This is where your finance takes place

 

Yet another year for our big Country! Is it just another day where we don’t have to work or is it more than that? In fact, Canada Day is means a lot of different things depending in which province you are located. However, I think that the weirdest meaning is to be found in Québec: this is also our national day of moving!

 

This is going to be a short post but I thought it would be fun for you to know about this weird habit!

 

In fact, for a reason that I can’t explain, most lease (about 80% if it’s not more) are due on July 1^st. Most of us will leave their old apartment for a new one or for their first property.

 

I was reading in the metro the other day that 3 out of 5 individuals living in Montreal are projected to move this year. I am telling you, this is not a date to drive downtown! I prefer to stay quiet in my little suburbs.

 

This obviously cause a lot of traffic problems along with furniture along the street or highways (not everybody is big trucks). We always see trucks and cars packed-up till their bumper hit the road on the TV. You must remain very careful while driving on that day. Who knows, you might end-up with an oven on your hood… ok…I am exaggerating now

 

I never moved on July 1^st but almost every year I am helping a friend or family. However, today I am not leaving anywhere. I’ll simply spend the day by the pool with my family J

 

Happy Canada Day!

 

 

 Image source: Flickr.com

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While you are running among all those people, you start thinking about how you got there. You woke up at 5am on a regular basis to run outside regardless if it was raining or not. You endured the pain, you made sacrifices and there you are: you are running your first marathon. It appeared that your workout program was good enough to bring you to the competition level.

You end up first and while you are desperately taking your breath back, while you sweet like a pouring rain, while your heart is tearing down your t-shirt to get out of your body; someone get beside you and say ”You are lucky! You finished first!”.

Lucky? Yeah, LUCKY. I am sure that many of you hear that remark at least once in your life. It usually happens more when people think that you are doing well on the financial plan. “You were lucky to get that job” or “you were lucky since your parent backed you up during college” or even “you are lucky to have all of this, most people work hard their whole life and don’t have what it”. Lucky… really?

I personally think that there is no such thing as luck in life. Off course there are opportunities and you can benefit a great deal from them. However, opportunities are offered to everybody. It’s more a matter of recognizing them and benefit from them.

Some people will walk on their side of the sidewalk without even looking what is going on on the other side of the street. They work hard and they are honest, but they are walking with blindfold eyes. Those people use the word lucky a little to much.

While I am very far away from being rich, I think I am having a good start on the financial plan considering my age what I have accumulated so far. Some people have the guts to tell me I am lucky and that really frustrates me.

There is no such thing as working hard day after day, making sacrifices and being told that all that you have is not related to your efforts but you owe a big one to lady luck!

When I see a successful person, regardless in which field, I am not telling myself “oh boy, this one is lucky to be so good at what he does” but I am asking “I really wonder how he made it that far”.

Sorry for the rant of the day, but I really needed to write it down so I can feel better I don’t think there is a magic secret for success. In fact it is quite simple. Make a plan, work hard, don’t loose your objective and wish the best for you and for everybody around you. With this kind of attitude, you won’t need luck anyway

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Yesterday, I had a question on my latest Smith Manoeuvre Update. Since it was a good situation, I decided to write a full post about Jeff’s question. Here’s what he wrote:

“Hi, I’ve read with great interest your Smith Maneuver progress, especially since I was thinking of doing it when my current mortgage comes due with an All-in-One as well. However, I’m still confused about how it works in this situation (with made up numbers). Perhaps you could explain it to me? Say a home is valued at $400K, so the bank would give an All-In-One (Ai1) up to $300K. Now, assume the property has a current mortgage of $200K. Then I could split the Ai1 into a $200K mortgage portion and an immediate $100K investment LOC. Would I then have to pay my regular mortgage payment plus the interest on my investment LOC each month? I understand that I could “capitalize the interest” but, doesn’t that make some of the LOC not invested in investments, hence, not being eligible for the tax deduction? Sorry for the question if you’ve answered it before! Best of luck to you in your endeavours”.

Hello Jeff,

In your example, you will have 2 accounts linked to your property:

#1 200k regular mortgage (which you will pay capital + interest payment)

#2 100k HELOC (all-in-one) (which you have to pay at least the interest every month)

If you withdraw the 100K from your all-in-one and invest it, you will have to pay the interest on the 100K (so roughly $4,750 if prime rate doesn’t change). That makes payment of almost $400 every month.

In addition to this $400, you still have your mortgage to pay. At 4.25% (let’s say that you selected a variable rate as well and you got Prime - 0.50) over 25 years, that makes payment of $1,079 a month.

In total, you will have to pay at least $1,479 per month to have #1 a 200k mortgage + #2 the all-in-one account fully invested. Please keep in mind that the $4,750 in interest paid on your all-in-one is fully tax deductible.

A few suggestions

#1 If you have enough room in your budget, I would definitely go with a variable rate on the 200K mortgage. You can easily get Prime – 0.50% with such amount (especially that you will be doing a 100K HELOC at the same time!).

#2 If you like to have fixed payment in order to follow your budget, you can always go for the variable rate but with a fixed payment. The bank will calculate a fixed payment at the 5 years rate (around 7%) and the extra money will be applied as a capital payment.

#3 An investment of 100K is big enough to have access to great financial products. I strongly suggest that you deal with a Financial Planner or a recommended broker. They will be able to guide you as of which investment products are the best in your situation. Keep in mind that if you really want to benefit from this leverage strategy, you need to show an aggressive investment profile and will occur several fluctuations.

#4 If you want your mortgage to fully become tax deductible, I suggest you seek for a product that enables the HELOC to increase as you are doing your mortgage payment. I know for a fact that BMO and National Bank are offering this product. As for the other institutions, you will have to ask them.

#5 You are technically not allowed to capitalize the interest. If you leave a few thousand in your line of credit for this goal, the bank system will detect that you are not paying the interest as no new money is going into the account. Unless you find a product that gives you the opportunity, I strongly suggest that you make your interest payment.

#6 Banks are now going at 80% of a property value for a HELOC without charging any premium. Therefore, you can have a 320K mortgage split 200K mtg and 120K line of credit.

#7 If you have any other questions about the SM or any other leverage strategies, don’t hesitate to send me an email at thefinancialblogger @ gmail.com.

 

If anyone has any other ideas, please feel free to comment!

Best of luck with your investments!!!

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