§Financing rate

·Compare both financing rates and the purchase price offered by dealers

oNegotiating the price

§Some dealers negotiate and some do not

§Sticker price is manufacturer’s suggested retail price (MSRP)

§Negotiating by phone or fax – may be beneficial

§Call several dealers

§Trade-in tactics

·Attempt to negotiate price of new car before mentioning that you have a trade-in

§Value of information

·Info is valuable so shop around

§Purchasing a car online

·Not as efficient as buying an airline or a book

·Purchase VS lease decision

oLeasing is a popular alternative to buying a car


§Do not need a substantial down payment

§Return the car at the end of the lease period

§Lower monthly car payment

oDisadvantages of leasing

§You have no equity investment, i.e. you do not own the car

§You are responsible for maintenance costs and damage to the leased vehicle

§There is usually a kilometer limit for leased vehicle

·Student loans

oLoan provided to finance a portion of a student’s expenses while pursuing post-secondary education

oObtained through the federal Canada Student Loans Program

oSet limit on how much students can borrow each year, based on assessed need

oProvincial programs can be used to cover what is not covered by the federal Canada Student Loans Program

oFull-time students

§Loan repayment begins after education is complete

oPart-time students

§Must make interest payments while studying

oStudent loans must still be paid back if you declare bankruptcy within 7 years of ceasing to be a student

·Debt management

oImprove your credit score immediately by

§Catching up on late payments

§Making at least the minimum payments on time

§Reducing your debt

oReview your personal financial statements

§Analyze your budget and establish a self-imposed credit limit

§Analyze your personal balance sheet and personal cash flow statement

·Use financial assets to pay down your debts immediately

·Cut back on expenses in order to increase your net cash flow

·If you find yourself with excessive debt balance that doesn’t allow you to make the minimum monthly payments

oSpend as little as possible

oConsider how you obtain funds to meet your monthly payments or to pay off your balance

oGet a debt consolidation loan from a financial institution

oAvoid credit repair services as you can often fix any credit mistakes yourself, without paying the services of a credit repair agency

oConsumer proposal

§An offer made a debtor to his or her creditors to modify his or her payments

·Creditors have up to 45 days of object

·Proposal can be made in cases where individual debt is less than $250’000, not including your home mortgage

·Removed from your credit bureau report once the consumer proposal terms have been met


§Individuals can file for bankruptcy when they become insolvent

·Insolvent: person who owes at least $1000 and is unable to pay his or her debts as they come due

§Property is given to a trustee in bankruptcy

·Trustee in bankruptcy: person licensed to administer consumer proposals and bankruptcies and manage assets held in trust

§Unsecured creditors will not be able to take legal steps or recover their debts from you

§Trustee in bankruptcy will sell your assets and distribute the money obtained to give to your creditors on a pro rata basis

§Spouse or common-law partner is not affected by your person bankruptcy

§Bankruptcy is a LAST option



·How much can you afford?

oShop around for a mortgage even before you start hunting for a house

oPre-approval certificate: provides you with a guideline on how large a mortgage you can afford based on your financial situation

§Also provides a mortgage interest rate guarantee that is valid for 60 to 120 days

§Mortgage approval is not guaranteed

§Let’s buyers know you are serious about buying

oGross debt service (GDS) ratio: monthly or annual mortgage-related debt payments-including mortgage loan repayments, heating costs, property taxes (and half of any condominium fees, if applicable) – divided by your total monthly or annual gross household income


oTotal Debt Service (TDS) ratio: mortgage-related debt payments plus all other consumer debt payments divided by your total monthly or annual gross household income


·Affordable down payment

oWhat is the market value of the assets you will use to make your down payment?

oMaintain some funds for liquidity purposes to cover unanticipated bills and closing costs

oThe Home Buyer’s Plan (HBP) can help first-time home buyers reach their goals

§Allows each home buyer to “borrow” up to $25 000 from their RRSP interest-free

§Allows buyers up to 15 years to pay back this HBP “loan”

oAffordable monthly mortgage payments: refer to your cash flow statement

§Your mortgage payment may replace a rent payment, but there are other expenses to consider

§The larger your mortgage payments

·The less you can add to your savings/investments

·The lower your liquidity

·The greater you overall financial risk

·Criteria used to select a home

oPrice – stay within your budget

oConvenient location

oMaintenance (newer homes tend to have fewer and less costly repairs while a home with a large yard may require more maintenance)

oSchool system

oInsurance (higher for more expensive homes and home in high-risk areas)

oTaxes-  determined by the mill rate set by each jurisdiction

oResale value (location, location, location!)

oPersonal preference

·Relying on a relator

oHome seller is responsible for paying a realtor commission

§Traditionally, 7% of the selling price on the first $100 000 and 3% on the remaining price

§Flat fees structures (fixed percentage or dollar amount) are becoming more common

oUsing only realtor services

§Multiple listing service: an information database of homes available for sale through realtors who are members of the service in Canada

§For Quebec: or

·Negotiating a price

oMost sellers are willing to accept less than their original asking price (unless it is a “seller’s market”

oSeller may accept, reject, or suggest you revise the offer

§Contract can go back and forth a number of times

oContract stipulates the price, and may include conditions such as the completion of a home inspection, the move-in date, and the approval of a mortgage

·Focus on ethics: Disclosing defects

oThe law requires disclosure of any defect that may affect the value of the home

oDisclosure is not only legal, but moral

oFailure to disclose can result in a lawsuit for misrepresentation

·Down payment

oRepresents your equity investments in the home

·Conventional mortgage

oA mortgage where the down payment is at least 20% of the home’s appraised value

·Transaction costs of purchasing a home

oLender bears the risk that you may default on the loan

oDown payment provides a cushion in situations where the lender has to repossess the home and sell it

oHigh ratio mortgage: mortgage where the down payment is less than 20% of the home’s appraised value

§Cushion provided by the down payment is lower

§Lender will require that your mortgage be insured

·In the event of default, a mortgage insurer insures a high ratio mortgage, thereby protecting the lender’s investments

·Mortgage loan insurance premium may be paid immediately by the borrower, or added to the mortgage

oVender take-back mortgage: a mortgage where the lender is the seller of the property

§Buyer makes mortgage payments directly to the seller

§Property title transfers to the buyer

§If the buyer defaults on mortgage payments, the property transfers back to the seller

·Closing costs

oHome inspection fees

§Report on the condition of the home (if the home requires any major repairs, you can re-evaluate your decision to purchase)

oAppraisal fee

§Used to estimate the value of the home and thus protects the financial institution’s interests

oReal property report (land survey)

oLand transfer tax

oLegal fees and disbursements

oGST/HST (paid on the purchase of a new home)

oTitle insurance

§Protects the insured if it turns out that the real property report is inaccurate

oInterest adjustment

oPrepaid property tax and utility adjustments

oHomeowner’s insurance

§The lender will request proof that the buyer has purchased homeowner’s insurance before the mortgage proceeds are advanced to the lawyer (notary in Quebec)

oLoan protection life and disability insurance

§Protects the lender against financial loss as a result of injury, illness or death of the borrower

·Commonly referred to as creditor insurance

·Mortgage options

oAmortization period

§The expected number of years it will take a borrower to pay off the entire mortgage loan balance (maximum 25 years)

oMortgage term

§The period of time over which the mortgage interest rate and other terms of the mortgage contract will not change (terms: 6months, 1,2,3,4,5 and 10 years – always less than or equal to the amortization period)

oPayment options

§The frequency with which you make a mortgage payment (the quicker you pay off your mortgage, the less interest you pay)

·Mortgage type

oClosed mortgage:

§Restricts your ability to pay off the mortgage balance during the mortgage term unless you are willing to pay a financial penalty. They are however more popular:

·Offer a lower interest rate

·Prepayment privileges: features that allow borrowers to increase their monthly mortgage balance during the course of each mortgage year

oOpen mortgage

§Allows you to pay off the mortgage balance at any time during the mortgage term

·Characteristics of a fixed-rate mortgage

oFixed-rate mortgage

§Mortgage in which a fixed interest rate is specified for the term of the mortgage

·When homeowners expect interest rates to ride they tend to prefer fixed-rate mortgages

·Lenders are usually willing to negotiate their posted rates

oAmortization schedule

§Discloses the monthly payments you will make based on

·Specific mortgage amount

·Fixed interest rate

·Amortization period

·NOTE: each mortgage payment includes the repayment of a portion of the principal and interest

oImpact of the mortgage amount on the monthly payment

§The larger the mortgage amount, the larger the mortgage payment

oImpact of the interest rate on the monthly payment

§The higher the interest rate, the larger the mortgage payment

oImpact of the amortization period on the monthly payment

§The longer the amortization period, the lower the monthly payment and the higher the amount of interest payable over the life of the mortgage

·Variable-rate mortgage (VRM)         

oMortgage where the interest charged on the loan changes in response to movements in a specific market-determined interest rate

·Characteristics of a variable-rate mortgage

oRelatively low initial mortgage rate over the first year or so

oThe allocation of your mortgage payments to principal and interest will change if the VRM rate changes

oConvertible mortgage

§Allows you to renew your mortgage, before the end of the current mortgage term, without paying a penalty

·Useful for individuals who feel that mortgage rates are about to increase

·Allows individuals to “lock in” their current mortgage interest rate for a longer term

oInterest rate index

§Initial mortgage rate will be adjusted to stay in line with the prime rate of interest (prime rate)

·Decision to own VS rent

oCosts of owning

§Mortgage payment

§Down payment

§Opportunity cost of the down payment

§Property taxes

§Home insurance

§Closing costs

§Maintenance costs


oCosts of renting


§Tenant’s insurance

§Opportunity cost of security deposit

·Mortgage refinancing

oPaying off an existing mortgage with a new mortgage that has a lower interest rate

§You will incur closing costs and prepayment penalties

§Savings on your monthly mortgage payments may exceed these costs and penalties

§Rate modification (if interest rates decline, some lenders may be willing to allow a modification to allow borrows who have fixed-rate mortgages to a “blend-and-extend” interest rate option

§Fixed-rate mortgage is revised to reflect the prevailing mortgage rate

§Avoids costs/penalties associated with mortgage refinancing

§Refinancing analysis (beneficial when a homeowner plans to own the home for a longer period)



·Auto insurance

oAuto insurance insures against

§the legal liability (as a car owner) that may arise from causing death or injury to others

§the expense associated with providing medical care to you, your passengers, and other persons outside your vehicle

§the costs associated with damage to your automobile

§depending upon your province of residence, auto insurance is provided through a government agency or private property and casualty (P&C) insurance companies

oAuto insurance policy provisions

§Insurance policy: contract between an insurance company and the policy owner

§Auto insurance policy: specifies the coverage provided by an insurance company for a particular individual and vehicle

§Three sections:

·Third party liability coverage (Section A)

·Accident benefits (Section B)

·Loss or damage to the insured automobile (Section C)

§Section A

·Legal term that describes the person(s) who have experienced loss that you are responsible for after an at-fault accident. The two most important components of your car insurance policy are:

oBodily injury liability coverage: protects you against liability associated with injuries you cause to others

§Also covers you if you cause injuries to others while driving someone else’s car with their permission

oProperty damage liability coverage: protects against losses that result when the policy owner damages another person’s property with his or her car

§Does not cover your own car or their property that you own

·NOTE: you should always purchase more than the minimum required property damage liability coverage amount

§Section B

·Accident benefits coverage: insures against the cost of medical care for you and other passengers in your car

oProvides coverage for medical payments, funeral benefits, loss of income as a result of death or total disability, and uninsured motorist coverage

oMandatory in all provinces except Newfoundland and Labrador

oMedical coverage applies only to the passengers and the driver of the insured car

·Uninsured motorist coverage: insures against the cost of bodily injury when an accident is caused by another driver who is not insured

oAlso applies if you are in an accident caused by:

§Hit-and-run driver

§Driver who is at fault but whose insurance company goes bankrupt