2020 Financial Reboot – 5 Steps to Take Now

As we recover from the visiting, the parties, the gifts, the meals, the company and the general hustle and bustle of the Christmas Season, it’s a great time to review your money and give your self a financial reset. For many of us, December is a whirlwind of shopping, eating out, travel and commitments. It’s easy to lose track of your money or to over-indulge.  Here’s 5 Steps you can take NOW to reset your finances for 2020.

Review Your Spending for December

This is your chance to review your spending for the Christmas season. Open up all your accounts so you can see everything and add up how much December cost you above and beyond your regular month. This is especially helpful, so you know for next year too. You can look and see what you spent your money on. There’s so much we forget about.  Little stops here and there, that add up. Have a good look at WHERE you spent your money.

Analyse Your Numbers

After you’ve had a thorough look at everything, it’s time to do some basic math. Add up what you spent on different categories.  How much on eating out? How much on gifts? How much on groceries? This step is critical to make sure you have a clear picture of EXACTLY how much you spent or overspent at Christmas. Does one category stand out? Identify spending that is out of your norm.

Debt Help

If you’re carrying credit card debt, lines of credit or other form of consumer debt, this is a perfect time to review and re-negotiate. Call your credit cards company, or lending institution and ask them to present you with any current promotions? Rate reductions? Bonus programs? You’ll be surprised what you can be offered.  If you’re carrying several balances on high interest cards or lines, this is a good time to shop around and negotiate a consolidate load with lenders. By consolidating your debt, you can save your self thousands in interest costs as well as help repair/boost your credit rating.

Review Your Policies

This is a great time to review parts of your finances you don’t normally look at.  These include things like your car, home, life insurance costs.  Make sure your coverages haven’t changed, or ask yourself whether you need more coverage? Call your insurance provider and conduct a full review with their help.  While you’re at it, update your will, or if you don’t have one yet, time to get one done.

Planuary! January is the time to re-set your plan!

Once you’ve reviewed and analysed your financial picture, it’s time to do the same to your monthly spending plan. Revise your numbers with your fixed expenses (mortgage, hydro, insurance etc.) and your variable expenses (Clothes, gas, entertainment etc). Take into account any changes in income, increases or decrease in regular bills, or debt re-payment.  If you’d like a FREE template that does the calculations for your home spending plan, email me direct and I’ll send you a copy of one we use! joels@ndlc.ca

When it comes to mortgages, whether you’re buying a home, or refinancing an existing property, there are 3 main ratios you need to know about that can affect your ability to secure financing. The first two are related to the ratio of debt a person carries in relation to their income, and housing. The 3rd is the ratio of how much mortgage you’re asking for in relation to the value of the property.

1. GDS – Gross Debt Servicing.

This is the percentage of your gross income that go towards paying your mortgage and housing related costs. It’s calculated by factoring in what is known as PITH
Principal, Interest, Taxes, Heat.
Ideally, your GDS ratio should remain at or below 32%. If it’s higher than that, it may mean looking to a lender that accepts higher debt ratios. This could mean additional lending fees and a higher interest rate on your mortgage.

2. TDS – Total Debt Servicing.

This is the percentage of your gross income that go towards paying your mortgage and housing related costs as well as all other debts a person may be carrying. This could include credit cards, lines of credit, car loans or any other registered debt.
Ideally, your GDS ratio should remain at or below 44%. If it’s higher than that, it may mean looking to a lender that accepts higher debt ratios. This could mean additional lending fees and a higher interest rate on your mortgage.

3. LTV – Loan to Value.

This is amount of the loan you’re looking for as a percentage of what the property is worth. It’s used as a risk assessment by lenders before they approve your mortgage. If you’re looking for a loan with an LTV above 80% (ie. A $100,000 home and you’re looking for a 90,000 mortgage – that would be a 90% LTV ), mortgage insurance (CMHC/Genworth/Canada Guarantee) would be required at your expense to protect the lender. If you are asking for a mortgage with less than 80% LTV, the lender may also purchase mortgage insurance, but at their expense.

Summary:

When looking for a mortgage the 3 ratios that come to play are GDS/TDS/LTV. If you’re GDS/TDS are below 32% and 44% respectively you are viewed as a lower risk and open to better interest rates from lenders. Higher ratio’s can mean higher rates and often additional lender fees.

If your LTV is higher than 80% you will be required to pay an insurance premium to protect the lender.
Keeping your debt ratios in line, in addition to a healthy credit score, can save you thousands of dollars in mortgage interest and fees.

For more information please contact me anytime. 905-376-1625

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