What does it really cost to borrow?
Finding it hard to reach your financial goals? Not sure what to do? Sometimes all you need is a little help and a good plan.
Investor Education Fund
http://www.investored.ca/
Most people think interest is interest. In fact, you could have two loans that charge the same interest rate, and yet charge two different amounts of interest. Two factors affect the cost of borrowing:
1. The annual percentage rate (APR)
* Includes all loan service costs and interest.
* May therefore be higher than the interest rate you see in the loan contract.
A lender must tell you the APR before you sign a loan agreement. Sometimes the lender for a car or other type of loan will advertise a low APR to win your business. It’s a way of saying you can really trust the deal they are offering, and that you don’t have to worry about hidden costs.
To understand the APR of a loan, make sure you ask:
* How much total interest will I pay?
* Are there any fees or extra charges?
* Are there any other costs, including loan insurance?
2. How the lender calculates the interest
The method they use can really change the cost of borrowing. For example, interest on a mortgage is calculated in a different way than interest on a credit card.
How does interest work on mortgages and other loans?
Most mortgages and some loans use the remaining balance method. The lender just multiplies the interest rate by the principal balance at the start of each term. You don’t pay interest on any principal you have repaid.
How does interest work on credit cards?
In some cases, you have to pay off all of your charges each month. If you don’t, you’ll pay interest on the full balance that you owe.
Most cards ask only for a minimum payment each month – often 5% of the current balance or $10, whichever is more. You pay interest on the unpaid balance.
Some cards give you a grace period when you borrow. If you pay back everything within that time, you wont have to pay any interest that month.
Other cards charge interest from the day you made each purchase, until you pay in full. In some cases, you pay interest on your daily balance, or your average daily balance. With other cards, you pay interest on your highest monthly balance.
Remember: The interest rate you see in the ads doesn’t tell the full story
To understand the total cost of borrowing, you need to know the APR and any extra charges. You also need to understand how interest is being charged.
Learn more: Financial Consumer Agency of Canada website ()
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Contact the Jeffrey Team for more information - 416-388-1960
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What makes buying a home different from other investments?
A home may be one of the biggest investments you ever make. Saving up a down payment is just the first step.
1. You may find it hard to get your money out. Some investments can lock in your money for a while, but you can usually pay a penalty and get your money out if you really need it (for example, a five-year Guaranteed Interest Certificate (GIC)). If you buy a home, you may find it will tie up most of your savings. Turning your house into cash means selling it or renting it out, and that can take a lot of time and effort. That’s why a home is not considered a very liquid investment.
2. You will pay very different kinds of costs. Most investments have costs like service charges, fees, or commissions. The costs to maintain a home investment are different, and many are hard to plan for. There are taxes and utility costs, for starters. Then there’s maintenance. On top of that, if you have a mortgage, you will pay interest – and interest rates can go up, making your home investment more costly to own.
3. Many factors affect what you will make. Some investments, such as GICs or bonds, give you a fixed rate of return, so there’s no guesswork. You can estimate the return on other investments, such as stocks or mutual funds, based on past results and other factors, but there is no guarantee what you will make. To predict how much money you’ll make when you sell a home, you have to look at factors such as:
* The average increase in housing prices over time, which runs between 2% and 4% a year in most locations
* The location of your home
* Your home’s size, age, and condition
4. You get the unique advantage of living in your investment. Most investments bring you a return in the future. A home can do that too, but with a home, you also get to enjoy your investment by living in it.
5. You are not just investing, you are also borrowing. A few lucky people have enough money to pay cash for their homes, but most people make a down payment and borrow the rest by taking out a mortgage. When you buy investments like stocks and bonds, you don’t usually borrow the money you invest – or at least, not as much.
6. You use different sources of information to research your home investment. Your real estate agent is your best source of information when buying a home. Find one you feel comfortable with, who seems to understand your needs and your budget. Make sure they are familiar with the area you are interested in. Of course, don’t overlook other sources of information. For example, people in the neighbourhood are often willing to share information that can help you make your final decision. Newspapers, books and the Internet also provide useful information. You can also talk to your banker or financial adviser.
Remember: Location matters when you’re buying a home
The return on investment for homes in some places is higher than it is in others. Whether you live in a small town or a big city, you get the same interest on a GIC. If you buy a house in a small town, you probably will not pay as much for it as you will for a similar house in the centre of a large Canadian city, close to public transit, shopping, schools, and entertainment.
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Contact the Jeffrey Team for more information - 416-388-1960
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Some simple steps to energy efficiency
TREB President’s Column as it appears in the Toronto Star
When it comes to character, you just can’t beat the charm of an older home. Newly constructed homes however, come with their own unique assets, one of the most noteworthy of which is energy efficiency.
From the roof to the foundation, a number of innovative building practices often go into constructing today’s greenest homes.
Roof shingles for example, are now available in recycled materials. Environmentally friendly spray foam insulation, which can help prevent dampness, keep out pollutants and contribute to structural strength, is even partially made with recycled materials.
Roofs, walls and floors can be insulated as well with special structural panels that consist of two layers of board with insulating foam in between them. The forms that are used to mould a home’s poured concrete foundation can now also be found with insulating ability, and barriers that prevent dampness from rising into the foundation can be used at this stage of construction as well. Even exterior cladding is now insulated to offer greater energy efficiency.
If you prefer an older home though, there are many simple ways to make it more energy efficient and environmentally friendly.
Start with an Energy Star programmable thermostat that will save on heating and cooling costs when you’re not home. You can take this approach a step further by investing in a new high efficiency furnace or air conditioner. Adding insulation to the attic of your home will offer reduced energy costs for years to come as well.
A tank-less water heater will also save on energy costs by providing only the amount of heated water that you need rather than maintaining it in a cylinder.
Even making minor changes can have an impact, like choosing energy efficient light bulbs – Compact Fluorescent Lamps (CFLs) are good and Light Emitting Diodes (LEDs) are even better.
If you’re planning to make cosmetic changes to your home you can do your part for the environment by choosing wood flooring, and even carpet, made with recycled content. Look for low VOC paints and stains as well, which reduce the number of unstable, carbon-containing compounds that enter the air and react with other elements.
In the bathroom, you can keep more money in your pocket by installing low-flow faucets, showerheads and toilets.
Replacing old windows with low-E argon-filled units that have the Energy Star symbol can make a dramatic difference to your home’s energy efficiency as well.
Changing your old appliances with new Energy Star machines is also a great way to reduce energy consumption while enhancing the overall appeal of your home.
Beyond enjoying the aesthetics, cost savings and fulfillment associated with helping the environment, you can also consider getting an energy audit to take full advantage of a number of government rebates for energy-saving home improvements. Please visit www.TorontoRealEstateBoard.com to learn more about them.
Regardless of the approach you choose, remember that nothing can substitute for good-old fashioned conservation. Remember that the energy you save today may well be the energy that is needed tomorrow.
Tom Lebour is President of the Toronto Real Estate Board, a professional association that represents 29,000 REALTORS® in the Greater Toronto Area.
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Contact the Jeffrey Team for more information - 416-388-1960
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