RRSP, RESP, TSFA or Mortgage prepayment? Which has the best returns?
February 22, 2012 — Steve Garganis
Trying to decide what’s the best move can be difficult…. and I must admit, this is not an easy subject to tackle. There are so many opinions. But it’s important enough that I’m going to put my 2 cents in. My final recommendations are listed at the bottom if you want to fast forward.
First, let’s come to an understanding that we are all different and have different needs. you must ask for professional opinions and make up your own mind. Having said that, I think that for me, this is actually a very easy decision.
RESP If you have kids, put money into an Registered Education Savings Plan… the govt gives you 20% on a max contribution of $2500/yr per child.. that’s $500 of free money… Just be careful to not invest in any risky funds or stocks… you’re making 20% return already… don’t get greedy.
TFSA If you have some extra cash, then yes, put those funds into a Tax Free Savings Account. You can contribute $5,000 per year and any unused contribution limit carries forward each year… and the good news is that whatever investments are allowed for RRSPs are also allowed for TFSA. Funds can go in and come out and grow tax free. But I wouldn’t be putting too much in here while you still have a mortgage… Pay your mortgage off first.
RRSP An old favorite for many. Millions of Canadians have contributed to RRSPs in an attempt to be masters of their future and retirement. Mutual Funds have become a favorite investment within RRSPs. But now let me ask you… how has your RRSP performed for you? For most of us, that answer comes with some profanities…%@!)*&%!!! or something like that.
RRSP contributions are tax-deductible… and higher income earners will benefit greater…your funds can grow, tax-free… but you must pay taxes when you withdraw the funds. At age 71, you have 3 options…-transfer to a Registered Retirement Income Fund, -buy a life annuity (better when interest rates are high), -or take the cash (bad choice as you will have to include those funds as income in one tax year which will result in large tax bill.)
RRSPs are a way to grow your investments, tax-free, and defer paying the tax… but you will have to pay the tax… make no mistake about that…
MORTGAGE PREPAYMENT Probably the least exciting but the best choice for many.. just pay down your mortgage… your mortgage is not tax-deductible, unless you have a mortgage on an investment or rental property. Get rid of that mortgage faster..make prepayments… even little prepayments done regularly will make a difference…. On a $300,000 mortgage, a $3,000 annual prepayment will shorten your amortization from 25 years to 20 years, 10 months. Based on today’s 3.29% mortgage rate, that’s a savings of over $28,000. Hey, a $28k return on a $45k investment isn’t bad.
ONE MORE OPTION…INVEST IN REAL ESTATE Sure, we’ve all seen property values go up over the last few years… actually, they’ve gone up over the last 12 years.. this is a long bull market for real estate… and there will probably be a correction. But if you buy a rental property, you should plan to hold it for the long-term… 7 years or more… that’s usually enough time for any price correction to reverse itself. Rental properties are popular today because mortgage rates are low and vacancy rates are even lower.
Another way to invest in real estate is through private mortgages. Private mortgage rates run from 10% to 15%. It takes a little more knowledge and experience to understand this investment, but it could be worthwhile.. Just be careful to get as much information as possible before making any 2nd mortgage investment decision. These are RRSP eligible too. This subject will have to be covered in greater detail as there is a lot more to it.
FINAL DECISIONS. For me, RRSPs just haven’t performed well… And maybe I haven’t invested wisely…. One thing is certain, my Investment Advisors and Fund Managers all won… they take their cut off the top… Not all Investment Advisors are alike, but I seemed to have hooked up with those that talked a better game than they could deliver. Here’s a question… were you ever put into a Deferred Sales Charge (DSC) mutual fund? You know, the funds where you can’t exit the fund family for 5 or 6 years without paying a hefty penalty? I know several friends and clients that got pushed into those funds…. not one of them is happy… I am staying away from these funds…
In case you can’t tell, I’ve lost my faith in mutual funds and decided to manage my own money.. and guess what? I’ve done better than any advisor I know… I’m sure there are good advisors out there…but I’ve just decided that no one will care more about my money and future than me…
It’s time to take charge of our money…. so here are my suggestions…
Put money into an RESP… if you have kids, this is a no brainer… make sure to park that money in a safe, low risk investment… remember, you already made 20% with the govt’s contribution….let’s not get greedy.
Pay off your mortgage. Make lump sum prepayments… anything.. something is better than nothing… and try to increase your regular payments… this will accelerate the retirement of your mortgage.
If you have to invest in stocks or funds then put this into a TFSA…
Invest in real estate… it’s not exciting.. it’s not sexy… but history tells us it goes up over the long run…
RRSPs… putting them last on my list… I’m just not a fan of them… if you have other cash, why not invest it elsewhere… but if you have to put money in RRSPs, play it safe.. this is your future, your retirement… don’t gamble with it.
Seek professional advice…. if you’re not sure what to do, get some advice… if you don’t have anyone to turn to, feel free to contact me… if I can’t answer your questions, I’ll direct you to someone who can.
Source: February 22, 2012 — Steve Garganis, http://canadamortgagenews.ca/2012/02/22/rrsp-resp-tsfa-or-mortgage-prepayment-which-has-the-best-returns/
Monday, February 27, 2012
Thursday, February 23, 2012
CMHC forecasts a healthy housing market for 2012-13…. but fixed mortgage rates have started to climb.
CMHC issued a report that says the economy will expand at a moderate pace over the next few years, as reported in The Spectator. The Bank of Canada should also keep it’s trend setting rate low until mid 2013. This means Variable mortgage and secured lines of credit rates will remain low.
The report also says the average house price in Canada is expected to hit $368,900 this year. But, a closer look at the Greater Toronto Area market shows that house prices are climbing much faster. A lack of supply and a pent up demand, together with record low interest rates are fueling price increases. Reports of homes being sold above asking are popping up outside of Toronto.. including Milton, Georgetown, Oakville, Burlington and Hamilton.
If you’re in the market for a home, my advice would be to not wait til the Spring market. The market is now. Experienced realtors are telling me they have priced a 5% increase in the first 2 months of 2012. Waiting could cost homebuyers $18,000 or more.
FIXED MORTGAGE RATEShave started to climb. Earlier this week we saw RBC and TD pull their special mortgage rate offers… BIG SIX Banks don’t like to compete in the wholesale mortgage market with mortgage brokers… when these 2 banks realized no other BIG SIX bank was offering this rate, they quickly withdrew the offer… read this article... the BIG SIX banks are calling a truce? What does that mean…? Don’t you want your banks to compete? And that last paragraph by BMO’s Frank Techar is priceless.. “We went to 2.99 per cent to draw attention to the benefits of having a mortgage with a maximum amortization of 25 years”. This does make me a laugh a little… BMO’s NO FRILLS mortgage was a way to gain market share and entice borrowers into a restricted and closed mortgage product… Mortgage Brokers already had access to this rate and a NO FRILLS product through another lender… but it’s not a great product and the restrictions are costly…Most brokers will not recommend or even offer this product to their clients.
The ripple effects of this ‘truce’ are that wholesale mortgage rates have started to climb… ING and National Bank have also increased their rates. This could be temporary but if the Greeks get their act together and the U.S. economy starts to improve, we will see rate hikes…. My advice is get your mortgage preapproval now…. These are historical low interest rates… I’m not sure they will be here for much longer.
Source: http://canadamortgagenews.ca/category/mortgage-trends/ February 16, 2012 — Steve Garganis.
The report also says the average house price in Canada is expected to hit $368,900 this year. But, a closer look at the Greater Toronto Area market shows that house prices are climbing much faster. A lack of supply and a pent up demand, together with record low interest rates are fueling price increases. Reports of homes being sold above asking are popping up outside of Toronto.. including Milton, Georgetown, Oakville, Burlington and Hamilton.
If you’re in the market for a home, my advice would be to not wait til the Spring market. The market is now. Experienced realtors are telling me they have priced a 5% increase in the first 2 months of 2012. Waiting could cost homebuyers $18,000 or more.
FIXED MORTGAGE RATEShave started to climb. Earlier this week we saw RBC and TD pull their special mortgage rate offers… BIG SIX Banks don’t like to compete in the wholesale mortgage market with mortgage brokers… when these 2 banks realized no other BIG SIX bank was offering this rate, they quickly withdrew the offer… read this article... the BIG SIX banks are calling a truce? What does that mean…? Don’t you want your banks to compete? And that last paragraph by BMO’s Frank Techar is priceless.. “We went to 2.99 per cent to draw attention to the benefits of having a mortgage with a maximum amortization of 25 years”. This does make me a laugh a little… BMO’s NO FRILLS mortgage was a way to gain market share and entice borrowers into a restricted and closed mortgage product… Mortgage Brokers already had access to this rate and a NO FRILLS product through another lender… but it’s not a great product and the restrictions are costly…Most brokers will not recommend or even offer this product to their clients.
The ripple effects of this ‘truce’ are that wholesale mortgage rates have started to climb… ING and National Bank have also increased their rates. This could be temporary but if the Greeks get their act together and the U.S. economy starts to improve, we will see rate hikes…. My advice is get your mortgage preapproval now…. These are historical low interest rates… I’m not sure they will be here for much longer.
Source: http://canadamortgagenews.ca/category/mortgage-trends/ February 16, 2012 — Steve Garganis.
Tuesday, February 21, 2012
Mortgage Market Share — Top 10 Lenders
"Big-Banks" control three out of four mortgages in Canada’s $1.1 trillion mortgage market, and their share has been growing.
Here are the top 10 Canadian mortgage lenders by market share…
The Big Hitters:
1. RBC $186.3 billion, total market share 17.08%
2. TD Bank, $157.0 billion, total market share 14.40%
3. CIBC, $148.7 billion, total market share 13.64%
4. Scotiabank, $145.7 billion, total market share 13.36%
5. Desjardins, $81.3 billion, total market share 7.46%
6. BMO, $71.2 billion, total market share 6.53%
7. First National, $40.8 billion, total market share 3.74%
8. ING Direct, $30.2 billion, total market share 2.77%
9. National Bank, $29.3 billion, total market share 2.69%
10. HSBC, $19.7 billion, total market share 1.81%
Market share figures are estimates based on data from OSFI, the Bank of Canada, and McVay’s proprietary sources. Data is as of November 2011 (there is a lag in reporting). These statistics reflect both off-balance sheet securitized mortgages (prior to IFRS) and mortgage securitization retained on balance sheet as securities.
Some quick takes:
Canada’s Big 5 banks hold two out of three mortgages (65% market share).
The growth leader has been TD (Yes, despite criticism for its collateral charge mortgages). McVay says: “Collateral charges are a trend I expect to see right across the industry, as a way to secure customer relationships.” That’s because collateral charges generally make switching lenders more costly.
BMO has shed significant mortgage share since exiting the broker market (more on that this weekend), and also because of its strategy to build share in HELOCs.
National Bank has been doing well, says McVay, “largely from mortgage portfolios that it’s been buying, its broker association and its Power Financial linkage.”
source:http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2012/02/mortgage-market-share-top-10-lenders.html#more February 17, 2012 Rob McLister, CMT
Here are the top 10 Canadian mortgage lenders by market share…
The Big Hitters:
1. RBC $186.3 billion, total market share 17.08%
2. TD Bank, $157.0 billion, total market share 14.40%
3. CIBC, $148.7 billion, total market share 13.64%
4. Scotiabank, $145.7 billion, total market share 13.36%
5. Desjardins, $81.3 billion, total market share 7.46%
6. BMO, $71.2 billion, total market share 6.53%
7. First National, $40.8 billion, total market share 3.74%
8. ING Direct, $30.2 billion, total market share 2.77%
9. National Bank, $29.3 billion, total market share 2.69%
10. HSBC, $19.7 billion, total market share 1.81%
Market share figures are estimates based on data from OSFI, the Bank of Canada, and McVay’s proprietary sources. Data is as of November 2011 (there is a lag in reporting). These statistics reflect both off-balance sheet securitized mortgages (prior to IFRS) and mortgage securitization retained on balance sheet as securities.
Some quick takes:
Canada’s Big 5 banks hold two out of three mortgages (65% market share).
The growth leader has been TD (Yes, despite criticism for its collateral charge mortgages). McVay says: “Collateral charges are a trend I expect to see right across the industry, as a way to secure customer relationships.” That’s because collateral charges generally make switching lenders more costly.
BMO has shed significant mortgage share since exiting the broker market (more on that this weekend), and also because of its strategy to build share in HELOCs.
National Bank has been doing well, says McVay, “largely from mortgage portfolios that it’s been buying, its broker association and its Power Financial linkage.”
source:http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2012/02/mortgage-market-share-top-10-lenders.html#more February 17, 2012 Rob McLister, CMT
Subscribe to:
Posts (Atom)