Canadian Personal Finance Blog

As has been pointed out by both Canadian Capitalist and Michael James the Bank of Canada’s 1/2 point rate drop has not been reflected by the major banks yet, in terms of Mortgage rates (especially in longer term mortgages). Short term mortgages and credit vehicles that are typically based on the Prime interest rate, do reflect this dropping, but longer terms (greater than 6 months) certainly do not reflect this drop.

Why are Mortgage Rates not Lower? Darn good question. Currently the TD Bank’s prime rate is 4.75% and that is also what they are charging on their variable rate 6 month mortgage, however, after that the rates start climbing, to a maximum of 7.75% for a ten year fixed rate mortgage (more than twice the current Bank of Canada rate).

Remember that all rates posted on these sites are negotiable in some fashion or another, and here we come to the real core of this post.

If the bank says, “We don’t negotiate Mortgage rates”, simply leave, and call a Mortgage Broker and you might be surprised that the Broker can get a cheaper rate from the exact same bank (and remember the Broker makes money on this too).

Banks Need You

Remember, if you are a good credit risk and you want to truss yourself up with a long term debt like a Mortgage, the Banks want you! They want your business, and they want your money passing through them. They want you even more, if you carry balances on your Credit Cards, but let’s not go to that subject today, but remember, the bank wants your business, and keep that in mind.

When you are talking to a bank about Mortgage rates and such, it is an excellent time to discuss getting Free Banking too. This corporation wants your business, now is the time to be asking (or demanding) for the best deal you can get. Be prepared to talk to a few banks, and also be prepared to be promiscuous with that information, tell the banks the deals other banks are offering you, and see if they will match the deal or even make a better deal (I don’t suggest lying, mostly because I am a lousy bluffer or liar, being dishonest isn’t the way to go).

Let me be honest, I am awful at negotiating, but I am learning that it is an important skill to develop, so I work on it. It is all a game for me, and getting the best deal I can, is the goal of the game. A really good tactic is to get friends or family to tell you what deal they got, and see if you can beat that deal. You may not get that deal, but maybe you’ll get a better deal, you never know, until you negotiate.

The only thing I can tell you for sure, if you do not try to negotiate, you will not get a good deal from the bank. Strangely the opposite of this is not true (i.e. if you negotiate you will get the best deal), but, if you don’t negotiate, I promise you will not get a good deal (unless your father or mother or a relative owns the bank or works at the bank, but then you are playing the game by using connections, so go for it).

After posting yesterday’s best of: Free Banking post, I received my monthly balance sheet from the bank for my bank account, and dutifully I went into Quicken and ran my monthly reconcile of my chequing account. At the end of the document from the bank it had this very interesting statement:

You have saved $72.50 in Service Charges this month

I beg your pardon? The statement reflect that if I was paying for the $12.95 a month TD program, that I might not be paying for right now, I have saved $72.50. If I was gouged for $73 in bank service charges for a month, I’d start putting my money in a mattress or carrying it around in my shoe.

Then I started to wonder is there anyone out there who actually pays that much a month to the banks? I really hope that is not the case, as you saw yesterday, I think it’s ridiculous to pay $13 a month, $73 a month would be highway robbery. What services could be worth that much?

• Tellers deliver money directly to my house?
• Bank Manager drops by and helps clean out my garage for the spring?
• FREE MONEY! (two words I love to see)
• Interest payments that amount to more than a single bus ticket in value?

Given none of those services are offered by my branch of TD, my guess is those service charges of $73 are fiction, since no one would pay it, would they?

This is why I invest in banks.

Snow and Flooding

With the snow pack in Ottawa disappearing the flood planes of Ottawa are filling up quickly. My area of Ottawa is less likely to flood, however, I am not that far from the Mighty Jock River so there is a chance yet.

How much does flood insurance cost? What does it cover? Is it better to just invest in a sump pump? I have a good shop vac for small wet spills, but if my basement floods, I would have to run to Canadian Tire to get a real pump!

Is flood insurance worthwhile? Opinions?

As most of my regular readers know, I tend to get a twitch and rant loudly when talking about payday loans and the places that give out this “alternate credit vehicle” (a term used by the industry). I have pontificated about this point many times, but now Stats Canada has put out a study about the growth of this financial alternative, and also who uses it. Perspectives on Labour and Income examines this whole industry in detail, but Stats Canada has put up a good summary on their web site about it.

Pay Day Loans Just Like the Great White, A Perfect Eating Machine

Three percent (3%) of families in Canada have admitted to using these kind of services in the past 3 years. The family’s main bread winner is typically between 35 and 44, which is also interesting (non baby boomers, more like Generation X’ers).

This quote makes me feel very sad:

Almost half of families who used payday loans reported that they had no one to turn to if they faced financial difficulty, significantly higher than for non-users (32%). More than one-quarter reported that they could not handle an unforeseen expenditure of $500, almost four times the rate for non-users. Nearly half could not handle one of $5,000 (17% for non-users).

Yikes, that really does mean we are living a little too close to the ragged edge these days and really need to think about how we spend our money.

I am not condemning you for using this service, but I do want you to think about how you can stop using these services. There are many different ideas out there on many different blogs and books you can get from your library, so please start a plan. Don’t feel like this is your only way to deal with this, because these Loan Sharks are not the answer to your financial survival, if anything they are the end of your survival, there is little chance of escape from these sharks. If you are paying 470% interest, your chances of getting out from under this is not likely.