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Roman and Christine are a charming family full of financial contradictions. By day, Roman manages cash and balances budgets. But, when it comes to their own finances, the more they make, the more they spend. They would like to be able to help their kids to purchase their first homes, as their parents did for them – but, at the rate they spend, they will have nothing but receipts to leave as their legacy.
That’s the scenario for the first episode of the recently broadcast TV series “Burn My Mortgage“, that attempts to show homeowners how to reduce their mortgage burden by doing small sacrifices that will eventually lead to a substantial decrease in the number of payment years and to savings of tens of thousands of dollars off their mortgages.
In this first episode the family is spending $17,000 a year on sports equipment and events, plus $12,000 a year dining out, ordering in and entertaining friends, and another $17,000 a year on things like vacations, housekeeping, landscaping and dry cleaning.
By the end of the show, the family learns that by cutting spending on those unneeded luxuries by half, they can pay their mortgage off much sooner and save a big chunk of money in interest. The message is that ignorance and a little sacrifice is preventing many families from reaching a mortgage-free life. For example, in this first episode, Roman and Christine’s mortgage details before entering the program are:
- Mortgage Amount: $450,000
- Amortization: 25
- Interest cost: $130,000
- Actual Cost of Mortgage: $580,000
and after some common sense corrections it becomes:
- Mortgage Amount: $450,000
- Amortization: 11
- Interest cost: $55,000
- Actual Cost of Mortgage: $505,000
You can watch the full first episode of “Burn My Mortgage” online at the following link:
http://www.wnetwork.com/
5 Quick Tips to reduce energy and save money
As the cost of energy becomes a substantial burden in our budget, it is comforting to know that by exercising some care and common sense, there are simple ways to use less energy, spend less money, and reduce your carbon footprint, all while keeping all home utilities functioning.
By using less energy you are contributing to helping preserve the environment. Many power plants are fueled by oil, coal and natural gas, so the less energy we use, there is less pollution in the air, less risks to our health, less smog and acid rain and more of a brake on the pernicious effects of climate change.
To help Canadian homeowners reduce energy and save money the October issue of Consumer Reports Canada offers these quick and practical energy-saving tips:
- Program your thermostat. By reducing your energy use at night or when you’re not home, you can save up to 20 per cent on yearly heating and cooling bills.
- Unplug when not in use. According to the magazine, between “five and 10 per cent of residential electricity goes to devices that draw power when they’re off or in standby mode.” Time to unplug the video games, kids.
- Stop pre-rinsing. Running dirty dishes under the tap before throwing them in the dishwasher wastes close to 30,000 litres of water a year — and that doesn’t include the cost of heating the water.
- Cold water works. Several laundry soap manufacturers offer cold-wash detergent designed to remove stubborn stains and dirt without having to use scalding hot water. To further reduce costs, switch to off-peak hours and only wash/dry full loads.
- Fix leaky ducts. Seal and insulate heating and cooling ducts throughout your house to prevent energy loss. It could save you hundreds of dollars a year.
For more energy-saving tips, please visit these helpful websites:
Falling long-term Mortgage Rates to provide temporary Relief for Homeowners
Homeowners in Canada may soon experience some temporary relief from the rising cost of home ownership, according to the RBC Economics Research report released on Monday, that found home ownership costs continued to rise in the second quarter of 2010, even as housing sales slowed significantly.
The six-month period starting last October was a period of exceptionally strong housing demand and rising prices in some markets, particularly in British Columbia and Ontario, due to a number of factors.
“While housing demand has cooled considerably since winter, a matching decline in homes available for sale has kept markets in Canada sufficiently tight to allow further modest price increases,” the report said.
However, rising household income, a trend toward falling long-term mortgage rates and the expectation that home prices should moderate slightly will provide consumers with some short-term respite, the report said.
The report found the costs of owning a home increased the most in Ontario and British Columbia, where consumers are most sensitive to mortgage rate changes because the high property values in those provinces amplify the impact of an increase in monthly mortgage changes.
Those provinces were also slapped with the new harmonized sales tax in July that now applies to real estate services and others associated with purchasing a home.
The RBC housing affordability report measures the proportion of pre-tax household income required to service the costs of mortgage payments, property taxes and utilities.
It found the price of an average two-storey home rose 10 per cent from the same quarter last year to $374,200, taking up about 48.9 per cent of income.
Statistics Canada has published a 2006 study labeled “Impact of home equity on incomes of retirement-age households”, that shows how the equity that homeowners have built up through a lifetime of investment in their homes makes an important contribution to household finances as they enter retirement.
By retirement age, 75% of households are homeowners, and of those, 74% own their homes without a mortgage.
The economic benefit of owning a home is equivalent to the rent that does not have to be paid.
In 2006, when the value of this benefit was taken into account for households headed by individuals in the age group 60 to 69, it increased incomes by $5,500 or 10%.
For households headed by those in the age group 70 and over, incomes rose by $5,400 or 12%.
For households in the age group 70 and over whose household income was ranked in the bottom 20%, home ownership raised incomes, on average, by about $4,200 or 20%.
For households in the same age group whose income ranked in the top 20%, income increased by $10,400, but, in proportional terms, by a more modest 7%.
Note to readers
Recently, concerns have been raised as to whether Canadians are prepared for retirement.
Using data from the 2006 Survey of Household Spending and the 2006 Census of Population, this study estimates the contribution to household finances generated by the home equity of working-age and retirement-age households.
Net income is defined as gross income less income taxes and payments made for Employment Insurance, life insurance, annuities, and public and private pension plans. The benefit of home ownership is defined as the value of housing services provided by home equity. The value of housing services is based on estimates of the financing costs of owning a home and the rents paid for housing.
The research paper “Incomes of Retirement-age and Working-age Canadians: Accounting for Home Ownership,” is now available as part of the Economic Analysis (EA) Research Paper Series (11F0027M2010064, free) from the Key resource module of our website under Publications.