Canadian Personal Finance Blog

The Bank of Canada announced a 1/2 point drop yesterday of one of their key rates to 2 1/2%, and made the statement:

Bank of Canada lowers overnight rate target by 1/2 percentage point to 2 1/2 per cent

The Bank of Canada today announced that it is lowering its target for the overnight rate by 1/2 percentage point to 2 1/2 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 2 3/4 per cent.

Normally I would be dancing in the streets and celebrating (the way I was yesterday for the Canadian Personal Finance 1000th Post), however, sometimes things are not as they seem to be at first blush, at least from one bank.

Toronto Dominion: When is Prime Not Prime?

That is actually an excellent question for Michael James, as he is a Pure Mathematician who revels in all things to do with Prime Numbers, however, in this instance Prime means, Prime Lending Rate.

As of two days ago TD (my current bank of choice) had their Prime lending rate (for only their best clients and least risky loans) pegged at 4.75% and their Variable Rate mortgages (at least some) were available at that very rate. Yesterday an odd announcement and change was made that these loans are actually now at Prime + 1%, or 5.75%, thus bumping up the rate for all of these mortgages almost an entire point (and adding much more to monthly payments).

I on the other hand use a secured line of credit which allegedly is at the TD Prime Lending rate of 4.75% as of two days ago. Today, I have seen no change in that rate either up or down, which worries me.

1. The rate should drop 1/2% in reaction to the Bank of Canada rate drop, but it might not
2. The rate might go up 1% as has happened with the Mortgages to reflect the banks concern about liquidity and credit.
3. The rate might only go up 1/2% as a combination of (1) and (2)
4. None of the Above and the rate simply does not change, thus the bank pockets 1/2% increase.

It’s The Economy Stupid

Thanks for the 1000th Posting

According to the Fraser Institute Tax Freedom Day for 2008 was Saturday June 14th. This alleged end of you earning money for taxes means you have the rest of the year to pay for all your other expenses. Speaking as a highly taxed individual (no matter how much I bitch about over spending in my household Taxes by far out strip all other spending we do).

The institute even has a fun little tool to figure out when your specific Tax Freedom Day which was kind of cool to play around with as well.

This artificial celebration really means very little, except that most Canadians pay over 50% of their income in various taxes (if you simply count the number of days until this happy day). How can things change? Less Government spending might help, smarter spending might be nice too (get more from all the money I give you). Given I haven’t had a raise in 5 years, it would be nice if the government was forced to do the same rethinking on spending that my household has had to do (I mean government in the Generic across the board sense, not just the Federal or Provincial folks).

Enjoy earning money for yourself now (figuratively, if not factually).

Mortgage Rates on the Rise?

Thanks to last week’s non-cut by the Bank of Canada most of the major banks are raising their Mortgage rates in reaction.  Any debt vehicle that has a variable rate hasn’t changed that I can tell, but the banks seem to think rates will be going back up very soon, and they are reacting accordingly.  TD Canada Trust’s rates can be found here, Scotiabank’s can be found here, but remember all these rates can be negotiated, and if you don’t want to do that, go to a Mortgage Broker and get a better rate there.

Funny no one has lowered the Credit Card rates lately (sorry had to have a jab at one of my favorite topics).

Yesterday I revealed that carrying debt is making me sick (no not figuratively, but physically). I think people who know me aren’t surprised, but I am impressed that I confessed this truth about me.

In my situation it is better to be paying off my Mortgage and debt in a faster fashion, than worry about my retirement savings. My statement (as has many of my commenters) is that this choice is a personal choice and you should choose what makes you comfortable.

What other reasons makes paying my debt or Mortgage off a better choice for me, let’s run through a few points.

Investing in RRSP is Better Started Early

While this is true, it also assumes you know how to invest, and where to put your money. For my regular readers you realize my early endeavors in the area of investment have been at best mediocre and at time disastrous (remember my top 5 investment regrets). If I had put the money I had “invested” on my debt I might well be much closer to being out of debt, than I am towards being able to retire.

If you are confident in your abilities to invest, or have a system you think you can rely on, starting your retirement savings at an early age is a good thing (if you don’t carry debt already).

Early Retirement is an Option

For me, I think this is not likely, unless I came into a very large amount of money, and even then, I think retired would be a relative statement, since I would do volunteer work full time instead. I have a very young son (almost a second generation in our family) and by the time I will be 65 he will be 21, so my guess is I will need to keep an income of some kind (other than retirement income) for a lot longer than I thought I would 10 years ago.

Debt Reduction as an Investment Vehicle

The best investment I know I can make right now is on my debt, since I can figure out exactly how much money I will save by paying it down, whereas, I couldn’t tell you what the price of any stock might be in 6 months.  Given I am paying about 5% on my debt vehicles, I know I am getting at least that much money in savings on the money I am paying into it (i.e. I am paying that much more on my principle).

Personal Conclusions

As I have been saying all along, debt repayment is a much better thing for me to be doing at this moment in my life.  I have some equity invested in my retirement (not nearly enough I know, but some), however the ill effects of carrying debt and my aversion to that fact points me towards a more aggressive payback schedule for these debts.  Whether this plan of attack can be fully implemented remains to be seen, as the only way to tell if a plan was successful is to look back after it’s implementation.

I am always open to hearing about personal achievement stories in these areas, so please feel free to leave a comment about your successes (or failures) in this area.