever take on. Much time and attention is given to negotiating the lowest possible interest rate, but typically much less time is taken determining the optimal amortization period. This is even though the length of repayment (amortization) is directly correlated with the amount of interest paid and, therefore, the ultimate cost of your house purchase.
Here are the four most common approaches to choosing an amortization period along with potential drawbacks:
1. I select the maximum amortization in order to qualify for as large a mortgage as possible, so I can purchase my dream home.
This, of course, is one of the strategies that got many Americans into financial distress. The problem with this approach is that it leaves little room for financial hiccups such as, increasing interest rates, job loss, and unexpected expenses such as home repairs. When the “unexpected” happens, credit cards become the solution and a debt spiral begins.
2. The shortest amortization that I can afford. I can't stand being in debt.
There is nothing wrong with this in theory.....but it lacks practical considerations. This approach also leaves little room for the financial hiccups noted above. Asking the lender to extend the amortization while you look for a new job doesn't always go over well. You know how it goes, it's easy getting credit when you don't need it......
Any half decent mortgage provides the option to double up the payment, increase the payment by 10% and make principal repayments of 20% of the original mortgage every year. All of these options speed up repayment. An alternate to committing to a short amortization would be to moderate the amortization and accumulate the extra funds in a savings account. Every six to twelve months you can determine how much of the savings to apply to the mortgage. If your employer has just announced another round of layoffs, hold onto the cash.
3. I chose an equity line of credit so I can control the rate of repayment.
This is a popular approach these days. It is a lot like #1 but can be even worse since often equity lines of credit only require that the monthly interest charges are covered. This is called the “forever” amortization. A typical rationalization we hear is that it doesn't make sense to pay down the mortgage when interest rates are so low. The reality is that it's the best time to pay down the mortgage since the majority will go towards principal. When interest rates inevitably rise, the rate will apply to a smaller outstanding balance.
Equity lines of credit are best suited to the most financially disciplined of us. Those individuals benefit from the additional flexibility of an equity line of credit without the risk of still being indebted when reaching retirement age.
4. I chose what lender recommended.
This is hit and miss. The suitability of the recommendation depends on the experience, ethics and integrity of the lender. Even the best, most trustworthy lenders base their recommendation on fairly limited information about the client. Lenders typically gather asset/liability and income details in order to determine affordability and credit worthiness. They don't always know about the complete financial life of the client, which if they did, might lead them to an alternate recommendation.
So, how do you choose the mortgage that is right for you?
The options should be considered in light of your overall financial plan.
We give very specific recommendations to our clients regarding the maximum amount of debt they should consider as well as the optimal structure of the mortgage. The advice takes into consideration the client's entire financial reality, their many goals, and risks and opportunities they may not be aware of. Armed with the advice they can negotiate with their lender with much more confidence and power.
What's your amortization and is it optimal for you?
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May 2010
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May 20, 2010 8:55 PM
Rona Birenbaum
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A client of mine told me that her banker suggested that she might be able to reduce her account service charges if she switched to a "senior's account". My client was skeptical and had no intention to make the change.
I asked her what she pays now, and her answer was $25 per month. Now, $300 per year seems like a sizeable amount to me (I pay $60 for unlimited activity) and I suggested that the alternative being suggested may indeed save her a few dollars.
So, why was she skeptical? There are two reasons in my opinion.
1. Baggage - The banks have focused so much of their efforts trying to upsell and cross sell products to their customers, that customers regularly question whose best interest is at heart. This will take a cultural change at the banks, and a lot of time, to overcome.
2. They still don't get it - How did this banker endeavor to convince my client that she would be better off with a different type of account? She handed my client a glossy brochure highlighting the advantages of the "senior's account". This is a not so subtle message to the customer to "figure it out yourself".
Rather than miss out on potential savings, I told my client to go back to the banker and ask for an illustration on how much she would save by switching - using her individual transaction history for the illustration. In my practice that's the approach I take when illustrating why one financial decision is preferable over another. Time consuming? Yes. A better result for clients? Definitely.
Great customer service is more than handing out a brochure. Insist that you get it.
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May 9, 2010 8:07 PM
Rona Birenbaum
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Clients sometimes ask which credit card I use when they are considering the myriad of options.
Ultimate this, infinite that, gold, silver, platinum.....an almost endless list of choices.
One of my life philosophies is simplicity, so the obvious choice for me is PC Financial Mastercard.
There is no annual fee and points on all purchases equate to 1% cash back.
I can redeem my points for a bunch of items from the PC Financial online store, but the best value is using the points to buy groceries at Loblaws. I shop at Loblaws or No Frils (a Loblaws division) weekly, so as soon as I rack up points I can redeem them. Just yesterday I got three large bags of king crab legs for the value of my points!
By being able to redeem for groceries I know that my points will never languish unutilized for months or years and I get real value once a month (everytime I pay my monthly Mastercard bill).
So, my card may not be fancy and may not impress anyone when I flash it, but when my family digs into crab legs with melted butter oohing and aahing, the reward is.........priceless. |
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May 3, 2010 7:19 PM
Rona Birenbaum
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Saving money is simple, but not always easy.
Saving Money Tip#1 - Cook your meals
If after reading that tip, you are still here, that is a good sign. For many, the idea of cooking most meals at home is simply too overwhelming to consider. Keep reading though, because the returns on this tip are more than just financial.
For working professionals and families, dining out is one of the largest variable expenses.
Dining out sounds fancy, but it includes family meals at Swiss Chalet, ordering in Pizza or Sushi, or having dinner out in a moderately priced local restaurant. And of course it includes those special occasion meals. It can add up to hundreds of dollars each month, thousands each year.
I started cooking for real six years ago at the age of 37. Before that my repetoire consisted of spaghetti, omelets, and the odd stir fry. I regularly heated up prepared, frozen food. Then I moved in with my (now husband) Clifford, two of his children and my daughter. Clifford is traditional. Only nutritional homemade food will do for the nightly family meal. Since he had committed to doing the laundry, yardwork, and general maintenance, I could hardly say no.
The solution? www.recipezaar.com and some planning and discipline. Each Friday night I make a meal plan and grocery list (usually built around the Loblaws flyer). I shop on Saturday and have the recipes set up for the week. If I am out on Friday night I do it on Saturday morning.
I must say, that as a working parent, most days when I get home from work I'm not overflowing with energy, but that's where the discipline part kicks in. And the sous chefs.....I get the kids (and sometimes Clifford) involved chopping, setting the table and cleaning up. We have fun chatting about the day, and doing some general horsing around. It's wonderful together time and they are learning important life skills.
Try it....your health, family dynamic and budget will all benefit.
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