Understanding How Home Equity Actually Works

If I have to listen to one more Canadian tell me that their home is, “The best investment I ever made,” I may lose my mi… well, let’s not be hyperbolic – I’ll probably just continue to internally shake my head at this statement.

Yes, in this age of ever-escalating Canadian home values the roof over your head has likely substantially increased in value since you bought it.  This does not make it a good investment for two reasons.

1) If you intend to continue living in the house you own for the foreseeable future your house is not an investment – it’s a shelter that you’ll need for the long-term.

2) Despite what your Realtor has told you there is very little chance our housing market will not realize a significant deflation at some point.  Even the experts calling for a soft landing claim 15-20% is reasonable.  If you look at our income-to-home price ratios across the country it becomes undeniable that this rise in home prices is based on a historical anomaly of sustained low interest rates and speculation on the fact home values will continue to increase.  The spread of rents vs home prices is another great indicator to look at.

Your Home Was a Great Purchase – NOT a Great Investment

How Home Equity Actually WorksIf you got into the housing market before it started going up – awesome!  You got a great product at a decent price and you can now enjoy the fruits of that purchase.  You can build equity in the form of mortgage payments and hope that the demand for your house continues to increase.  However, if you never intend to sell the house does it matter if demand increases or not?  If downsizing and moving isn’t a part of your retirement plan then what does it matter what other houses go for?Continue Reading

Book Review: 7 Habits of Highly Effective People by Stephen Covey

As you probably have all guessed by now, I am a big fan of non-fiction, personal development books, books analyzing why we do what we do, and investment and finance books.  I have always wanted to read this book but never had the opportunity to.  A new guy I am seeing lent me this book and I have been enjoying the read so far.  It wasn’t what I thought it would be.  When I thought of “habit” and what this book would be like, I thought that the book would be talking about how you should get 8 hours of sleep every night to function optimally.  Or that you would need to make lists every day to get things done.  Or that you need to exercise 30 minutes a day on most days of the week.  Or even that you need to have five to seven servings of fruits and vegetables a day in order to be highly effective.

When I started reading this book I was pleasantly surprised because it reads more like some of the books about Buddhism that I have been reading lately.

7 Habits of highly effective peopleThe premise that the author, Stephen Covey is trying to convey is that most people are reactionary when things happen to them.  A lot of people have this “oh poor me” or victim attitude and a “It Is What It Is” attitude where they are very complacent and feel that they cannot do anything with their circumstances.  This book teaches you the habits that you can learn in order to be effective in your professional and personal life, he talks about the importance of balance and acting through your personal principles.

Here are the 7 Habits:

1) Be Proactive

Basically Stephen Covey says that in life, we are given a stimulus.  It is our control to choose our response.  We can choose to be angry and wallow in self pity, to be complacent and to feel that we cannot do anything about our situation.  Or we can choose to change and try to improve our situation or to learn from it.Continue Reading

4 Reasons Why You Might Not Want to Pay Down Your Mortgage ASAP

Although most financial experts agree that you want to pay off your mortgage as soon as possible, there are some instances in which it makes sense not to pay off that mortgage debt as humanly possible.  Mortgage debt isn’t necessarily bad debt even though it is technically debt.  It really depends on the individual and how risky they tend to be with their investments and their mortgage.  Some people are comfortable with the unknown and others are more comfortable with certainty and are more ‘black and white’ and concrete thinkers.

Here are four reasons why you might not want to pay down your mortgage as soon as possible:

When the Interest Rates Are Low

4 Reasons Why You Might Not Want to Pay Down Your Mortgage ASAPWith the Bank of Canada continuing with the same interest rate for the fourth straight year in a row, it makes sense to not pay down the mortgage as quickly because you can make more money with your money through other means.  For example, investing.  Find an equity that pays dividends at 5% and you are already beating the interest rate that the bank charges you for your mortgage.

Afford Anything breaks it down (paying down the mortgage or investing in the market).  Peace of mind versus Opportunity cost. You decide.Continue Reading