Author Archives: George Boelcke

Some Mortgage Deferral Details:

Two weeks ago, we talked about a PR release from the six big banks that they’ll help you with up to six months of mortgage payment deferrals. Reaching your bank may be a challenge as Scotiabank alone has been receiving around 80,000 calls a day to at least inquire about payment relief, according to one of their spokespeople.

As predicated, the rules and criteria are still evolving. One RBC employee stated that they were “changing by the hour” in a CBC interview. With that in mind, this is what appears to be happening now:

You may be able to defer your full mortgage payment for up to six months. It appears all the banks have a notice on their website to point out that your interest will continue to accrue. You are not getting a pause button, just an extension.

The bank will add the interest you are not paying with the deferral and adding it to the principal owing. In other words, if you have a $300,000 mortgage and take six deferrals, that $4,500 in interest is added to what you owe. You will then be paying interest on top of interest since your balance went from $300,000 to $304,500. The increase in your balance will now give you a higher payment when your renewal comes up. You’re adding the skipped interest to the next 15, 20 or 25 years.

As we talked about two weeks ago, the banks aren’t out one cent – in fact, they’ll make a profit on your deferrals. But for those who need the breathing room and help, it’s probably not the time to look gift horse in the mouth…

It is not an automatic approval. A former Bank of Montreal manager was asked to supply a new full credit application to see if he qualified. But the BMO wouldn’t actually tell him what the new approval criteria was! A few days ago, a CIBC customer with mortgage and line of credit was on hold for 11-hours and 5-hours the next day only to be told by their call centre that there was nothing they can do for her. So much for the press release that the banks would “work with Canadians.”

Yes, they will update their information on you first. It’ll take them one second to look at your credit score. Internally, they’ve set a number: If you’re below that, you will not qualify as they deem you too high a risk for a deferral – whether that’s your mortgage, credit line or credit card. They’ll want to know if you’re temporarily laid off or not likely to go back to work. And they’ll look at your other debt levels off your credit bureau report. In other words, it’s not just a quick call and you’re done.

Coming Next Month: My New Home Buying Experience

There should be nothing more exciting than purchasing a brand new home. Well, that didn’t last that long for me…We’ll talk about it in April as it’s been 60 days.

Here’s a small insight: THIS is what I got from Bedrock Homes (Carrington) in the year 2020 in my brand new house: 37 regular light bulbs! Hands up if you have at LEAST one LED (now under $1.60 each) or at least a spiral light anywhere in your home. Yup – that’d be everybody in the country. (Bedrock saved some more money by not having any bulbs in two light fixtures…)

THIS is what is STANDARD in every new home with another builder by the name of Jayman Homes. Yup…electric plug-ins for hybrid vehicles. But it gets worse…I’ll explain next month…

When It’s Raining You Need An Umbrella!

If you’re optimistic that the rain will stop soon, I admire your optimism, but you’re kidding yourself. The financial pain will continue for some time. I would suggest we are barely at the starting line, and it’s not a 100-yard race, but a marathon. When the economy is good, it’s wonderful to live next to an economic powerhouse. However, when the US is the basket case of the world, it will continue to impact us here in Canada. When the President states that his “gut” tells him it’ll be mostly done with by Easter, you know we’re in trouble.

You and me following the rules and take preventative measures that don’t resolve anything when others aren’t. We are at the mercy of the selfish and the stupid: Florida golf courses are packed, as are Florida beaches. Mardi Gras in New Orleans is in full swing and 50,000 people were at Disneyland closing night a week ago that likely infected 500 people, who then infected 2,500, who then infected 12,500 and so on. We’re in this boat together, but around a third of the people are rowing in the opposite direction and that gets us nowhere.

If you’ve read part of the Money Tools book you’re likely to be a lot more ready and prepared than the average person. Here is one more, and we’ll talk about the banks’ offers to help and how that can boomerang back on you next week:

In the last two days most large retailers stopped taking returns. We talked about that last fall that most retailers really want to cut down returns. Whether the corona virus is a valid reason to stop returns or not is for far greater minds than me to decide. But you need to make sure you don’t buy anything that you are not 100% sure you will use and keep. When you pay – you’re an owner. Personally, I will not buy one single thing that isn’t food, coffee, or absolute essential. So in a plummeting economy this will make things worse – so much worse – if people follow that advice. You cannot return that sweater that doesn’t fit your partner no matter what the sale price, the light fixture that falls apart when you open the box, the towels that aren’t a good colour match, the Chinese made toy that doesn’t work, or area rug that doesn’t fit. I found this out first-hand yesterday at Walmart and Lowe’s! Don’t buy don’t buy don’t buy! One store manager admitted it’s great to know what they sell stays sold! As I said, you decide if it’s logical and right or overkill. But it is what it is – we’re in a new retail environment. So be careful out there or the lesser amount of money you have and spend will go towards things you can’t use or don’t work!

The Six Big Banks May Help You

In an announcement last night, the six big banks may help you with mortgage deferrals for up to six months in view of the coronavirus pandemic. The press release is from the Royal, TD, Scotia, Bank of Montreal, CIBC and National Bank.

But, and it’s a big but: The PR release says they “may” help – but you need to contact your branch for details. In other words, it’s not a given, it’s up to each branch working with each customer and you may not get any help or relief! The PR release headline makes them sound caring, but there aren’t any specifically outlined parameters. Colour me skeptical in that they get the big positive headline while maybe or likely not actually doing much for an individual mortgage holder when push comes to shove. That’s why the release says “contact the bank directly to discuss the options available.” Sorry to be so negative, but there’s a long track record…

Keep in mind that this was a head office decision and then a PR release. 12 hours later your branch doesn’t know what this means, what the parameters are, etc. So calling them today will likely result in just being frustrated – or declined. And remember that the banks are not gifting you one nickel. A deferral is only the ability to pay later. It will also likely be the principal portion of your mortgage since the interest is their income. Take your mortgage balance times the rate divided by 12 and you’ll know how much interest you’ll be paying this month. You may need to still pay the interest but can defer the principal portion of your payment. If you’ve had a mortgage for less than maybe 10 years, that could be as little as one-tenth of your payment – and that’s not much relief…But we’ll find out.

Also in that same announcement, some of the banks, notably CIBC and RBC will be limiting their hours at some branches in some areas while other branches will simply close.

Reluctant as they may have been, the banks have also passed on the full prime rate decreases. That makes the basis of most borrowing now 2.95%.

If you took our advice and held off renewing your mortgage, you’ve just saved yourself one percent. On a $300,000 mortgage that amounts to $250 a month in interest savings or $15,000 if you lock it in for a new five-year term.

At this point, the rate decrease isn’t likely to fuel demand for more borrowing or a spike in home sales. We’re in a new world for a few months. This is the Bank of Canada making sure that the economy does not seize up. Remember that dropping rates is horrible for lenders. Their profits come from the spread between what they pay for deposits and the higher rate they get from lending – and that’s shrunk significantly. They’re also faced with an increase in loan loss provisions (setting money aside for defaults) and higher default rates.

How to Gift Money To Your Adult Kids

Hi George: I sure do enjoy listening to you and Phil. I have 2 sons in their 20s, they have TFSA’s but my husband & I would like to put some money away for them. If we set them up with $10,000 each, what would you suggest we do? Thanks, B

Thanks for listening, B! Good question. But I only ever answer what I would do, so here’s some feedback that may or may not apply:

Most people in their 20s have a constant need for more money – for a car, bike, holiday, running a little short each month, etc. If you gift it to them for a TFSA they can take it out with 10 minutes notice and no penalties. It may be the equivalent of just giving it to them to put into their bank account. If you’re fine with them spending it on ‘whatever’ go ahead. Just keep in mind it’s a max of $5,500 a year – so you’d have to spread it out over 2 years.

If your intent is to have them save it and put it away to grow for retirement – it should be into an RRSP. Assuming they won’t have a defined pension (that they don’t work in healthcare, civil service, etc.) an RRSP is better anyway due to the tax refund it triggers with the contribution. And it’ll cause a tax penalty if they take it out in a few years and that may make them think twice before doing it.

Have them read the Money Tools chapter of Making your teenager a millionaire. No, they’re not teens but the logic is the same. Make sure they understand that money doubles every seven years. That they understand you are not gifting them $10,000 but $20k seven years out, $40k 14 years out, $80k 21 years out, $160k 28 years out, $320k 35 years out. So your $10k today is $320,000 when they’re barely 60!!!!

I’d also do it on a matching basis so they feel they’re earning it. IE: You (kid) save into your TFSA and show us  your receipts for 2020 and before December 31st this  year we will give you the same amount (to a max of $5500) into your RRSP. You will then have DOUBLE the money AND April 2021 a tax refund of around $1,500 because of it. We will do the SAME in 2021 for part 2.

Hope that gives you some feedback and ideas to make it a win-win and not a give-spend plan.

The Ongoing Financial Correction In Perspective

After three emails from listeners and two from relatives, it’s probably worth the time to put things in perspective. I only do about two segments on investing a year, because that’s not my degree or expertise, but these are just common sense…that we forget in the heat of the supposed “meltdown.”

First: These were the market returns last year:

Dow +22.3

S&P +28.5

NASDAQ +35.2

TSX +22.8

Markets do not go up by over 22% each year and every year. When it’s a huge year, there will be a pullback. That’s not a “meltdown” that is a correction to historical averages. And those are 10 to 12% a year on average. You can google that in 10 seconds or pull it up on my website under radio stories.

Second: When our investments go down in value we tend to think that we have lost money. Nope – that’s not correct. We are down but not out. We have lost money if we sell the investments and get out of investing. Then we have taken the cash out and have locked in the losses. If we stay invested, the market will bounce back. Always has and always will. Since World War 2 there have been 26 corrections for an average of over 13%. This isn’t breaking news, it’s part of the normal cycle of the market. I’ve attached a chart of it from CNBC. 

Third: The so-called losses are mostly giving back the massive gains of last year and this February. It is not a loss of huge amounts last year on top of another wave of market drops this past week.

Fourth: Take your next six statements and put them away. Don’t open them and don’t watch BNN or any investment shows. I’m not an expert but I will bet a lot that you’ll have at least a 15% return by September. (From the March 3rd Dow close of 25,917 and S&P 500 close of 16,423) Markets always overreact and then have a massive bounce back as we saw on Monday. Ignore the wild fluctuations. If you are investing, that definition is a time horizon of five years or longer. Anything shorter than that should be in a savings account or under your mattress.

City and Town Credit Cards?

How would you like to have a City of Kelowna credit card? Imagine the Visa logo and maybe a nice picture of Hwy 97 heading into Kelowna with all those billboards and the bridge in the background? If you think that’s a joke – well, it isn’t.

Late last year, the town of Gibbons, Alberta (just north-east of Edmonton) started the process of having a town credit card. It’ll take provincial and federal legislation but they’re studying it. You have them, or have seen them from Starbucks, Walmart, Costco and tons of others. Now towns and cities want them as a money maker for the town or city. The card will actually be in the name of the town and they’ll give you a so-called supplemental card with your name on it. Use it like a normal Visa or Mastercard. But the bill, because it’s in the name of the town, will go to them, and the town will pay it in full to make sure there’s never any interest cost.

You, however, then pay the town whatever you want. The town can borrow at the Bank of Canada overnight rate, which is currently 1.75%. Since half of cardholders don’t pay in full, the town will then collect the 13% interest on a low-rate card, and that’s the towns’ income. If there’s a default, they’ll be able to put a lien against your property, just like they do now when you’re in arrears on your property tax.

Gibbons has a population of only around 3,000 people. But their numbers crunching show they could make between about a million and $1.8 million a year in extra income.

Good idea or a minefield of potential problems?

How to Read Your Losing Lottery Ticket

Sorry that you didn’t win the $70 million Lotto Max last night. I know you (and me) were hoping…but hopefully not pre-planning. And I’m guessing you’re not best friends with the person in Quebec that did win it…

But have one more look at the ticket. Maybe the numbers didn’t win – but maybe there’s a code in there… If you have a sense of humour – check out the decoding of the numbers in the picture below:

Great (and common) Listener Question

Good afternoon George: I have been listening to you on the Phil Johnson show. I have also purchased 4 of your signed books.   One for each of my children and one for my Husband and I. Sadly, I have to admit that we have not been good money managers. With your books help I have been able to put away $10,000 this last year while paying off many more bills.  I have a question: I have a credit card with $11,000.00( the last thing to pay off) on it. I also have a line of credit for $29,000.00 with zero owing.  

Do you think it would be a good idea to pay the credit card off with the line of credit….. the interest on the LOC is way lower.   S.

Hey, S:

You saved WHAT? THAT is incredible! That HAS to mean you and hubby got on the same page on some of this…because that’s the only way it happens!

I only ever answer questions of what I would do because I never have all the information. I would do that immediately, but, and it’s a BIG but:

Have you learned your lesson and don’t want to get burned again? Over 80% of people who do a consolidation or move a credit card debt to line of credit have it back up to the same or higher balance within 24 months. That’s the “but.”

If so, and the odds are high, you’d have the $11,000 on the LOC AND another $11,000 or so on the credit card again, and have made things so much worse.

If you can save $10,000 in a year, you can pay this off by September….so transfer it and then take the $11,000 with tiny new interest divided by 9 months (or you pick the months) and  pay THAT every month. Don’t get complacent and drop down to the new minimum payment of maybe 200 bucks.

If you did not have a LOC and the credit card rate were 60% how ticked off would you be – and how motivated would you be – to pay that off NOW…no vacations, no eating out – every dollar going to get this insane rate paid off.

Take THAT attitude and pick a month you want it gone! And next date night with hubby spend five minutes discussing how the credit card got to $11,000, who thought it was a good idea to get it that high, and what’s going to stop you from ever letting that happen again. It didn’t sneak up on you and it didn’t happen overnight. You need to find a way to hit the stop and panic button at $2,000 and not $11,000 of credit card debt.

You’re doing GREAT – keep going!!! And, if they’re over 15 or so, tell your kids about your credit card issue. It’s a BIG lesson for them, makes you sound human and not “parent” sounding, etc., because it WILL happen to them…at some age…to some degree…and it’ll guarantee they’ll be comfortable in talking to you about it, instead of hiding it, and feeling all that stress…

Happy New Year…But…

Sadly, as of last week, over 25 percent of resolutions have already gone by the wayside. But I have an idea and a way out of that: Think of January as a free trial month. You get that with some subscriptions, perhaps with a fitness club trial and other offers. So learn the lesson and start again on February 1st with your financial goals!

Make sure that your financial to-do and to-resolve list starts with something really simple, really short, but also really critical. It’s an entire chapter in the Money Tools book called: Do you have a half hour?

Yes, you do have it – but do you want to invest that half hour into getting some of your financial stuff in order for at least the coming year?

First thing is to have a coffee date with your partner if you are in a relationship. If you’re not on the same wave length – nothing else really matters. Talk about your financial goals and hurdles for at least this year.

Do you want a $10,000 vacation? If you don’t have it set aside, what’s the plan to save $800 a month if it’s next winter, or save $1,500 a month if it’s this summer.

Want to just charge it on a credit card? That’s your choice if you and your partner agree…but at a 20% rate it’ll be $20,000 in total price in four years. I think that’s a horrible idea, but it’s your choice IF you agree and IF you know what you’re getting into.

Is there one specific debt want to pay off? Do you agree it’s worth it and which one? How important is it to you two? What will you do or give up to achieve it?

If you’re a home owner, and your mortgage is coming up for renewal, are you planning to stay in town, in the home, in your job? What’s the longer term life plan…..because you don’t want to sign another five-year mortgage if you haven’t talked it through, or your penalties will be upwards of $20,000 if you change your mind!

Open a TFSA or RRSP: If you don’t have one – it takes less than half an hour with an online brokerage or your financial institution – that’s it. If your tax refund or other money comes in you have a way to invest it. If you don’t – that money is most likely going to leak out elsewhere.

Open an emergency savings account: You want a basic one week net pay to start. Not hooked to an ATM. But you first need the 15 minute to just open it and put 10 bucks in it. That’s a start – and the longest journey always starts with that first step!

It lets you get traction…because without it you’re not going anywhere…