Ask the Experts: January 2018
Happy New Year! Now that 2018 is officially here, many people are looking towards the future and making plans for the next twelve months. Unfortunately, a lot of people don’t feel comfortable talking about finances, budgets, and other financial plans. However, these discussions are important. Everyone has questions, and no one has all the answers. By openly discussing your financial situation and asking questions when you have them, you will learn more about how to manage your finances and be able to come up with better strategies for building a strong financial future.
The questions here have been condensed or rewritten for clarity and simplicity.
What should I do to get my finances in order for 2018?
This is a common question that many people have heading into the new year. While everyone’s financial situation is different, there are a few things that you should do at the start of the year that will get you prepared for the next twelve months:
- Gather your information
- Now that the holiday rush has died down, it’s the perfect time to get your financial affairs in order. Use this time to take stock of everything in your financial life, including your income, assets, debts, savings, etc.
- This will give you a good picture of your financial situation heading into 2018. Plus, it will help you when you start preparing your tax return for last year.
- It’s also a good idea to review your insurance policies, wills, trusts, and other estate-planning documents.
- Track your spending
- If you don’t already keep track of what you spend, make this a goal for the new year. Use an app, a spreadsheet on your computer, or good old pen and paper to track everything you spend money on.
- After about 30 days of tracking, do a spending analysis. This will help you see exactly where your money is going and make it easier for you to get an overall picture of your spending.
- Make goals
- Once you have a good overview of your current financial situation and your spending, you’ll be in a good position to set your financial goals for the year.
What could the new mortgage changes mean for me?
The start of 2018 also meant the start of new “stress tests” for insured mortgages. What does this mean? Perhaps the biggest change to Canadian mortgages is that all buyers will be required to prove that they can afford to repay their mortgage even if rates were to increase. Previously, this type of test was only required for those who put down less than 20 percent of the purchase price, but it will now apply to all buyers.
The new mortgage rules could make it more difficult to get a mortgage in 2018. This could mean that more people will have to turn to more expensive loans, such as personal loans, to afford a home. These loans have much less favourable repayment terms and are generally more expensive to repay than traditional mortgages.
The result could be that some people will find themselves unable to afford a home or they could end up in financial trouble by overleveraging themselves to make a purchase.
Lenders do not have to apply the stress test to those who are renewing an existing mortgage. However, if you decide to “shop around” to get a better rate when your mortgage comes up for renewal, you will be subject to the new rules. This could leave you stuck with a less favourable mortgage rate since it will become more difficult to switch to a different lender.
For more information on the mortgage changes that have come into effect starting on January 1st, please check out our in-depth look at the new mortgage rules.
One important thing to remember is that, while buying a home is often an emotionally-charged situation, it’s crucial that you do not become too aggressive or impulsive when purchasing real estate. Stretching yourself too thin is never advisable. Know what you can afford and do not overspend to get into the market.