Don’t shoot the messenger: practical tips on talking to companies part 1

Before I became a mortgage broker, I was a call center employee. I started with Primus Canada in 1999 as a customer service representative. It was my job to answer incoming calls from existing clients and prospective customers looking for a better long distance plan. (As the company grew, we got into pagers, dial-up internet, broadband internet, voice over IP, and cell phones too.) The job was, in hindsight, some of the best training I could have hoped for in terms of how to deal with customers. The work was laborious and a huge test of patience on a daily basis. Sometimes you felt like a rat in a cage. Not only were you expected (and monitored) to take upwards of ten calls per hour, you were required to say certain things at certain times with even the most “undesirable” of attitudes on the other end of the phone. I was quite good at my job. I was especially good at handling an “irate customer” -there’s some industry jargon for you- someone is absolutely blue-in-the-face angry the second they call in. I was so good at handling these people that I got promoted (even though sometimes it felt like condemned) to the roll of escalations manager. Have you ever been so pissed off that you wanted to speak to a manager? Well I was the guy that you’d speak to.

My favorite call was always the “Dial Up Dad”. About once a week, my phone would ring and some poor CSR (customer service rep) would be on the other end with a furious customer on hold. The customer had received their bill for dial-up internet service and it was in the hundreds, maybe even thousands of dollars, a far cry above the advertised “unlimited $19.95″ a month. Their concern was understandable. What had happened? How could this possibly be accurate? Well, as we know, the internet and “adult-related material” have had a long and exceptionally stable relationship. Back when dial-up was king, surfing to naughty websites would re-direct your phone call to an international long distance destination after (And ONLY after) the user clicked an “OK” box explaining this would happen. The result? Charges of $1.00/min and more to places that most people can’t pronounce.In seemingly all cases, there were teenage boys living in the home. The charges on the bill frequently happened late at night or between the hours of 3.30pm and 6.00pm, when little 14 year old Jimmy was at home alllll alone after school.

As the escalations manager, my job was to listen to the customer, review their account history (including payments, notes from other calls, and length of time as a client, amonsgt other things) and make a decision on their bill that would please both parties. I didn’t have a specific amount I was allowed to credit on the account – my dcisions were always fairness, reasonabililty and to a large degree, how the customer chose to speak to the company.

Tune in tomorrow for part 2….

New rules in the bond market on the horizon

With fixed rate mortgages being tied closely to bond yields, it’s important to keep an ey on new regulations in that industry. Tomorrow, the Investment Industry Regulatory Organization of Canada (IIROC), will propose new rules on Friday that will revamp bond market pricing in an effort to make it more transparent and more cost effective for potential investors. By the sounds of things, consumer protection is one of the main goals here. The full story is available here, and I’ll be posting a new story tomorrow once we see what the new rules are. Ideally, I’m hoping that these new rules will keep bond yields low, thus keeping fixed rate mortgages low as well. If and when inflation does kick in, fixed rates will become increasingly popular, particularly amongst the more risk adverse clients. Stay tuned.

Pay off your mortgage or help spur the economy?

As we all know by now, the Bank of Canada has dropped their rate to 0.25% with many of the retail lenders following suit with their rate at 2.25%. I know some people that have a Prime -1% variable rate. They should be thinking about vacation right about now. The goal of a cut like this is to put money back in the hands of the consumer. I think it will have a positive effect. As much as I’d like to think that most people will keep paying the same amount towards their mortgage to pay it of faster, I don’t think that will be the case. (the statistics don’t lie. Only about 3% of mortgage holders make pre-payments on their mortgage debt. That tells me that some money in the wallet now is more important than a lot more money in the wallet later.) Spring is here in Vancouver, and for many people, it’s time to get outside, soak up the sun and shake off the cobwebs of winter. That also equates to sitting on a patio in Yaletown sipping cold beers and watching the playoff hockey. It’s a west coast luxury that we wait all winter for, and being frugle in May just isn’t that much fun. I heard a rumour the other day that the Canadian Government will begin to become active in bonds to keep fixed rates low as well. That is excellent news for the risk adverse home owner/home shopper looking to get into a new home. It’s also great news for those currently in a fixed mortgage paying rates above 5%. If you lot can swing it, the numbers might just gel to buy you out of that old clunky mortgage and get you into something like a smooth and slick 3.69%. I should be selling cars, maybe. (Beware the IRD) Send me a message below if you’d like me to run the numbers. Why just this afternoon I saved a man about $5,000.00 by switching him away from his current rate.

“The most powerful force in the universe is compound interest”

Albert Einstein said that. I think we’d all agree that he was a pretty sharp cookie. I’m not so sure he’d appreciate being referred to as a cookie, but I digress.

To pick off where I left off yesterday, I want to show you why making even small extra mortgage payments can pay long term dividends, especially if you subscribe to the old adage “a penny saved is a penny earned”.  Almost all mortgages come with what’s called pre-payment privileges whereby you are allowed to pay a certain percent extra at given times above and beyond your normal mortgage payment. Why would you want to do this? In short, paying more money within the same contractual period (i.e. 5 years) will actually shorten your amortization and allow you to pay off your debt a heck of a lot faster, freeing up your money for more important things, like heli-skiing trips and sweet new cars.

So, here’s the scenario. Let’s suppose you have a mortgage for $350,000.00 at 5% interest on a fixed rate for 5 years. Your mortgage payment will be $2,035.62/mo. If you keep making the exact same payment for the full 5 year term, at the end of the term your balance will be $309,776.11. Further, your last payment of the 5 year term will be broken down as $755.02 going to principle and $1,280.60 going to interest.

After a full five years at it, 63% of your payment is going straight to the bank. Yuck. That sort of like getting to what you thought was the top of a mountain only to find out there’s yet another peak to go.

Let’s change the scenario a bit. Suppose you took advantage of the 20% pre-payment privilege on every payment that you made, making your new monthly payment $2,442.00/mo. Here’s where the savings really happen.  At the end of the 5 year term, the balance will be $282,175.93. The last payment in the term will be $1,273.08 towards principle and $1,168.92 towards interest.

52% or your payment is going to reducing your principle. Sounds a lot better to me.

To make this strategy work, you really need to take a close look at where you spend your money. The difference in monthly payment between scenario 1 and scenario 2 is about $400.00. I know people that spend half that a month on coffee. If you’re young and single and Deadmau5 is in town and you just need to get that new pair of Rock and Republic’s and you want to drink Heinekens and Jager Bombs all night (not to mention getting a new haircut)…..this strategy might not work for you. I have friends that can easily rack up $400.00+ bar tabs. Ironically, those friends aren’t home owners.

The difference in balance after 5 years between the two scenarios is about $27,601.00. You don’t have to be Einstein to figure out that cutting down on habitual spending can save you a mountain of money. Where can you save money in your day-to-day activities?

Back to basics on the homestead

Every cloud has a silver lining, right? I think so. I think that your attitude dictates your reality in many ways, especially at a subconscious level. So, in times of economic decline, it’s really important to keep your chin up and keep your wallet on a tighter leash.

I’ve been guilty of spending money that doesn’t need to be spent many times, and this recression has reminded me that a “back to basics” approach at home can really be a lot easier on the bank account. I love to cook, so eating out for me has been cut back a lot. Frankly (with the exception of a few places in town), I like the food that comes out of my kitchen a whole lot better than a restaurant, plus I know exactly what I’m eating.

Booze is another thing that’s been cut back on. As much as it’s nice to have a glass of wine or a cold crisp one, drinking is mighty expensive and doesn’t really contribute to an overall healthy lifestyle in my opinion. (I have heard that a glass of red wine a day is good for you though…see, I’m talking myself out of it already.)

Driving is yet another vice that sucks money out of our wallets. Gas is still hovering at about $1.00 a litre. I could go on a rant about how ridiculous that is, but instead I’ll stay positive and suggest walking or biking to where you need to go on a daily basis. Indeed, it does rain in Vancouver, but there is always Goretex.

For tomorrow’s blog post, I am going to show you how making extra payments to your mortgage can save you thousands of dollars and get you out of debt in a lot less time than you think. Tune in. It’ll be worth it.

In the meantime, click here for more Home management tips and ways to save your money!

Vancouver Real estate back on track?

“We’re just waiting for things to come down in price a bit”.

I think that is probably one of the more common things I hear from people who are thinking about getting themselves into the Vancouver real estate market. And although it’s wise to watch any market closely before investing, I think there needs to be a certain amount of realism as well. In my opinion, the bottom line is that we live in one of the most beautiful, sought after places in the world, and demand will ALWAYS make Vancouver an expensive place to buy and live. There’s not going to be some miracle breaking point where suddenly, that three bedroom house on Cypress and 13th is for sale for $325,000.00. Not a chance.

Strike while the iron is hot, I say. Mortgage rates, especially fixed, are at record lows right now. The Bank of Canada’s prime rate is sitting at 0.5%. You don’t need to be a rocket scientist to figure out that it can’t go much lower. Fixed rates, which are based on Canadian Bond yields, while at record lows, are forecast to go up soon. (once the 5 year yield hits 2.0% or higher, watch for 5 year rates to go up as well.)  Spring is here, and it’s traditionally the time of year when more people are out shopping. More shoppers=greater demand=higher prices. If you ask me, gone are the days where Vancouver real estate comes below asking price. I think the bottom hit a while ago and things are going to get uber competitive again soon. We’ve also got to contend with the urban myth of the 2010 Olympics. I still think that a large number of people have that year fixated in their minds as when the need to own by. Whether they’re right or not isn’t the point; their presence in the market will drive prices and demand back up.

For more information and a slightly different take on the same issue, check out The Financial Post’s article here.

I’m off to play some disc golf. Have a great weekend!

Ship Shape Credit Part 2

Here are some hot tips on keeping you smelling like a rose when it comes time for a meticulous bank underwriter to look at your mortgage application:

1) Clear up ALL past due balances, even if it’s for a small amount.

2) Do you have an outstanding debt that you could afford to pay off right now? If you can, do it! If you don’t have enough cash to cover the whole thing, get it down to a lower level (Get the balance down to 50% of the limit, that will definitely help), or try to distribute the debt amongst other credit lines. Some people will open a line of credit to consolidate/reduce expenses.

3) Do not close existing credit card accounts – the credit history they offer can work in your favour.

4) If you’re married and you and your spouse keep separate credit cards, you can transfer balances to one spouse’s list of accounts. This will allow the “transferrer” to increase their credit score without doing damage to the “transferee”. This can be done if one spouse wants be be the sole borrower on a mortgage agreement – ownership of the home remains in both names.

5) CHECK YOUR CREDIT REPORT OFTEN!!!!! As strange as it seems, sometimes you need to police your own credit. If there are errors on your bureau, you need to get them removed. If you go to http://www.equifax.com/contact_us/en_ca you can get more info. You can also get a free report by calling 1-800465-7166.

6) If you’ve applied for a pre-approval, try to avoid applying for additional credit until your mortgage is in place. Some lenders will pull an additional credit report on the closing date just to be extra cautious of one’s level of indebtedness.