Young And Thrifty http://youngandthrifty.ca Saving Generation Y Mon, 20 Feb 2017 15:20:30 +0000 en hourly 1 https://wordpress.org/?v=4.7.2 February 2017 Net Worth Update: +$2200 (+0.5%) http://youngandthrifty.ca/february-2017-net-worth-update-2200-0-5/ http://youngandthrifty.ca/february-2017-net-worth-update-2200-0-5/#respond Mon, 20 Feb 2017 02:05:25 +0000 http://youngandthrifty.ca/?p=16720 One whole month into 2017 already!  How have your personal finance resolutions been going?  Nothing too exciting this month, markets are pretty flat.  Something else is exciting happening in my husband and I’s life and it will be a life and game changer! My personal finance goal for 2017 is to reach $475,000 by 2018, […]

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One whole month into 2017 already!  How have your personal finance resolutions been going?  Nothing too exciting this month, markets are pretty flat.  Something else is exciting happening in my husband and I’s life and it will be a life and game changer!

My personal finance goal for 2017 is to reach $475,000 by 2018, and I have about $20,300 left to go for the rest of the year.

I just redeemed $300 from my MBNA credit card and I think I’ll “put it towards” my flight/trip to Iceland, nice to start the year off by rewarding yourself a little bit!  I have over 100,000 Aeroplan points but never seem to be able to get the right dates and times for that free International flight, so they are just sitting there!  I like the flexibility of the MBNA World Points Mastercard because it can be a cash back card and hassle free.  I haven’t decided if I’m picking up/ applying for another credit card yet, as I usually do every year to supplement my MBNA card.

Okay, so here’s the breakdown for February 2017: $454,700 (+$2200)

ASSETS:

CASH: $63,200 (+2.4%)

  • Once I deplete the cash in my non-registered account (yes, there is more cash in there) I will start moving this cash into investing accounts.  It is nice to keep it here for an emergency fund anyway.
  • I added up my chequing and savings accounts (High Interest Savings Account). I automatically deduct money from my chequing account and have it siphoned to the HISA account (paying yourself first)

Non-Registered: $83,540 (+0.2%)

  • These are stocks that capture the “moment in time”, including unrealized gains or losses in my BMO Investorline and Questrade accounts.

RRSP: $67,000 (+0.0%)

TFSA: $68,610 (-0.1%)

HOME: $272,000

  • This is the approximate purchase value
  • Am planning to rent it out in two years or sell it.  I think am leaning more towards selling it.

CAR: $15,625 (0.0%)

  • I updated it for 2016-2017 with the Canadian Black Book price, will update it again in July 2017 with the depreciated price

LIABILITIES:

Credit Cards: -$1170

  • I just have my MBNA World Points World master card right now as I cancelled the other cards… I’ll be looking for more cards again with the goal of travel hacking my way to trips.
  • I use Mint.com account but I only added my credit card (this is helping a bunch so that I can keep track of my spending)
  • I’ve redeemed $300 for 2017 so far with my MBNA World Points World master card and it went towards my upcoming trip
  • I pay off my full amount every month (and folks, it’s VERY important you do so otherwise you’re losing out on a 19% return!) but include it in my net worth update so I have an accurate picture of my actual net worth. I sort of think “If I were to sell everything right now, what would my net worth be?” I guess I shouldn’t put it in the liabilities column since i pay it off regularly, BUT in mint.com it’s under the liability column so I’ll do the same.

Mortgage: $114,100 (-1.0%)

  • I pay an extra mortgage payment a month
  • I usually put $20,000 annually on top of the extra mortgage payment per month but haven’t decided what I’m going to do this year, I will probably not put in $20,000 so I have more liquidity
  • My intent is to rent it out in a little while (see above). In order to offset future rental income, I chose to acquire a mortgage instead of paying for the majority of the condo, and would rather not put all my eggs in one basket (e.g. real estate).

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Wealthsimple Review http://youngandthrifty.ca/wealthsimple-review/ http://youngandthrifty.ca/wealthsimple-review/#comments Mon, 13 Feb 2017 02:08:06 +0000 http://youngandthrifty.ca/?p=16777 Wealthsimple Review first appeared on Young And Thrifty

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“We’re on a mission to bring smarter financial services to everybody, regardless of age or net worth.”

– Michael Katchen, CEO

Let no one say that Wealthsimple’s goals were small ones!

Canada’s financial industry has been doing things a certain way for decades.  To sum up that gold tarnished brass standard:

  1. Convince Canadians that their money is only safe with you – not risky new guys.
  2. Tell Canadians that they need to save 10-20% for retirement – show them “The Graph” that illustrates how compound investment returns will make everyone a millionaire.
  3. Sound super confident while repeating a whole bunch of financial acronyms and worlds like “asset allocation”, “diversification”, and “5-star fund manager”.
  4. Never ever bother people with small details such as the price they are paying for your services, or even how that price is arrived at. Instead, continuously state that your services are “free”.
  5. Rinse and repeat as each you promise to fix all clients’ problems by “putting them into this new, better fund,” – which of course has a bonus commission attached to it at that time.

To recap, when Wealthsimple says that their mission is to bring smarter financial services to Canadians – and to do it for a price tag that is upfront and far below the traditional model – that’s no small feat.  Essentially, what Wealthsimple (and other companies like them) are doing is upending an entire industry business model that has working fabulously for many decades (just take a look at the dividend history of Canada’s major banks for proof).  These new “Fintech” companies that offer an exciting new middle ground between the old Canadian way to manage money and the DIY methods that personal finance geeks have been touting for a long time, are collectively known as robo advisors.

Wealthsimple definitely isn’t the only dog in the Canadian robo advisor yard – but they are the biggest by a significant margin.  (It’s worth noting that even Wealthsimple is a relatively small entity when compared to American robo advisors such as Betterment   Check out our Complete Guide to Canada’s robo advisors  if you want to read a bit more about why these new guys on the block are making such a big splash.  We cover:

  • Why they are super safe.
  • Why they don’t have anything to do with robots.
  • What they cost.
  • Why we think they’re awesome.

Limited Time Offer to Try Wealthsimple

If you’d like to try Wealthsimple for free after reading this review, Canada’s largest robo advisor has extended an exclusive offer to Young and Thrifty readers:

Wealthsimple will let you manage $20,000 for free if decide to open an account with them by clicking here.

A Little About Canada’s Market Leader

The good folks behind the curtain at Wealthsimple describe what they do as:

We provide world-class, long-term investment management without the high fees and account minimums associated with traditional investment managers. We invest your money in a globally diversified portfolio of low-cost index funds modeled after the same Nobel Prize-winning research used by the world’s savviest investors.

 

Our cutting-edge technology helps you earn the best possible return on your money, while also lowering your tax bill. This means we do things like automatic rebalancing, dividend reinvesting, and tax loss harvesting—services that most people couldn’t afford until now or found too time-consuming and tedious to do on their own.

Our financial advisers are always available when you need them. They can help plan your financial milestones and answer questions you might have about potential risks or what sort of investment accounts you should have.

Like their competitors, Wealthsimple wants to help you invest your money using the principles of index investment and asset allocation that have long been labelled as “couch potato” strategies.  In a nut-shell, what they’re going to do is “sit down” with you (through an email, online conversation, or on the phone) and discuss what route they think is best for you considering your savings goals and investment risk tolerance.  Then they’re going to explain how after you put your money into your RRSP, TFSA, or other account, it will automatically get split up in the buckets that you agreed upon in your initial conversation.

Wealthsimple’s advisors can answer almost any question that you might have (they might not be able to answer super complex corporate tax shelter stuff off the top of their head) and their customer service in regards to opening and using their platform has been widely reported as excellent.

They’re going to do all that for you – for as cheap as possible!  They are able to cut significant costs by relying on email, Facetime/Skype, and phone calls, as opposed to having an expensive brick and mortar location to maintain.  More on costs later in the show…

The People Behind the Website

If you’re like most Canadians and terrified of putting your savings and investments in any sentence that also has “new” in it, then you should be reassured that the folks behind the computers at Wealthsimple are long-time professionals in the wealth management industry.

First and foremost, you should know that Power Financial Corp. (one of Canada’s oldest and largest financial institutions with $780 billion+ in assets around the world) believes strongly enough in this type of wealth management to buy into the company for $50 million!

Their impressive Board of Directors reads as follows:

Paul Desmarais

Paul Desmarais

Chairman of Wealthsimple, VP of Power Financial

Som Seif

Som Seif

Founder and CEO of Purpose Investments

Bertrand Badre

Bertrand Badre

Former CFO of the World Bank

Jeff Carney

Jeff Carney

CEO of IGM Financial

Michael Katchen

Michael Katchen

CEO of Wealthsimple

Needless to say, there are brains behind the aesthetic beauty that strikes you when you open their website!

How Wealthsimple Works

You can read in more detail exactly what robo advisors do by checking out our all-encompassing article on them.  They are more similar than not in how they approach taking a piece of your paycheque and investing it in a wide variety of diverse assets.

Wealthsimple likes to highlight fact that they didn’t create this approach, but instead based it on the Nobel Prize-winning work in Modern Portfolio Theory done by Harry Markowitz.  If you’ve read any of our articles on index investing with ETFs or any of Dan Bortolotti’s musings on the Couch Potato Portfolio, then you’re familiar with the basic ideas behind the way Wealthsimple will manage your money.

As a 100% devotee of index investing, a warm glow settled over me when I read the following on Wealthsimple’s webage: Expected returns are impossible to predict and out of your (and our) control. We prefer to focus on things we can control: fees, diversification and emotions. The stock market will take care of returns over the long term. The key is to stay disciplined and stick to your strategy in order to build wealth. You can read more about our investment strategy here.

There is absolutely full transparency at all time when it comes to your investments.  Wealthsimple will show you your returns in a variety of formats.

Finally, like most of the their robo brethren, Wealthsimple is CIPF-insured up to $1 million.

What Makes This One Different?

Many of Canada’s robo advisors share broad features, but Wealthsimple is unique in that they:

  • Are the largest robo advisor in Canada.
  • Have a $0 Account Minimum.
  • Have the only mobile app in Canada that allows you to sign up for an investment account.
  • Own their own broker (they purchased ShareOwner last year).
  • Can invest in fractional shares (smaller account balances).
  • Automatically reinvest dividend income from your investments back into the ETFs that have fallen below the portfolio target that you initially set.
  • Are incredibly easy to use.
  • Have design aesthetics that are off the charts.
  • Are partnered with the Mint App.
  • Pay the transfer fees that your bank will charge to switch over.
  • Statements that offer a fully-interactive breakdown of your deposits, buys/sells, capital gains, and dividends, as well as your current balances.

Finally, Wealthsimple is one of only a few robo advisors that have embraced Socially Responsible Investing (SRI).  I have to admit that this is not a major concern for me, but I understand that for a lot of folks my age this is a primary consideration.  Your Friendly Fintech Front-runner describes SRI as:

“Investing in companies that meet a certain threshold of social responsibility. SRI takes into consideration environmental impact as well as social and governance concerns. SRI has become an incredibly popular way to invest, growing tenfold over the past 20 years—there are now $22 trillion in assets worldwide in SRI funds. In Canada alone, SRI accounts for 30% of all financial assets.”

Wealthsimple SRI portfolio includes the following ETFs:

ETF Symbol Description
iShares MSCI ACWI Low Carbon Target ETF CRBN Global stocks with a lower carbon exposure than the broader market
iShares Jantzi Social Index ETF  XEN Canadian stocks, excluding companies with a poor social responsibility record based on broad ESG criteria
Vident International Equity Fund  VIDI Developed and emerging economies with sustainable growth, based on criteria such as human rights and low corruption
PowerShares Cleantech Portfolio  PZD Cleantech innovators in the developed world
BMO Mid Federal Bond Index ETF  ZFM Fixed-income exposure via Canadian government bonds, in order to optimize for risk

It’s worth noting that people that are much more involved with SRI than I am have stated there are many different standards of “socially responsible”, and that these ETFs do include some companies that individuals might object to.  You may want to do a bit more research if this is important to you.

You should also realize there is a relatively small price premium (.2% MER or so) to investing this way since the ETFs that are being used are a little more niche-oriented than your basic bread-and-butter index ETFs.

How Much Does It Cost?

Wealthsimple has recently re-structured their fees and now have two basic levels in terms of costs and features.

1) For Wealthsimple Basic accounts of up to $100,000, there is a .5% fee that includes any trading, account fees, rebalancing costs, or transfer fees.  Everything already mentioned in this article is included at that price point.

2)  An account reaches newly-launched Wealthsimple Black status when it hits the $100,000 mark.  Once you hit $100K, in addition to the Wealthsimple Basic benefits you get:

  • .4% MER fees
  • Automatic Tax-loss Harvesting
  • Full-service Financial Planning
  • VIP airline lounge access – Enjoy Global access to more than $1,000 airline lounges in over 400 cities.

Have to say, some pretty cool new perks with this latest update!

Types of Accounts Available

As a leader in the robo advisor space, Wealthsimple offers the full monty of accounts including:

  • RRSP
  • TFSA
  • Personal
  • RRIF
  • Joint
  • LIRA
  • Corporate

Once you choose your account and have taken your risk tolerance quiz, your investment funds will be split between many asset classes including Canadian equities, international equities, real estate, and various types of bonds.

How Does Wealthsimple look?

WealthSimple Review

wealthsimple dashboard

Wealthsimple Dashboard

The Wealthsimple dashboard is obvisouly easy on the eyes and lets you know at a glance:

 

  • What your expected returns are at various ages.
  • Your savings on fees versus traditional Canadian options
  • How many free trades you’ve saved on
  • Total portfolio performance
Wealthsimple Activity Report

Activity Report

The activity report gives you a more in-depth look at your deposits, investments, dividends, fees, and withdrawals. Each item can be toggled on or off to show you exactly what has went on in your account since you last checked.  Some people may choose to never look at this screen, but it’s comforting to know that it’s there for transparency purposes.

Wealthsimple funding page

Wealthsimple Funding Page

You can see from this screenshot how easy it is to keep track of your automated investing (your best option for building wealth according to most studies) and/or do a one-off shot of cash.

Open Your TFSA or RRSP Today and Get $20,000 Managed for Free

Because our readers are right in the sweet spot of potential Wealthsimple customers they have decided to extend a special offer to our readers.  If you click here and open an account, Wealthsimple will pay any fees associated with moving your investment accounts over to them, and manage up to $20,000 for free for two full years.  It will literally cost you nothing to try this fresh new approach to investing in Canada.

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How to Use the Home Buyers Plan http://youngandthrifty.ca/how-to-use-the-home-buyers-plan/ http://youngandthrifty.ca/how-to-use-the-home-buyers-plan/#comments Mon, 06 Feb 2017 02:43:36 +0000 http://youngandthrifty.ca/?p=2860 How to Use the Home Buyers Plan first appeared on Young And Thrifty

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The Canadian Home Buyers Plan is a way to borrow from your RRSP in order to come up with a down payment for your first home.  Having bought my first home recently, I found the home buyers plan information on the Canada Revenue Agency website a bit difficult to understand (must be all that government lingo), so I thought I would simplify it in easy to understand terms and spell it out step by step on how take advantage of the HBP.

How to Use the Home Buyers Plan

In case you aren’t familiar with the HBP, let’s start with the fact that it allows a first-time home buyer to $25,000 from your RRSP tax-free.  If you are a political junkie you may remember that there were promises of a $35,000 limit during the 2015 Federal Election, but that won’t be happening any time soon.  If you or your significant other have owned a home before you cannot access this plan.  If neither you, nor the significant other you are purchasing a home with (if this is the case) have ever owned a home, each of you can withdraw $25,000 from your respective RRSPs in order to come up with a down payment.

The semi-catch is that you have to pay back that $25,000 over the next 15 years – it’s not “free money” or anything crazy like that.

Best Mortgage Rates Canada

Why Bother With the Home Buyers Plan (HBP)?

The reason a person might choose to save for a housing down payment within their RRSP rather than in a basic chequing account or TFSA is that the tax-free savings ability allows you to save up for a home much quicker.  The idea is that when you contribute to your RRSP the government will give you a tax refund.  The size of that cheque from the CRA depends on the amount you contributed and what your marginal tax rate was (i.e. how much income did you have last year).  For more information on the specifics of the RRSP click here.  If you take this cheque and deposit it back into your RRSP, you can supercharge your saving.  This would allow your savings to grow much quicker, than if you did things the traditional way, by getting your paycheque from your job (with the income tax taken off – no tax refund in this case) and then putting it in the bank.

If you’re looking for more information on buying a home for the first time, we recommend checking out our completely free eBook: Getting Your Foot in the Door

Eligibility Conditions for the HBP

  • You have to be a first-time home buyer (or you buying a home for someone who is disabled).
  • You must enter into a written agreement to buy a home or build a home (offer of purchase).  Getting a preapproval from the bank doesn’t cut it.
  • You have to be a Canadian resident (not necessarily a citizen – and citizens don’t automatically qualify).
  • You plan to use the home as a principal residence (not for rental income).
  • This is the big one:  you cannot own the home for more than 30 days before the withdrawal takes place.  (So as you can see, it’s a bit time sensitive!)
  • You have to build or buy the home before October 1 on the year or after the year of withdrawal.
  • You have to have money in your RRSP (duh) and it must be in your RRSP for at least 90 days before you take it out.

How to Take Money From Your RRSP for the HBP

For each withdrawal from each RRSP account (if you have more than one like I do), you will need to complete a T1036 form and answer their questions.  You then bring that to the RRSP issuer (i.e. your bank, credit union, discount brokerage, etc.) and they will help you take the money out so that it’s not subject to the RRSP withholding tax.

Starting the year following your withdrawal, the minimum you will have to repay back to the government is 1/15 of the amount that you took out from your RRSP in the first place.  Here’s an example:

Let’s say you took out $25,000 for a down payment for your condo in 2016.  In 2017  you will have to let the government know that you have re-deposited 1/15th of the money back into your RRSP account, otherwise that 1/15th will be included as income for your 2017 taxes.  The idea is that it would be equivalent to taking money out of your RRSP for any other reason, so it is fully taxable at that point.  If at all possible you want to avoid this.  As a rule of thumb, I recommend getting that money paid back to your RRSP as quickly as possible so that it can gain compounding returns for you going forward, and so that you don’t have to worry about the logistical paperwork any longer.  The 1/15th amount in our hypothetical case is $1,667.

In order for you to let the CRA know that you have been good and made repayments back into your RRSP, you will have to fill out another form for the CRA (Schedule 7).  Unfortunately, these repayments are NOT tax deductible because you already got your tax refund cheque back when you were saving for the down payment.

IMPORTANT REMINDER:

Remember that you cannot withdraw from your RRSP any contributions that you have made within 90 days of the withdrawal or else you will get DINGED. This happened to a friend of mine, and she was not a happy camper.

Also, some investments that you can put into an RRSP such as certain types of mutual funds don’t allow you to take money out for a period of time.  Don’t let your adviser talk you into this sort of product!  In fact, ditch the adviser all together, read through this site, and then invest your housing down payment money in something really safe such as a high-interest savings account that will be there waiting for you in a couple years when you’re ready to buy your home.  Here are some great Canadian online banking options that will give you a solid interest rate.

PROS of Using the Home Buyers Plan

  • It’s money that has been tax sheltered and you can take advantage of the growth in your RRSP.
  • You don’t have to start paying it back until about a year-and-a-half after you buy your home
  • If you plan on going back to school, or if your net income somehow gets lower in any calendar year (e.g. you started up a business and have tons of deductions), you don’t have to pay the 1/15 owed back and instead, can just leave it as income for that year.  You will have low(er) income that year anyway, so you don’t have to worry about paying too much tax (if any) on that income.
  • There is no maximum pay back.  You could pay back the full $25,000 that you took out if you wanted to at any point.
  • It’s an interest-free loan to yourself over a 15-year period basically.

CONS of Using the Home Buyers Plan

  • It’s more debt… debt to your own RRSP (interest free).
  • Lost opportunity cost of compounding investments over the next 15 years (unless you pay it back right away).
  • If you have lost more than your marginal rate in your RRSP portfolio (e.g. you got $3,200 back from the government for your RRSP contribution, but your portfolio is down $5000 from the market), then you are essentially selling for a loss of $1800 and not really gaining any benefit from tapping into your RRSP.  You don’t have to worry about any of this if you keep your investments simple with basic high-interest savings accounts or GICs.
  • There’s a small window of opportunity to take advantage of it (namely within 30 days after possession date).

Home Buyers Plan

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Variable vs Fixed / Open vs Closed Mortgages http://youngandthrifty.ca/variable-and-fixed-open-and-closed-mortgages/ http://youngandthrifty.ca/variable-and-fixed-open-and-closed-mortgages/#comments Mon, 30 Jan 2017 02:43:34 +0000 http://youngandthrifty.ca/?p=1517 Variable vs Fixed / Open vs Closed Mortgages first appeared on Young And Thrifty

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Buying a house and getting a mortgage can be a stressful experience – especially if you’re going through it for the first time.  With terms such as variable, fixed, closed, open, prime interest rates and many more, it can be easy to get intimidated.  Because of all this new information zipping past you it’s unfortunately very common to misunderstand important details when it comes to what is often the most important purchase of our lives.

If you’re new to the process or just need a quick refresher on any aspect of the house purchasing process in Canada, check out our comprehensive FREE eBook: Getting Your Foot In The Door.

variable vs fixed

Since I’ve been looking to get a pre-approved mortgage for a while now after amassing a down payment (check out the free ebook if you want to know more about how I saved for a down payment) I’ve been researching and meeting with a variety of mortgage brokers and bank specialists.  I wanted to share some of what I learned with you all, so that you can sound like you’ve been doing some research when you meet with your mortgage people.  Here are some basics when it comes to variable vs fixed and open vs closed mortgages.

What is a Variable or Floating Mortgage?

A variable rate mortgage (VRM) – sometimes called a floating rate mortgage – is a mortgage where the interest rate that you are paying can go up or down during your mortgage term.  The variable rate is related to the prime interest rate.  The term “prime interest rate” refers to the interest rate that a bank extends to their most trusted customers.  This preferential rate is based on the Bank of Canada’s overnight rate or key interest rate – which is the rate at which banks get money from the Bank of Canada.  All of this means that if you choose a variable mortgage, your payment will go up or down depending on what the Bank of Canada does and how your bank (or other lender) reacts with their prime interest rate.  While some people think they know what the BoC is going to do when it comes to interest rates, the truth is that no one knows what interest rates will do over the long term.

You will often see banks advertise their variable interest rates as “prime minus .2%” or something similar, which means that you will get .2% off of the floating prime interest rate – which could go up or down (or stay the same – the most common occurrence lately) throughout the length of your mortgage term.

Best Mortgage Rates Canada

Historically, choosing a series of variable rate mortgage terms over the course of your overall mortgage will save you more money versus choosing fixed rate terms each time your mortgage comes up for renewal.  Yet Canadians still tend to drift towards fixed interest rates because of the predictability and safety factors.

What is a Fixed Rate Mortgage?

Fixed rate mortgages are a little easier to understand and have remained a favourite amongst Canadians for years.  The basic idea is that you sign on for your mortgage term of X years at a specific rate, and during that time the bank can’t change your interest rate regardless of what the Bank of Canada or the prime interest rate does.

In return for this simplicity and security, banks and other lenders will demand a premium.  Consequently, expect to pay a little bit higher interest rate if you choose this option (banks have to protect themselves against possible interest rate rises after all).  This is ultimately why sticking with a variable rate has proven to almost always be cheaper over the long term, even though they do entail some risk of rising interest rates in the short term.

There is a third option when it comes to mortgage interest rates called a hybrid mortgage.  This is essentially when a mortgage agreement has a certain portion of the amount borrowed as a fixed rate, and the rest as a variable rate.  This option is rarely chosen by Canadians, but can offer an interesting middle-ground when it comes to risk and reward.

What is a Closed Mortgage?

When it comes to your mortgage, the terms closed vs mixed essentially refer to the ability to pay off all of the remaining money that you owe on a mortgage loan and be done with the loan instantly at any point in time.  Most Canadians prefer the simplicity of a basic closed mortgage with fixed interest payments. They are easy to understand and there are no surprises; however, closed mortgages cannot be fully paid before the end of their term. Most lenders allow limited pre-payment privileges (i.e., extra payments over and above your normal mortgage payment). These privileges allow you to pay a certain percentage of the original mortgage amount with no penalty, but full payoff requires that you pay a penalty – unless you wait for your maturity date.

Related: How To Port A Mortgage

The vast majority of Canadians don’t have the means to pay their mortgage off all at once or at an extremely accelerated rate; therefore, most aren’t worried about the fact that they are “locked in” for the length of their term. In exchange for sacrificing some flexibility with a closed mortgage, lenders will usually reward you with a significantly lower interest rate compared to an open mortgage. Typically, the majority of rates you see displayed on rate comparison sites or bank advertisements are for closed mortgages.

open vs closed

What are Open Mortgages?

An open mortgage is appropriate for people who want flexibility built into their mortgage. You can typically pay off an open mortgage at any time without penalty or convert it to a closed mortgage. Some people like this flexibility if they expect to sell their home relatively soon, or come into a large sum of money, which they can use to pay off their entire mortgage.

For more information on fixed vs variable rates, closed vs open rates, and other mortgage stuff like down payments, mortgage contract details, the Home Buyer’s Plan, and much more, download our FREE eBook: Getting Your Foot In The Door: The Ultimate Guide to Buying a Home in Canada.

open vs fixed

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International Money Transfer = Secret Code for More Money In Your Pocket http://youngandthrifty.ca/international-money-transfer-secret-code-money-pocket/ http://youngandthrifty.ca/international-money-transfer-secret-code-money-pocket/#comments Wed, 25 Jan 2017 14:39:44 +0000 http://youngandthrifty.ca/?p=16609 I’d often heard about international money transfers, or international currency exchange companies but always figured they were a complicated process and only worth dealing with if you were a large corporation. After all, it’s common knowledge that if you need a different currency, you just go to a bank right? Before you take that spring […]

International Money Transfer = Secret Code for More Money In Your Pocket first appeared on Young And Thrifty

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I’d often heard about international money transfers, or international currency exchange companies but always figured they were a complicated process and only worth dealing with if you were a large corporation.

After all, it’s common knowledge that if you need a different currency, you just go to a bank right? Before you take that spring break trip to Florida or family holiday to Mexico, you go to your friendly neighborhood cashier and ask to buy some American greenbacks or a fistful of pesos. Sure, you know the bank will take a small slice for their time and effort, but it’s what everybody does – so common sense dictates there isn’t option that’s much better. When you had that semester abroad and realized that pints of beer cost more than you thought, you got your parents to “wire money” and didn’t think much beyond the fact that you were now back in the game right? Turns out you could have stayed for an extra round if only you known about international currency conversion services.

I often convert currency without even thinking about. I might order something from the USA and put it on my credit card or perhaps I use my Paypal account to receive or give a payment. I vaguely remember reading about currency conversion fees, but didn’t take them all that seriously until I recently read that I was likely paying 2-2.5% more than I had to every time I changed money from one currency to another. That might not sound like much – but it can really add up! Obviously the more money that you are transferring the more true this is. For example, if you did a large freelance gig for an American company and were transferring $15,000 USD back into Canadian Dollars using an average Canadian bank, you would have just sacrificed roughly $375 because you didn’t see if there was a more efficient way available.

When I was recently talking to a friend about these services he mentioned that he had received a substantial (substantial to us small fries anyway) inheritance from his American grandfather who had passed away few years prior. He hadn’t ever heard about companies that would transfer money from one currency to another – he just figured that that was the Banks’ job. While he has left some of the money in a USD account (mitigating the loss of even more cash), he had paid a rate “somewhere around 3%” to convert his cash back to Canadian Dollars.

So How Much Can I Save?

International Money Transfer There are a few different ways these foreign exchange companies can save you money:

1. Two percent right off the top when you exchange money. That’s the difference in the “spread” between what a Canadian bank will usually charge to exchange Canadian Dollars to US Dollars or vice versa – versus the pick of the litter I could find with a quick Google search. This rises to nearly a 3% difference when you use Paypal or if you are exchanging more “exotic” currencies.

2. Banks LOVE fees. As a guy who collects dividends from bank stocks, I have a love-hate relationship with fees. I love collecting them, hate paying them! Canadian banks will charge $20-$50 every time you transfer money abroad. Most currency exchange companies don’t charge any fees, but some do charge $10 for smaller currency transactions.

3. If your time = money, then you can chalk up another win for the currency exchangers vs the banks. Because large banks are set up to provide a smorgasbord of financial services it is often either not possible to transfer money via their website or through an app. International currency exchangers are built for one purpose: to make converting money cheaper and easier. Consequently their apps and websites are streamlined for maximum ease of use, and their customer service are experts in this one specific area (as opposed to the generalists you’ll find on the other end of a bank’s helpline). This online option is particularly easy to use if you’re transferring less than $20,000.

4. If you’re transferring money to a friend, you can do them a solid by using a money transfer service. Many banks will charge up to 1% of the transaction, plus other fees to the recipient of the wired money. If you do a few minutes of research, you can find a company that will eliminate nearly all of this charge.

Who Are These Guys and How is This Possible?

I was initially pretty skeptical about this whole thing and wondered what the catch was when it comes to these currency exchange companies. No one just does something out of the goodness of their heart right?

The basic premise is that – as in many other areas of personal finance – banks and credit card companies take severe advantage of our lack of education to get us to pay a lot more for a service than it is worth. The result is a nice juicy profit margin.

International monetary converters simply take a much smaller slice of the delicious pie you’re trying to send from Canada to the USA or Europe. As I previously mentioned, their entire business model is built around this one service, and many of the online conversion services have very little brick-and-mortar costs. They can then pass these cost savings on to customers such as yourself.

It is true that by trading a large amount of one currency for another, you can use these companies to negotiate an even better deal than those of us who might just be exchanging a few hundred or a couple thousand dollars. However, even with relatively small amounts of money, this discount from the bank’s rate is possible because international currency conversion companies will simply combine your “order” with those of others to make the necessary economies of scale work for everyone. By holding accounts in all countries, several middlemen can be lumped together, and maximum savings reached.

Is Signing Up For These Services a Time-Consuming PITA?

While registering with a foreign currency exchange company can be slightly more time consuming that walking into your local neighbourhood bank, the good news is that you don’t have to get out off of your couch to do it.

The basic process consists of:

1) Signing up through an app or online and entering in your basic details.

2) Requesting a currency quote from one or more (you can actually get these guys to compete for your business if you are transferring more than $5K – like my buddy with the inheritance would have) of the exchange services. You can choose to do this via phone, email, or the app.

3) If you consent to a quote that you’ve received, then this rate is “locked in” and you can complete the transaction any time in the next couple of days.

4) The deal is completed once you fund the account via a domestic wire transfer (usually free from your financial institution) or using a debit card (for smaller transfers).

Which Company Do I Choose?

I’m definitely not an expert on the finer points of currency conversion companies and how they compare – however “I got a guy that does that”.

MoneyTransferComparison.com is not just a basic widget that spits out currency conversion rates at you. If you take a look through their site you will see detailed reviews on the world’s leading currency converting companies. These in-depth reviews obviously highlight the ever-changing rates that are available, but they also compare any applicable fees, ease of use in an online or app setting, customer service, and overall reputation. My personal favorite feature of MTC, as a skeptical personal finance geek who is instantly suspicious of the international financial world, is the tracking of which regulators are responsible for each of the companies. This gave me some idea as to just how much an individual like myself (who doesn’t know much about international finance) could trust the company behind the service. The writers behind MTC have personally visited each of their top recommendations so that they have the highest levels of confidence in who they give the top spots to.

Never walk into a bank cluelessly to exchange Canadian Dollar for a foreign currency again! Instead, take a few minutes to check out your currency conversion options at MoneyTransferComparison, and keep more Euros, Yen, Rand, and Francs in your pocket.  Instead of paying for a banker’s new yacht, buy another round of the local lager or a bottle of an exotic foreign wine vintage.

International Money Transfer = Secret Code for More Money In Your Pocket first appeared on Young And Thrifty

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