Category Archives: Financing

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3 tips for creating more space—no renovations required

At some point, we all find ourselves with a shortage of storage space, even when our homes aren’t crammed with furniture and decor. Before taking on huge renovations, why not first recreate your living space?

  1. Create illusion

There’s nothing like a strategically placed mirror to make a room look bigger. Don’t go too heavy on the decor; remove something you already have and replace it with the mirror. If you don’t have a mirror, visit flea markets or garage sales to snag a bargain.

Choosing a light colour for the walls and ceiling will help make the room feel larger while increasing light. Opening up the windows and letting light in also helps. Continue reading

Heating and lighting: Can you bring down the cost?

In Canada, winter is synonymous with snowy landscapes, cold-weather sports… And soaring electricity bills. What if you could make changes to your house, or plan the construction of your next home to reduce the amount of energy you consume? From little fixes to major work, here’s how you can make your house more eco-friendly, increase your comfort level and save on heating and lighting.

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Adopt eco-friendly habits

“If you want to reduce your energy bill, your priorities should be ensuring that the house is well insulated and replacing energy-sucking appliances,” explains Martin Lambert, Founding President of Ecosolaris. “It always costs less to invest in conserving energy rather than producing it.” Guilty parties include incandescent light bulbs, which could be replaced by LED lighting, and old appliances that you’d be better to replace with Energy Star-certified appliances. Products that carry this certification are required to meet strict technical specifications related to energy efficiency and are tested extensively before being certified.

“Control systems can also be a good way to save,” adds Brian Wilkinson, President of Energie Matrix Inc. “A smart thermostat that can be controlled remotely could save you up to 20% of your electricity bill.” Continue reading

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3 things to consider before renewing your mortgage

Everyone wants to get the best mortgage financing offer. Does that mean getting the lowest rate, the longest term or the smallest payment? The best strategy for one person isn’t necessarily right for another.

Mortgage renewal is the perfect time to reorganize your finances based on your life goals. Your plan will be different, depending on whether you want to pay the lowest interest possible, reduce your monthly payment, save for a special project or optimize your debt repayment.

Here are 3 things to consider before settling on a mortgage agreement that’s right for you.

  1. Your financial commitments 

To find out how much flexibility you have with your budget, calculate the monthly payments for your:

  • Vehicle
  • Credit cards and lines of credit (monthly minimums)
  • Personal loans (e.g., student loan)
  • Other payments, like child support

Note: no more than 40% of your gross household income should go to all of your financial commitments, including your mortgage payment and other home-related expenses (e.g., property taxes, school taxes, energy costs).

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Fixed vs. variable-rate mortgages: Which is right for you?

Buying a home is likely the biggest purchase you’ll ever make.

But before you can pack up and move in, you’ll need to secure a mortgage. This is often a long-term commitment. The average Canadian expects to pay off their mortgage by age 591, so it’s important to do your research and choose the option that’s best suited to you.

Basically, when it comes to the mortgage interest rate you’ll pay, you have.

Fixed-rate mortgages are predictable.

With a fixed-rate mortgage, the mortgage rate and payment you make each month (or whichever frequency you choose to pay) will stay constant for the term of your mortgage.

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BMO

This means you’ll know exactly how much principal (the initial amount borrowed) and interest (the amount paid on the amount you borrowed) you’ll be paying on each scheduled mortgage payment throughout the term you select.

The downside? You won’t be able to tap into a lower interest rate — ensuring more of your payments go towards the principal and less to interest — if interest rates drop during the term of your mortgage.

What a fixed-rate mortgage offers:

  • Your “set it and forget it” choice
  • Doesn’t change if the bank’s prime lending rate goes up or down
  • Eases budgeting anxiety and increases predictability

The drawbacks:

  • You may pay a premium for the stability
  • You may miss out on potential interest rate drops

Tip: Interest rates vary widely depending on the term you choose. For example, the interest rate on a 10-year fixed-rate mortgage could be almost twice as much as the interest rate on a typical 3-year fixed rate mortgage.

Variable-rate mortgages will fluctuate.

With a variable-rate mortgage, the mortgage rate will change with the bank’s prime lending rate. In this case, your scheduled payments will remain the same, but the amount paid towards your principal will vary.

Cautious buyers often choose a fixed mortgage because it means they can budget for the length of their mortgage term without any surprises. Variable rates are more unpredictable, but could work to your advantage if you can handle a bit of risk and uncertainty.

What a variable-rate mortgage offers:

  • Your “let’s see what happens” choice
  • Costs will be less if interest rates drop
  • Offers the possibility to lock in a better rate down the road

The drawbacks:

  • Works against you if interest rates rise
  • May increase your financial uncertainty 05

Tip: If you’re the type of person that always buys the extended warranty, then a variable rate mortgage is probably not for you.

What’s more common in Canada?

Fixed-rate mortgages are more popular, but there has been a slight movement towards variable-rate mortgages in 2016. The accompanying chart, from the BMO Psychology of Home-Buying Report, gives you a sense of change over time.

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BMO

Note: The percentage for variable rate mortgages in 2016 is a bit higher in more expensive markets. For example, 29 per cent of Toronto homeowners and 37 per cent of Vancouver homeowners say they’ve chosen a variable-rate mortgage.
How to choose what’s right for you

How do you feel about risk? A fixed-rate mortgage means the lender takes the risk; a variable-rate mortgage means you do. While the interest rate may be higher on a fixed-rate mortgage, it will stay constant during your term so you can budget accordingly.

How do you feel about the current market? The difference between fixed and variable rates has narrowed considerably in the last few years, making fixed-rate mortgages more appealing. Interest rates have been at historical lows, and while opinions vary, few believe interest rates won’t rise over time — the question is more likely when.

Tip: It’s really difficult to successfully time interest rates. Going variable to save money in the short run — hoping to lock in a fixed rate “at the right time” — is really tough to do.

And what if interest rates rise? No matter which route you take, it’s crucial that you evaluate the impact of an increasing interest rate on your mortgage costs — a stress test, if you will. For example, if interest rates go up by two per cent, would you still be able to afford your monthly payment? It’s important to plan for the unexpected — you can start by building an emergency fund.

According to our research1, not everyone prepares for a rise in interest rates. In fact, the main reason home-buyers offer for not considering a rise in interest rates is that they simply didn’t think of it (45 per cent) or didn’t realize it was something they should be doing (27 per cent). You can do better by preparing for multiple scenarios.

The next step
BMO mortgage specialists are here to work with you to help you make the right decision based on your needs and your lifestyle.

1The BMO Psychology of Home Buying, March 2016