CMHC Released their annual report last week, Tuesday May 8^th.  The Canadian Mortgage and Housing Corporation continues to be an integral player in contributing to the stability of the Canadian marketplace.  In 2011, spending on housing accounted for a whopping 20 per cent of Canada’s GDP last year and CMHC provided $2 billion in support of housing programs. Here’s a summary of the report.

Economic Indicators and Forecasts

Economic growth slowed to 2.5 per cent in 2011 compared to 3.3 percent in 2010. The economy is expected to grow by 2.1 per cent in 2012

The Bank of Canada has indicated that the overnight lending rate is likely to remain consistent at 1 per cent for 2012.  Mortgage rates (both fixed and variable) are expected to remain at low levels and CMHC predicts that there will be no exciting movements to posted mortgage rates.  The posted 1 year fixed mortgage rate is estimated to be between the 3.3 per cent and 3.6 per cent range, whereas the posted 5 year fixed mortgage rate is expected to be between the 5.1 per cent to 5.4 per cent range

The unemployment rate declined from 8.0 per cent in 2010 to 7.5 per cent in 2011, while 2012 will see a rate of about 7.0 per cent

Housing starts were up just over 2 per cent from 2010.  Sales of existing homes are expected to increase slightly in 2012 along with the average price (estimated to be around $368,900 in 2012).

Mortgage Loan Insurance

Back in the beginning of February 2012, CMHC was front and center with their news that they were approaching their $600 billion cap for loan insurance which is set by the Federal Government.

In 2011, CMHC had planned to only increase their insurance in force by 3.7 per cent to $533-billion.  However, they actually increased it over 10.3 per cent to $567-billion and are quickly approaching their $600-billion limit.  As you can see, the largest contributor to this increase is from the multi-unit residential units.  CMHC is the only insurer of loans for large multi-unit rental properties, including nursing and retirement homes.  Increased life expectancy paired with the aging baby-boomer cohort translates to a heightened demand for nursing homes and retirement homes alike.

What the Average CMHC Customer Looks Like

The quality of borrower is the only saving grace to the increasing level of CMHC insurance issued.  The average equity in CMHC’s insured portfolio stands at 44 per cent meaning that the average person is financially stable and could withstand any potential adjustments to housing prices.  To put this into perspective the average home price in Canada is approximately $370,000 and would therefore have a mortgage balance of $207,200.

Thankfully, the average credit score of CMHC-insured high ratio loans is 724!  Since CMHC has sound underwriting practices the majority of homeowner loans are held by consumers with strong credit scores who demonstrate a prudent approach to managing their mortgages.

RateSupermarket.ca’s Expert Mortgage Panel Predicts Status Quo on Mortgage Rates

Toronto, ON – (May 10, 2012): Increased uncertainty in Europe and the wider global economy will cause Canada to sit back and wait before making any major changes to interest rates that could potentially derail its economic growth. While this waiting game plays out, RateSupermarket.ca’s panel of mortgage experts expect both fixed and variable mortgage rates to remain unchanged in the short term.

Fixed mortgage rates: Unchanged

Demand for mortgages is moderating in many parts of the country, and there is decreased need for competitive discounting from big lenders to maintain mortgage market share. All these factors point to one conclusion – little change is on the horizon for fixed mortgage rates. Our panel of experts expect fixed rates to remain level for the next 30-45 days.

Variable mortgage rates: Unchanged

The recent French and Greek elections raise concern for the future stability of the Eurozone. Will Greece exit the European Union?  If so, how many other debt ridden countries will follow? With so many questions unanswered, our Mortgage Rate Outlook Panel members think the Bank of Canada is unlikely to risk rocking the boat by increasing interest rates any time soon.

This, coupled with the fact that discounts to the Prime rate are not expected to budge given the lack of interest in variable rate terms at the moment, means that variable mortgage rates will stay where they are in the short term.

About the Mortgage Rate Outlook Panel

The Panel includes some of the country’s top mortgage experts, and helps Canadian consumers make informed decisions by offering a short-term outlook for fixed and variable mortgage rates.

This month’s panel members:

• Mark Kocaurek, Senior Vice President, Treasury & Lending (Chief Lending Officer) of ING DIRECT Canada
• Dr. Ian Lee, Director of MBA Program, Sprott School of Business, Carleton University
• Wayne Spinney, Mortgage Agent, Centum Mortgage Professionals
• Dan Eisner, MBA. AMP. President, True North Mortgage

About RateSupermarket.ca (www.ratesupermarket.ca)

RateSupermarket.ca is the largest impartial rate comparison service for personal finance products in Canada. Founded in May of 2008, their easy to use comparison engine provides much needed transparency to the Canadian financial market and allows visitors to quickly find the best mortgage rates. Their Mortgage Tool App for the iPhone also allows house hunters to compare mortgage rates using their Smartphone. Over 1.5M Canadians have turned to RateSupermarket.ca to save money on their mortgage, insurance, banking, credit cards and GICs.

If I really think about it, I’m pretty sick and tired of a whole lot of my service providers. I wonder if my insurance company is ripping me off. (Probably.) My bank may be gouging me with service fees. My internet bill sometimes, randomly, shoots through the roof. And, like just about everyone I know, I deeply dislike my phone providers.

If it’s time to break up with any one of your service providers, it’s not enough to just be annoyed or frustrated. You need to take a methodical approach to make sure you’re making the right move and that nothing in your life will be disrupted when you switch gears.

Here’s a checklist of things to think about when you make a move.

Switching Banks

This is the biggest move you’ll make. Before you change, be sure there will be no extra fees for releasing any of your bank accounts or lines of credit. Verify that the new financial institution has a good web site that will allow you to pay your bills and check your balances easily. If you are opening a new savings account, be sure to check the interest rate offered. Also, make sure any automated deposits or expenses are updated and accounted for.

Checklist:

• all automatic deposits including paycheques and government deposits
• regular bills (hydro, cable, phone, etc)
• automated credit card payments
• mortgage payments
• car payments
• insurance payments
• automated debt payments (i.e. student loan, line of credit, etc)
• investments such as RRSPs, RESPs and TFSAs and their auto payments

Switching Phone Companies

Ensure your new provider will support your cell phone and everything, including the data plan, suits your needs. When you change, make sure you’re not going to get dinged by any penalties or be forced to change your number. Make sure changing won’t impact your internet or cable service or any bundle discounts.

Checklist:

• pay the last bill promptly
• check that your bank lets you pay your bills online
• make sure the first bills reflect the services you actually subscribed to
• any deals you’ve been promised are happening

Switching Internet Providers

This strikes me as a huge one: changing your email address is a major pain. Consider moving to something like Gmail to have a consistent address no matter who offers your service. Again, ensure you’re not going to get dinged for extra charges like installation and be sure you’re getting some sort of great deal for being a new subscriber.

Checklist:

• make sure any friends or colleagues, even old ones, have your new email address
• ensure all important email subscriptions get your new address
• you’ll need to change your user name for any web portal or account where you sign with your email
• make sure the first bills reflect the data plan you actually subscribed to
• any deals you’ve been promised are happening

Switching Cable Companies

Everyone’s moving away from traditional cable and into things like Netflix and Apple TV. If you do get rid of cable or switch providers, be sure you’re getting what you truly want and you won’t miss anything.

Checklist:

• all the TVs in your home will be supported
• you won’t miss anything big coming up like the Olympics
• all family members (like kids) won’t miss certain channels and that these folks can actually operate your new system
• if you bundle your products with one provider, make sure dropping the cable will not affect the other service fees

Switching Insurance Companies

It’s not that hard to call around and get quotes, but actually switching insurance providers is a lot of work. You often need to have your car assessed, satisfy the provider as to the contents of your home via listing your possessions or taking pictures. You also need to ensure your new provider will cover your unique needs such as an older home, a home office or a vintage car.

Checklist:

• make sure everyone in the family gets the new proof of insurance
• keep up to date paperwork in the vehicle
• your policy covers everything you need it to
• familiarize yourself with the claim process

It’s a lot of work, as you can see, to save money and get better service from your providers. Make detailed notes, be sure you haven’t missed any detail or extra charge and if it makes sense don’t be afraid to take a chance on trying something new.

By now you should have completed your taxes and are most likely eagerly awaiting your return. While some will get just a couple hundred dollars back, some of you could be in for a fairly sizable cheque. It’s easy to get excited about unexpected money, and hard not to want to spend it all at once. Before it arrives, though, take some time to think about how you can best use that money. Here are 8 suggestions for ways you can spend your tax refund wisely:

1.    Pay off any outstanding bills

If you have outstanding bills, using your tax refund to pay them off is probably the best option for you. There’s nothing worse than the stress of being behind. Take this opportunity to get ahead of the game for once.

2.    Pay down your credit card debt

Credit card debt can build quickly, but it’s hard to whittle down once it mounts. If you have outstanding debt on your credit cards – debt that keeps you up at night – the responsible thing to do would be to put your tax return towards that debt. Of all the debt you have, credit card debt is most likely to have the highest interest rate running from 9 – 23 per cent. By paying that debt down first, you’ll actually be saving money in interest later.

3.    Put some of it towards your mortgage

If you have a mortgage that allows you to make additional payments without penalty (and most mortgages will allow you to make an annual lump sum payment of 5 – 25 per cent of the mortgage value), this might be the perfect opportunity to use that to your advantage. The more you pay now, the less you pay in interest later.  Check out how much money lump sum payments can save you with this Mortgage Calculator.

4.    Invest in your future

If you haven’t started an RRSP, maybe it’s time. Your return might not amount to much now, but over the years your investment will grow. This is a particularly good idea if you are feeling no other financial pressures at the moment.

5.    Start an emergency fund

Doesn’t it sometimes seem like bad things happen either when you’re least prepared or when you’re least able to cope? You just paid a huge vet bill and your washing machine suddenly dies. You finally paid off your credit card debt and your car breaks down. These situations happen all the time, and sometimes it feels like you’ll never get ahead. Without an emergency fund, situations like these can be stressful. Why not take this extra cash and set it aside for those little emergencies? When the time comes – and it will – you’ll be glad you did. 

6.    Upgrade your job skills

Have you recently found yourself wanting to return to school? Have you dreamt of taking courses to upgrade your skills? Will doing so help increase your salary? If you answered “yes” to any of these questions, you might want to consider using your return to invest in yourself. This is an especially good idea if it will help to boost your income in the long run.

7.    Treat yourself to something nice

Sometimes being responsible is all we do. If you’re one of those people who seems to always be doing the right thing – saving money, paying down bills, saying no when you really want to say yes – then maybe you need to do something nice for you. Buy yourself a new outfit. Go get your hair done. Take yourself out for a nice lunch. Go golfing. Spoiling yourself is sometimes the best course of action – especially if it’s something you don’t often do.

Alternatively, you could also treat someone else to something nice.  It might not be top on your list of things to do with your tax refund, but using some or all of that extra money to make a charitable donation could be more rewarding than a new pair of shoes.

8.    Go on vacation

Many Canadians use their returns to book their yearly vacation. Without their return, some wouldn’t even get a vacation. You don’t have to spend every waking hour worrying about your debt, retirement savings or credit card bills. You are allowed to let loose and have a little fun. Go ahead; use your return and treat yourself to some time away. You deserve it! 

I’d like to be able to give you a magic formula for how to best spend your tax return. Unfortunately, there isn’t one. Everybody deals with money differently. If you’re a person who pinches pennies all year round, then maybe this is the time to treat yourself to something nice. If you spend too much money and have a mountain of debt that stresses you out, maybe your return should be used to pay that debt down. You know yourself best. Make a list similar to the one above and prioritize. My personal advice is to put 50 per cent towards debt, 30 per cent towards savings and the rest towards a treat for yourself. But be honest and make the best decision for you.

The Bank of Canada is hinting a hike in the overnight lending rate is coming soon. This move will affect the payments on variable mortgages, lines of credit or any debt connected to the floating rate.

Short-term overnight rates have been stalled at 1 per cent since September 2010 and the Bank of Canada knows they can’t stay there for too much longer. It’s because Canadians continue to take on more cheap debt and inflationary pressures are starting to creep in.  More recently the Central Bank noted improved prospects for both the global economy and ours. Indicating Canadians could handle a higher cost of borrowing.

If you’re worried about your ability to service debt in a higher interest rate environment, there are plenty of steps you can take right now to prepare.

Fix your Mortgage Rate

If you’re on a variable rate mortgage you may be able to lock into a fixed rate without any costs. Talk to a mortgage expert to see what your options are. With your rate fixed for five years you can more easily budget and manage your money over that time.

Start Paying More Principal Down

The smaller your debt is the easier it will be to handle.  If you’re carrying a large mortgage or a substantial line of credit, start paying down your loan as aggressively as possible. Every cent you put in today will save you money down the road, especially when rates start to rise and that money gets more expensive to carry.  This is true even if your mortgage term is fixed, because you will be better prepared when it comes up for renewal.

Don’t Take on Any New Liabilities

With interest rates so low, there may be a temptation to take on more debt. But if you’re already carrying a high load, this is not the time to start major home renovations or buy a new car. If possible start saving for those new purchases so you can avoid paying any interest at all. This is a good habit to have no matter where interest rates stand.

Say NO to an Expensive Home

If you’re out shopping for a mortgage, don’t take on the maximum your bank is offering. There is an easy method to figure out what you can afford. Calculate your monthly household income after taxes. Ideally your mortgage payments should represent 25 to 30 per cent of that number. Aim to have your payments around 25 per cent for now so they won’t exceed that comfortable amount when rates rise. If your ratios are too high then you need to find a less expensive house.

Base your Payments on a Higher Rate

Make the lifestyle changes you need to cut back on your spending now. Don’t wait until rates go up to see where you can save. I recommend paying your mortgage at a rate of at least 5 percent. This will help you adjust your budget early to handle those higher payments later.

Stay Invested in Canada

Higher interest rates will mean a stronger Loonie. If you’re looking to convert any cash to U.S. dollars holding off for a year could save you a great deal of money. This is especially true for anyone buying real estate in the U.S. My advice, start saving your cash in Canadian dollars, you could get a better exchange rate at the beginning of next year when rates are expected to rise.

Don’t Forget About “Normal” Conditions

The Bank of Canada likes the overnight lending rate to be around 6 per cent. Meaning in normal economic times commercial banks will offer a prime rate closer to 8 per cent. Don’t worry that isn’t happening anytime soon. But it’s important to keep in mind that in the last 30 years Canada’s interest rate has fluctuated dramatically.  In 1980 it reached an historical high of 18 per cent and a record low of 0.25 per cent in April of 2009.

Who is Most Vulnerable

Anyone holding an adjustable or variable rate mortgage will be affected, as the banks will raise prime from the current level of 3 per cent. Also if you have a floating rate on your personal debt you should also be aware of the higher cost of borrowing and what that means to your budget. A hike is still months away and taking these appropriate steps now will protect you and your family from rising costs.

The self-employed (including small business owners) have always had a hard time getting mortgages. If you’re using a good accountant – which every self-employed person should – you could have a significant amount of legitimate write-offs that bring your taxable income down to a fraction of what you truly make. Yet most financial institutions use that figure as their starting point to determine how much they’re willing to loan you. Run up some bad debt on a failed earlier business and…good luck.

And pity those who’ve gone through a divorce, which can hurt in countless ways. A friend recently revealed that when she first separated from her husband, she had no credit rating. She either wasn’t on or had been listed as the secondary account holder on all their bills and credit cards. Her soon-to-be ex blocked her from “his” credit cards and the most she could qualify for on her own was a low interest balance transfer card.

What to do When you Don’t Qualify for a Mortgage

The lessons here are A) If you can, try to not get divorced and B) even if you’re the happiest married couple on earth, both partners should have some credit rating – and access to key assets. After all, odds are that one of you will die before the other. But enough doom and gloom.

Here are a few other suggestions to help you secure a home loan.

Use a Mortgage Broker

Even if you’re the proud owner of a triple-A credit rating, you can benefit from the professional expertise of a mortgage broker. So if you have even the slightest concern about qualifying for a mortgage, a call to a broker should be your first move. They work with clients from all walks of life on a daily basis and, more significantly, work with dozens of different financial institutions.

In years’ past, the big banks oddly enough, couldn’t seem to understand the unique situation all their small business clients were in. Thankfully, things have changed. CIBC has a Self-Employed Recognition Mortgage, for example, that’s based on an applicant’s personal credit history, rather than their business’s credit. Similarly, RBC’s Self Employed Mortgage targets people with “a good credit history who have been in business for less than 3 years” and offers them the their standard posted rates.

Use an Alternative Lender

If it’s a bad (or no) credit situation you’re in, you’ll likely have to turn to alternative lenders. Don’t worry, we’re not going to send you to the local loan shark.

Also known as B-lenders or second-tier financing, the options available can range from a private mortgage held by the person you buy your home from to a subsidiary of the very same Big Bank that turned you down. The downside is that you may have to pay five or even ten percent above the going prime rate in interest. The upside is that you’ll be able to start building equity in your home – instead of paying rent – and, provided you make all your payments on time, when the mortgage comes up for renewal, you’ll be on solid footing to qualify for a traditional mortgage and competitive rates.

Still Declined?

Even if you do find yourself denied by all parties – or are reluctant to sign on for a mortgage at 15 percent – all is not lost. Spend the next few years building up your credit score (by paying all your bills on time, for starters) and, at the same time, build the balance you’ll have available for a down payment so your ready to purchase when the time comes.

We cover fraud from time to time on RateSupermarket, and for a good reason. It’s all over the place, and your money and personal information are at increasing risk. Why? Because all it takes to rip someone off these days is a computer, Wifi, and a remotely clever idea.

In the financial sector alone, fraud incidents are worth $650 million a year in Canada.

Of that, mortgage fraud makes up $400 million. About 13 per cent of fraud incidents in Canada are mortgage-related, and they take up two-thirds of the dollar value of financial scams.

There’s $1.7 million worth of attempted fraud activity every day in Canada, according to Equifax Canada.

Experts say mortgage fraud can be quite sophisticated, and organized crime might be behind the big growth in this type of fraud. Fraudsters often target high value homes in big cities. And their work is fueled by increasing housing prices in places like Vancouver, Toronto and Montreal.

What is Mortgage Fraud?

Mortgage fraud is, generally speaking, when someone obtains a mortgage by providing false information. That means you could be accused of fraud if you lie on a mortgage application. A criminal will lie on an application and take a loan they have no intention of paying off, obtain this loan using the identity of someone who’s not aware of the loan, either through identity theft, or a family member using personal information, such as that of a spouse or an elderly relative (often this is coerced if they owe a debt to a criminal).

Often the mortgage is obtained with a number of fake mortgage documents like false paystubs and made-up bank statements. Often, the down payment on the home is also from a fraudulent loan the borrower has no intention of paying off.

Frequently, financial professionals such as brokers, agents, lawyers and bankers are involved in these schemes. One US study found that 80 percent of mortgage fraud was helped by industry insiders.

Often, these mortgages are never paid off — or perhaps one or two payments are made before the criminal takes off with the money.

What is Title Theft?

This specific form of mortgage fraud hurts not just lenders such as banks, but homeowners. In title theft, a criminal creates false documents that transfer the ownership of your home — they’ll also have to get your identity documents as part of the scheme. They use more fake information to discharge your mortgage (often they target expensive homes with small mortgages) and get a new mortgage. You as the homeowner only find out about this transaction months later when the bank comes looking for default payments on this new, fraudulent mortgage.

How to Avoid Mortgage Fraud

Getting involved in mortgage fraud is a terrifying and painful situation. You need to make a few moves to protect yourself against being a target. Here’s some tips

• Be aware of identity theft and never give away personal information like your SIN number unless you are 100% sure who is getting the information.
• Check your bank statements regularly and your credit score once a year to be sure there’s no funny stuff going on in your name.
• If you are buying or selling a home, only work with reliable, trustworthy lawyers, agents and bankers. While some of the biggest fraud stories have involved longtime real estate experts, getting a personal referral reduces the risk. If your professional does anything that seems unusual or fishy, ask questions and report the behaviour if you don’t get good answers.

Get Protected with Title Insurance

One of the biggest ways you can protect yourself form fraud is by purchasing title insurance when you buy a home. Title insurance covers you if the ownership if your home is put in question in any way — such as from fraud. It also covers things like needing to rebuild part of your home due to city permit problems, issues related to land because of not having a land survey.

Mortgage fraud is a scary subject, but one you should educate yourself on. Read up this and other types of fraud at places like the Canadian Anti-Fraud Centre and do your best to be informed about the topic so your wont ever become a victim.

As much as we all like seeing the balance in our savings accounts grow, aside from having enough cash on hand to pay your bills and daily expenses, it almost always makes more sense to pay off your debts first. Here’s why – and a couple exceptions to that rule.

Pay off your costliest debt first

No matter what kind of debt you’re carrying, it’s always going to be substantially more expensive to borrow than what your bank offers you in savings account interest. Figuring out the order in which you should pay off your debts first is easy: pay them off in order of highest to lowest interest rates charged.

Typically, your credit cards are going to be your most expensive form of debt. Outside of short-term, introductory rates, most cards charge 20 to 30 percent interest. Of course you can find much better rates with a low interest credit card – but regardless of the percentage, interest charges on any unpaid balance are retroactive to the time of purchase.

Next up are car and student loans. Financial institutions are keen to extend these long-term, profitable loans to customers – and, with the latter, the hope that they become your home for future financial business – they generally offer them at rates a few points above prime. Once all your credit cards are fully paid up, pay down that student or car loan, again, focusing on the most-expensive one first.

In the clear so far? Great, now you can take a look at your line of credit. An unsecured line a of credit is going to be charged at a slightly higher rate than one that’s secured against collateral like you home.

Finally, if you’re fortunate enough to have all your other debts paid in full, then you should focus on making overpayments to your mortgage. Just make sure you don’t exceed the amount you’re entitled to – typically 20 percent of the principal per calendar year – but check your documents to make sure and to avoid any penalties.

The exception to the rule

When it comes time to apply for a mortgage, all your debt is going to count against you. (The banks will even add up all the credit limits on your cards to figure out how much potential debt you could accumulate.) But they’re also going to want to see some evidence that you have money available to make a down payment. First-time homebuyers can withdraw up to $25,000 from their RSPs (so $50K for a couple) through the federal Home Buyers’ Plan.

Otherwise, a mortgage lender is going to want to see bank statements or other investments showing that you have enough money available to make at least a minimal (five percent) down payment.

Also worth keeping in mind is that for every point below 25 percent your down payment you’ll pay an escalating rate of mortgage insurance. For more on that, see “The (Additional) Costs of Buying A Home.”

Emergency Preparedness

While only a crazy person would squirrel away their life savings in the proverbial mattress, it is wise to have some cash on hand for emergencies. Many people in Ontario were caught off-guard during the Great Blackout of 2003 when they discovered that none of the ATMs they relied on to access their bank accounts were working. At the same time, credit card systems were also down, so they found themselves in a temporary cash-only society. For a single person, $100 to $200 should be enough to tide you over for a couple days of crisis. If you have a family, consider how much money you’d need to feed and provide for everyone for 48 hours.

A few years ago, my retirement-age aunt and uncle sold their long held family home and downsized into something that better suited their needs. When I went to visit I was surprised: this lovely, modern house was, in fact, the same size as their old home, just laid out differently. True, having fewer stairs was better, but there was still the same amount of space to clean and actually quite a few more bathrooms.

Now, very sadly, my uncle is gone and my aunt has been left behind with a home she worries is too large for her — and she’s still got a small mortgage.

It’s a common story: when we reach a certain age it seems to make sense to downsize. But with the real estate market still so high, and the range of sizes and shapes of houses, townhouses and condos out there, it’s actually quite difficult to find the right place at the right price that will work for years to come.

Here’s some suggestions for getting downsizing right:

Think about your life

When a couple moves out of the family home and leaves that life behind, there’s often a sense that life will take a dramatic turn and you’ll suddenly start running marathons or playing bridge or taking in theatre nightly. The truth is, we may take up a new hobby now and then, but life in the boomer or retirement years often doesn’t change all that drastically. When you think about your next home, make sure it will suit the life you are living right now, but with minor alterations.

If you love to take long walks, be sure your place is near great outdoor spaces. If you eat out a lot, ensure there are restaurants nearby. And if you truly and utterly adore gardening, do not even consider a condo. Conversely, if you never use gyms and swimming pools, don’t fork over extra to live in a complex with those facilities.

Look around at your current place and see how much of the space you really use. Think ahead creatively to how you could combine the use of spaces in a smaller home: your computer workstation could be integrated into a TV room. The couch in that room could be a pull out to accommodate the kids when they visit. Do you really need both a kitchen and a dining room table?

Accept some change

That said, moving to a smaller place in a different location might change some of your lifestyle habits by necessity. If you move to a downtown condo, for instance, getting rid of a second car will be a must. That means taking transit sometimes, or sharing rides with your spouse or others. Throwing huge dinner parties with lots of guests might also be more difficult in a smaller home. (Of course some condos have party rooms so you might actually be able to go bigger!) You might like holding on to all your old winter coats from decades past, but some might have to go.

Crunch the numbers

Take a lot of time to visit townhomes, condos and smaller houses and look very closely not just at the listing price, but the final sale prices. Ask about things like condo fees, as they will increase your living costs in a condo. Get your home appraised and crunch the numbers to be sure there’s truly a savings difference. Remember things like closing costs and moving fees. And as well, if you are moving to a smaller space, you may need to buy a new compact couch, bed and diningroom table to fit your new rooms.

Make a budget to see what life will cost in your new home. Aim to be mortgage free if possible and to truly run on a monthly budget that’s smaller than what you’re paying now.

Purge

It’s very had to imagine living in a smaller space when you’re surrounded by the stuff you’ve been collecting for decades — and most people move into too large a space when they do relocate. Start tossing your old files, broken pieces of furniture and books no one has read for years. You will need to really see what it’s like to live with less. Plus, when you do sell your family home, your agent will ask you to declutter anyway. If the process is daunting, hire a professional organizer who specializes in downsizing.

Assess all your costs

While you’re looking at a smaller home and a more simplified lifestyle for retirement or to prepare for it, assess all your other monthly costs to be sure you’re really getting your money’s worth. Ponder if you need all those stations on cable or if there are other options. Discuss if you truly need a home phone anymore. Call your home and car insurance provider to be sure you have the right coverage and aren’t paying for a long commute you no longer make or forking over for premium coverage on a car that’s 10 years old.

Are you ready?

It takes some downsizers two or three moves to get it just right. That’s an expensive approach. You’re better off taking your time to find the right new home that will truly suit your lives for the next few decades and give your life a boost with some minor adjustments, not a major makeover.

There are a handful of clever financial moves out there that you can pull to work existing banking and tax rules. Using your RRSPs to pay down your mortgage is one of them.

It’s known as a self-directed mortgage. It’s not a commonly used trick, but one that might suit you if you’ve got more socked away in retirement savings than you have left on your mortgage.

Secondly, you’ve got to have a great financial team at your bank who will lead you through this somewhat complex manoeuvre. Said team should run the numbers carefully to make sure it makes financial sense for you.

What is a self-directed mortgage?

The RRSP mortgage is often called the self-directed mortgage. The premise is somewhat simple: you take your RRSP money, pay off your mortgage, and then gradually put money back into your RRSPs. Instead of merely borrowing from the bank to pay for a house, you borrow from your own RRSP savings to do the job.

That means you’re paying interest to yourself, not the bank. This is the appeal of the move.

The Costs

To do a self-directed mortgage, which takes some help from the bank and legal professionals, there are additional costs. Banks usually charge a one-time fee to set up the mortgage of $250 to $300 and annual fees of around $250. As well, there are legal fees of around $1,000 at the start.

This new mortgage must be insured by the Canadian Mortgage and Housing Corporation (CMHC), the idea being that you don’t want to lose all your retirement savings if there’s a problem, so you need coverage. That will run you about 0.5% of the entire mortgage amount.

The Rules

This is a strictly organized move, and your bank or financial planner can inform you of all the regulations. One is that you must pay the going interest rate to yourself as you pay back your RRSP.

The Upsides

Since you are paying off your RRSP mortgage regularly, with interest, you are guaranteed a good rate of return on your retirement savings. Even if the markets go up and down, you’re paying interest every month — and that’s the mortgage rate, not the very low interest rates that savings account or money market funds pay out.

The Downsides

Mainly, it’s the sea of charges I mentioned earlier. As well, you are locked into this program long term — you can’t liquidate your money or change your mind all of a sudden. Also, some critics note that this move works better in higher interest rate climates: so you’re making a higher fixed rate on your RRSP investment. (However, the market volatility of today might negate this situation: no one is assured of their investment returns on the market right now.)

Get Advice

Like many of these complex financial moves, this is not something to embark on lightly. You need a great financial advisor or bank representative to help you truly understand how this works and to crunch the numbers specific to your situation to be sure it really makes sense for you.