BMO Releases 30 Tips for 30 Days During Financial Literacy Month

TORONTO, ONTARIO—(Marketwired - Oct 31, 2013) - To mark Financial Literacy Month in Canada, BMO Financial Group is releasing a financial tip for each day of the month during November. Part of ‘Making Money Make Sense’, BMO’s tips are designed to help individuals and families gain a better understanding of their finances, save money and manage day-to-day finances more effectively.

"We recognize the importance of promoting financial literacy across North America and applaud the efforts of the federal government," said L. Jacques Ménard, Chairman of BMO Nesbitt Burns and Financial Literacy Task Force Vice-Chair. "BMO strives to help our customers and Canadians gain the knowledge, skills and confidence to make responsible financial decisions at all stages of their lives, and we’re confident that Financial Literacy Month will have a positive, long-term impact on the overall financial knowledge and skills of Canadians."

BMO’s 30 Tips for 30 Days in November:
Tip #1: Understand your needs and look for an investment advisor who takes an interest in your specific life situation to help you meet your financial goals.

Tip #2: Open a Registered Retirement Savings Plan (RRSP) as early as possible and making regular contributions will ensure financial stability during retirement.

Tip #3: Investing in an RRSP is a great way to save for retirement in a tax-efficient manner. No tax is paid on investment growth in an RRSP so investments compound far more quickly than they would if invested outside of an RRSP.

Tip #4: Familiarize yourself with the wide range of investments that can be held in an RRSP, including bonds, equities, exchange traded funds (ETFs), guaranteed investment certificates (GICs) and mutual funds.

Tip #5: Spousal RRSPs can be an effective income-splitting strategy to help defer taxes right away and reduce overall taxes in retirement.

Tip #6: Invest in a Tax Free Savings Account (TFSA) to save thousands of dollars in taxes over the long term and to help you grow your savings faster.

Tip #7: Diversify your portfolio by including a mix of investments spread across several sectors to reduce volatility without lowering expected returns.

Tip #8: Consider preferred shares as an investment choice in today’s low interest rate environment. They are a hybrid of equities and bonds and offer guaranteed fixed dividends with stable share prices and predictable distributions.

Tip #9: Create a comprehensive household budget and revisit it often to help keep your overall finances in check.

Tip #10: Track your day-to-day spending habits and take advantage of rewards programs to make the most out of every dollar spent.

Tip #11: This holiday season, encourage friends and family to contribute to your child’s RESP to help pay for his or her education.

Tip #12: Donate securities to benefit from tax savings while supporting a cause that you believe in.

Tip #13: Ensure you are covered with travel medical insurance to avoid financial risk before going on vacation.

Tip #14: Use a combination of a credit card, debit card and cash for added security, convenience and flexibility when travelling to or shopping in the U.S.

Tip #15: Take advantage of credit cards that offer affordable emergency medical and travel insurance to save money and have peace of mind when you travel out-of-country.

Tip #16: Students should pay off credit card balances in full each month and take advantage of rewards and discounts associated with their student-specific credit card to save money.

Tip #17: When planning for a new home, housing costs - including mortgage payments, utilities and taxes - should not take up more than one-third of your total household income. If you can land safely within these parameters, then homeownership is an affordable and realistic option.

Tip #18: Under the federal government’s Home Buyer’s Plan, use your RRSP to help make a down payment on your first home.

Tip #19: Use the tax refund generated from your RRSP contribution to pay down your mortgage.

Tip #20: Before getting married, have an open dialogue about your current finances including your respective saving and spending habits. The “financial talk” will help with the transition from “my money” to “our money.”

Tip #21: Establish a realistic budget for your wedding day and identify ways to minimize costs.

Tip #22: Re-visit your financial situation and budget accordingly when “expecting” a new addition to the family.

Tip #23: Save for your child’s education by investing monthly Universal Child Care Benefit (UCCB) cheques in a Registered Education Savings Plan (RESP).

Tip #24: Create a payment schedule, which includes spaced-out payments and planned financial commitments, to manage day-to-day finances.

Tip #25: Use trusted online financial tools and resources to make smart financial decisions and set yourself up for financial success.

Tip #26: Pay yourself first and put 10 per cent of your income into a high-interest savings account to boost your savings potential.

Tip #27: Bring your lunch to work and put the dollars you save towards retirement.

Tip #28: Include an emergency fund in your financial plan to help ensure you are prepared for unforeseen expenses and to avoid incurring high interest debt.

Tip #29: Consolidate high-interest debt into a line of credit to save on interest costs and become debt-free sooner.

Tip #30: Small business owners should implement year-end tax strategies that will reduce costs and help save money.

Canadian House Hunters, Weigh Your Mortgage Options

Before we move into our new house this summer we have a really big decision to make. Do we go with a fixed or a variable rate? The answer to this question varies for everyone depending on their financial situation and tolerance for risk.

According to a popular study by Moshe Milevsky, choosing a variable rate has saved home owners money nearly 90 percent of the time. Sounds like an easy decision then, right? Not exactly.

This Time it’s Different
Interest rates are still at historic lows, with most experts predicting that rates will increase at least 1-2 percent over the next two years. Five-year fixed rates are currently under 4 percent, which is definitely an attractive rate to lock into and protect against the risk of future interest rate hikes.

But if the math favors choosing a variable rate mortgage over time, why are people so divided on this issue?

The vast majority of Canadians still choose the five-year fixed term. Proponents of fixed interest rates enjoy the peace of mind knowing that their payments won’t change and they also feel that we are in one of those rare situations where locking into a five-year term will save home owners money.

Since variable rates are always initially cheaper than five-year fixed mortgage rates, the decision ultimately comes down to saving money now vs. the potential of saving money in the future if interest rates go up.

What Options To Consider?
Let’s take a look at some real numbers to help make our decision. These are the current interest rate options for us, along with some pros and cons to consider:

Five-year variable interest rate = 2.20 percent (prime minus 0.80 percent) – As I mentioned, this is likely the smart choice since the variable rate has saved money nearly 90% of the time vs. a fixed rate. However, this time could very well be different, and if interest rates climb quickly back to historic levels this can become a losing proposition.
Five-year fixed interest rate = 3.89 percent – All things considered, a five-year fixed term under 4 percent is extremely low and would give us the peace of mind knowing that our payments wouldn’t increase even if interest rates soared. On the downside, by choosing this option we would be paying $260 more per month than if we went with the variable rate.
Three-year fixed interest rate = 3.54 percent – This option would give us the flexibility of not locking into a five-year term and also benefiting from a 0.35 percent discount over the five-year term. The monthly payments would still be $200 more than the payments on the variable rate.
1 year fixed interest rate = 2.64 percent – This option might be the best for us if we feel this is still a period of uncertainty. We would maintain our negotiating power after just one year and we also benefit from a 1.25 percent discount off the five-year fixed rate. But if interest rates were to rise quickly over the next 12 months we would still have to renew our mortgage at a higher rate when it came due.
As you can see, the five-year fixed rate has a built-in premium of 1.69 percent over the best variable interest rate. If the Bank of Canada decided to raise interest rates fairly quickly and aggressively over the next few years, the five-year fixed rate would likely be the better option.

Economic Factors at Work
The Bank of Canada meets eight times a year to make interest rate announcements and historically will move the rate by 25 or 50 basis points (0.25 or 0.50 percentage points) at a time. There is definitely the potential for interest rates to move between 2 – 3% in a single year.

The problem is, we are not very good at predicting where interest rates are headed. When it comes to monetary policy, there are a lot of moving parts to consider. It’s not as simple as just trying to contain inflation or trying to prevent a housing bubble.

Think of the soaring Canadian dollar. If interest rates were to rise sharply, the loonie would continue to climb vs. the American dollar, which puts increasing pressure on our manufacturing sector that relies heavily on exports.

Interest rates are indeed at historic lows but, with the outlook of the world economy still very uncertain, it is likely that the Bank of Canada will continue to move cautiously to avoid triggering another recession.

The Affordability Factor
Ultimately, whatever we decide to choose will carry some risk. Often the fixed vs. variable interest rate question is more about affordability than anything. Can your budget handle a 2 percent – 3 percent hike in interest rates? If not, then the fixed rate gives you that peace of mind to know that your payments won’t change for five years. If you can handle an increase in mortgage payments then you might find a great opportunity to save thousands of dollars in interest over the life of your mortgage by choosing the variable rate.

In our case, I think we are leaning toward the five-year variable rate, but with a twist. We will set our payments as if we were paying a 4.5 percent interest rate. This way we will be knocking years off of the overall amortization of our mortgage while saving thousands of dollars of interest. And we will still have the peace of mind knowing that we have built in a 2.3 percent cushion into our monthly payments in case interest rates rise.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.

Advice on Taking out A Home Mortgage Straight from the Experts

Have you ever wanted to buy a home, but you were afraid of a mortgage? Maybe you're worried about taxes and insurance escrow? Perhaps you don't know how to find the right mortgage company and what is a good interest rate? All these questions are going through your mind, and this article is going to help you with a few tips to get you moving in the right direction.

To make sure that you get the best rate on your mortgage, examine your credit rating report carefully. Lenders will make you an offer based on your credit score, so if there are any problems on your credit report, make sure to resolve them before you shop for a mortgage.

If you are considering quitting your job or accepting employment with a different company, delay the change until after the mortgage process has closed. Your mortgage loan has been approved based on the information originally submitted in your application. Any alteration can force a delay in closing or may even force your lender to overturn the decision to approve your loan.

Work with your bank to become pre-approved. Pre-approval helps give you an understanding of how much home you can really afford. It'll keep you from wasting time looking at houses that are simply outside of your range. It'll also protect you from overspending and putting yourself in a position where foreclosure could be in your future.

Quite a while before applying for your loan, look at your credit report. Securing a loan was not always as hard as it is now, so you need to make sure that you have a good credit rating and the least amount of debt possible to get the best home loan.

After reading this beneficial advice, you are on your way to getting a good mortgage. Utilize what you know, and start confidently searching for the mortgage that best fits your needs. When you have found the one, you will know. It feels good to have a good mortgage company on your side.

Visit Dominion Lending Centres Mortgage Village to consult a mortgage professional.