Category Archives: Control Expenses

How Much Are You Really Paying for Your Property?

Most people need to get a mortgage (i.e., a loan) to buy a property. After all, investing in real estate is a humongous investment.

In the scenario of buying your first home, the good thing is that once your mortgage gets approved and all the papers are signed, you can start living in the home while paying off the mortgage every month.

Have you thought about how much you’re really paying for your property?

There are a number of factors that affect how much, in total, you’re paying for your property. Here, we’ll focus on the total you’re paying your lender over the course of paying back the mortgage in its entirety (also called the mortgage amortization period).

a beautiful blue house for a home

What affects how much you’re paying in total for your property?

On top of the price you paid for your property, you need to pay back the mortgage with interests. Here are factors that affect ultimately how much you’re really paying for your property. We’ll follow with an example later.

  1. Interest rate: the higher the interest rate, the more interests you’ll be paying your lender.
  2. The amortization period: the longer the amortization period, the more interests you’ll pay.
  3. If you need to get mortgage insurance, that will add to the cost as well.

Notably, the interest rate you pay for your mortgage changes. For example, it may take 25 years for you to pay off your mortgage, but mortgages tend to be shorter. The most common is a 5-year mortgage. You can also choose between fixed rate or variable rate.

Typically, variable rate results in lower effective interests. However, some people like the predictability of fixed rate. At the end of the 5-year period, you’ll refinance your mortgage at a new interest rate.

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5 Ways to Reduce Debt

It’s not difficult to reduce your debt. It’s a matter of getting into a habit to always spend less than you make. So that eventually, not only are you reducing your debt, but you’ll also be saving for your future.

Where do you spend your money?

Before you can reduce your debt, you need to know where you’re spending your money. Keep track of your spending and categorize them into Food, Recurring Bills, Entertainment, and so on. Most importantly, add in a column for “needs or wants”.

You can reduce or even eliminate items marked as wants if you’re pressed on reducing your debt.

Forbes conveniently created a list of apps to help you track your spending.

Here are more tips on how to reduce your monthly spending.

Set financial goals

pink piggy bank

Photo Credit: kenteegardin from via Compfight cc

Where do you want to be 30 years from now? Let’s say your goal is to reach $1,000,000 in 30 years. The earlier you start saving and investing, the easier it is to reach that goal. However, debt will slow down your progress because you have to pay interest.

So, the faster you repay your debt, the sooner you get to save and invest. It only makes sense to let your debt accumulate if you can guarantee higher returns from your investments.

For example, if you can earn 10% on your investments, you can repay your debt that costs you a 5% interest at a lower pace. In this case, you’d be using leverage to grow your assets.

However, whether to use debt to invest really depends on whether you sleep well with the debt that you have and how sure you are of generating high enough returns from your investments. Read More

5 Important Concepts About Investing

Following Ben Reynold’s popular article on 3 important dividend investing concepts with real life examples, I gave some thought about the important concepts about investing.

“Never lose money.”

This is Warren Buffett’s No. 1 rule: “Never lose money.” and his No. 2 rule is “Never forget rule No. 1.”

By buying and holding great companies which have track records of delivering results, you cannot lose money given your holding period is forever. If you are buying the best of the best companies, why would you ever sell it?

One easy way to tell that a company is great is if it has increased its dividend for many consecutive years. In Canada, the longest dividend growth streak for a publicly-traded company is more than 40 years. Fortis Inc (TSX:FTS) is one of two companies that has achieved that.

Unfortunately, Fortis is fully-valued and trades at a price-to-earnings ratio (P/E) of 20 at about CAD$43 per share. Whenever it yields close to 4%, it’ll be a decent place to buy some shares.

In the U.S., the longest dividend growth streak is more than 50 years!

Here’s a list of Canadian dividend-growth stocks and U.S. dividend-growth stocks that are updated by devoted investors who update them every month. Read More