The stressful days before the big day

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So Monday is the day I head to the lawyer’s office to sign the final documents.  It is also where i spend the most money I have ever spent in one place.  So before Monday arrives, I need to get my finances in order.  Since my down payment is sitting in two different accounts, I was intending on writing two cheques, but for whatever reason it didn’t occur to me that I would need a bank draft and not a personal cheque.  This creates somewhat of a problem since PCF can’t really just print a bank draft for me.  So I went through some steps to see how I can transfer my funds from PCF to TD (where i CAN get a bank draft).  The trouble is how do I do this over the weekend.

The answer was actually to first transfer the funds from PCF savings (high interest) to the PCF chequings.  Now for those who don’t know much about PCF accounts, making changes with your high interest account does not happen instantly.  Rather, the changes appear the next business day.  So transferring the funds on Friday means i don’t actually have funds until Monday.  Cutting it close, but I’m used to cutting things close by now.  Now come Monday, I need to head over to TD and have the bank manager accept the cheque, call PCF and confirm the funds, then credit the account immediately with the funds.  This is instead of TD holding the cheque for X business days until the funds clear.  I don’t think TD will do this anytime you want, but for time critical situations it seems that they are very accomodating.

So, with Monday will come the end of the stress.  The last “cutting it close” item.  There is still moving day(s) but I am much less concerned about moving day since moving will be spread out across two days.

Thoughts on what has happened these past few weeks

Filed in Canada | Local | Market | Mortgage | Real Estate 2 Comments

Just going through some news items that have passed through my feed reader that I found interesting.

  • I found a very interesting video on the Fibonacci Rule (for trading in gold apparently).  I have my doubts on how well this really works, but it’s worth investigating at the very least.  It looks like you need a Market Club account (which i will likely look into soon).  I am skeptical about such “unexplainable” strategies, but there are a lot of things that make no sense when it comes to number theory (take a look at the Golden Ratio).  Long story short, this is a strategy i have never heard of so I would be interested to find out more about it, and how those lines are calculated in the video (honestly, i can’t find any information this anywhere).
  • Here is an Article that lists those responsible (partially at least) for the economic turmoil.  My favorite part is “… and six more who saw it coming” section, which details the smart people who profited from the collapse.
  • For Smith Manoeuvre people, MDJ does a good summary of the Lipson Case.  This is useful since the Lipsons attempted a SM-like tax strategy, however a lot more complex, and apparently completely illegal (though not obviously illegal).
  • A nice article from Chris Davies on the employment stats for Canada as of January 2009.  Interesting to note that Alberta is relatively unaffected by the massive amount of job losses (relative to the other provinces of course).  Saskatchewan also appears to be doing rather well to weather the economic storm.  Chris also does us all a solid by providing his numbers to look at (and maybe doing something with them).
  • Canadian Mortgage News had a great post on the 30 day banker’s acceptance yield, something which i have never heard of.  Seems that variable rates are driven by this yield (which was at 0.90% a few weeks ago).  He mentions the spread (prime – BAY) is high at 2.10% compared to a 10 year average of 1.69%.  While a lower BAY means a higher spread, which usually means lower variable rates, we didn’t see any adjustments yet.  However, the BoC will likely cut interest rates on March 3rd which will translate into minor subtractions from the current prime rate (otherwise the spread gets unreasonably large).  As an added note, while BoC interest rate changes affect variable rates more directly, fixed rates are not really correlated with the prime rate.  Fixed rates are governed by bond rates, as 5 year bond rates go up, you will see fixed rates go down (vice versa applies as well).  Finally, the article lists some mortgage details, and comparing my own numbers it looks like i am getting what i should be, prime + 0.8%.
  • Canadian Capitalist describes in a post that you shouldn’t go out of your way to make use of the HRTC this year.  By that he means that you may have better options, such as mortgage pre-payments or RRSP contributions.  If you have money set aside for a reno project, then now may be a good time to use it, but don’t dip into your other funds just to do home renos for the tax credit.  Personally, i am torn because i don’t have a reno fund, but i do want to convert my newly acquired basement into a rent-able space to generate a new income stream.  To do this, I would have to defer prepayments (and possibly RRSP contributions).  However, the resulting income stream would be very helpful for mortgage payments.  Additionally, owning rented space is a tax deductible expense (utils + maintenance).  I am not entirely certain whether not the conversion expenses can be considered tax deductible though, i will have to enquire about this.
  • Another post on the Canadian Mortgage News blog, this time about the benefits of variable vs fixed rate mortgages.  Most people know that more often than not (in fact 77%-90% of the time) variable is better than fixed.  However, it is noted in the article that this may be one of those rare times where fixed is actually better (you know, that 10%-23%).  Honestly I think that the article has substantial truth.  So why am I still going with a variable rate?  Well the answer is that in recent years, it has become much easier to estimate when the BoC will raise the rates.  So i am best off to hang on to the variable rate (in case the rates drop, which they most likely will on march 3rd) and when economists suspect the BoC to raise rates, i will lock into a long fixed term.  Additionally, 5 year bond rates are quite low these days so waiting for the rates to raise before comitting means that I might be able to lock into a fixed term at an even lower rate than today.
  • A local post from the Edmonton Real Estate Blog on the weekly update last week shows that I have chosen a good time to buy (for the short time span analyzed).  Edmonton real estate numbers have returned to relatively normal numbers (whether or not this is sustainable who knows), and to make matters better the (inflated in my opinion) condo prices have dropped, while SFH prices are on the rise.
  • MDJ had a cool post on getting HDTV for free!  This interests me because i currently do not have a cable package.  However, since we don’t live near the US (where the digital channel OTA switch is happening right away) I will likely not receive anything.  But in the future, when Canada finally switches over there is a good chance that free HDTV is better quality that paid HDTV.  The catch is that you don’t get all the channels.
  • MDJ explains that QuickTax now lets you build your tax return for free, and then once you decide to file with QuickTax you are charged.  This is handy as you can see whether or not QuickTax is any good first before committing to purchase it.  I will definitely be trying this out in the coming weeks/months.
  • more from MDJ (i like his blog ok???), where Ed Rempel describes how to use this recession to your advantage.  Through a nice chart capturing 183 years of US stock market history, we can visualize why the stock market is a good long term investment.  Additionally, it is pointed out that even in some of the most dire market conditions (the recessions and the depressions) the market tends to bounce back quite rapidly.  Will we see a quick (by quick i mean 2 to 3 years) bounce back to high annual gains?  History says yes we will!
  • Canadian Mortgage News explains why waiting for better fixed rates makes no sense in this market.  If you refuse to make use of variable rate mortgages, then you might as well commit to the current rates available for fixed terms.  Contact a broker and have them hold a rate for you, you don’t have to use that rate, but you can if rates go up.  If they go down, you get a new guaranteed rate from your broker.  Honestly, I do think fixed rates will go down a little but not significantly, so unless you have time to waste while you look for your house, i suggest at least reserving a rate for yourself before March 3rd.
  • Finally, to further the previous article, CMN posts an article link that helps explain how fixed rates are calculated by the lenders (PDF).  Worth a read if you are interested.

Getting My Smith Manoeuvre off the Ground

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After a lot of stressful days, I am finally over the hump of getting the SM off the ground.  I am a little surprised at the level of difficulty involved in just getting a readvanceable mortgage.  However, I understand that the banks are taking extra risk so they have to be extra careful during the application process.

In my case I have a pretty stellar credit rating, so that helps me get around a lot of the uncertainty.  Most of the stress involved in this mortgage was just due to shortened time lines.  I basically had 7 days (minus 2 for the weekend) to do EVERYTHING.  And by everything, i mean liquidating assets, HBP withdrawal, insurance, lawyer, appraisal, inspection, and probably a few more that i have now forgotten.  It was troubling, we’ll say it was a very tight time line with little room left to sit back and relax.

I was fortunate enough to have my request to extend the dates (most notably the condition date) extended a little to remove any doubt that I would be prepared in time for the deadline.  Now I find myself on the cusp of owning a house, with very few tasks still remaining.  It is a nice warm feeling to realize that not only have I moved on from the renting stage of life, but skipped past the condo and townhouse phase all the way to the detached home phase.  Some fortunate timing has allowed me to do this, and although 4 years earlier would have been even better timing, I was simply not in a position to buy anything at that stage.

Enough of these personal reflections, I do want to cover what has happened, what is happening, and what is going to happen (each list in order of occurance).

Happened (Past)

  • acquired mortgage pre-approval (note that this did not help much as the pre-approval doesn’t help with a readvanceable mortgage, other than giving you an idea of how much you can borrow)
  • put an offer on a house
  • received a counter offer (+10k)
  • re-countered with a new offer (counter – 5k, this was an obvious choice)
  • offer was accepted (yay)
  • start gathering paper work (brutal, proof of everything financial, and then some)
  • inspect the house (about $460 for a thorough job, nothing was terribly wrong, so keep moving forward)
  • appraise the house (required by the lender, house appraises slightly higher than my purchase price, yay)
  • receive lender approval (the funds are available, now onto the closing stages)

Happening (Now)

  • I have a copy of the mortgage contract, I am about to read through it and then sign it all
  • I also have been working on several excel spreadsheets that will help plan and forecast budgets and finances (more on this in a future post)

Going to Happen (Future)

  • I have to come up with a market strategy, I have a rough idea of the geographic, sector, and type distributions that i want to follow (and have created a nice spreadsheet to keep that in line)
  • Make use of the tax credits available this year (no sense wasting them, and investing in the market right now just isn’t profitable)
  • Need to set up automated transfers so that the mortgage process is a painless as possible

One last thing, since I am buying a new house and starting the SM, that means i will very likely not have enough personal finances to fund the LOC off the bat (which is the case in my situation).  Simply put, this type of mortgage requires 20% down payment; for a relatively young guy who is buying his first property (solo I might add), I simply don’t have the money to make 20% plus load up the LOC.  I had to liquidate assets just to make the 20% in the first place.  That means that I will be splitting the mortgage at 100%/0% (mortgage/LOC).  this basically means that my LOC will start out empty, and I will have to make payments (or pre-payments) before any credit will be available to borrow.  I will describe the details of my SM mortgage in a future post as well, so stay tuned for many posts filled with useful information.