Retirement Planning
for the
Canadian
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September/October 2004
Commentary - Hans H. Mathisen
Is Credit Balance Insurance a Rip-Off? - LIFE LETTER for September gives the answer to the question: YES, it is a rip-off. It makes much more sense to have individual insurance policies - you then have control. Please call me for details and a comparative quote.
Should You Lock In Your Mortgage Rate Now? - The October issue of LIFE LETTER illustrates how we pay less interest in the long run with a variable rate mortgage than a fixed rate one. Financial columnist Garth Turner has also written in favor of the variable rate mortgage in recent columns. My associates with Sentinel Mortgage Division will be pleased to work out for you the potential savings you will realize by having a variable rate mortgage. Why not call?
THE STOCK MARKETS - On September 30, 2004, the three quarter performance of the major stock indexes are: The S&P TSX Composite is up by 5.44%; Dow Jones is -3.57%; the S&P 500 Index is up 0.24%; and the NASDAQ is at -5.32%. Other major indexes range from a high of 4.33% (Hong Kong's Hang Seng) to a low of-1.82% (Germany's DAX).
WALTON INTERNATIONAL - You have recently received
invitations to Walton International's informational meetings, and
the response has been positive. Many clients of Mathisen Financial,
Inc. are excited about the 25 year performance record of this investment
opportunity: Average annual return of 18.00%! With this rate of return,
money invested doubles
every 4 years. (My wife and I own two Walton properties in Alberta)..
Here's the bi-monthly update on my
two personal portfolios, which are carefully constructed, based on
my own research of the markets and my conservative investment approach:
PORTFOLIO #1: March 7, 2003 to Sept.30, 2004: The return is 21.1%
PORTFOLIO #2: April 28, 2003 to Sept.30, 2004: The return is 28.0%
These returns certainly beat current GIC returns. Please call for
details of this strategy..
HAPPY INVESTING!
Sincerely,
Hans Mathisen
Is Credit Balance Insurance a Rip-Off?
Graham, like millions of other Canadians, has and uses credit cards. He often carries a balance from month to month and is concerned about making the monthly payments if he becomes disabled or gets seriously ill. Graham doesn't want to stick his family with the balance if he dies before paying it off.
The credit card company offered him Credit
Balance Insurance (CBI) that would take care of these concerns. After
looking over the offer, he
wondered if it was such a good deal.
Credit Balance Insurance is just that -
insurance. And insurance requires a premium. According to the Financial
Consumer Agency of Canada, the average monthly premium for this type
of insurance is about
90 cents per $100 of monthly credit card balance. If Graham carries
a $5,000 balance on his credit card, he will pay a $45.00 monthly
premium - that's a whopping $540.00 per year. He may also have to
pay
provincial sales tax on this premium.
His credit card carrier will simply add the monthly premium to his outstanding balance. Regular credit card interest rates are about 18% annually, calculated monthly. So, if Graham continues to carry a balance forward and opts for the balance insurance, the premiums will also attract interest charges.
Premiums are paid to the credit card provider and an insurance company provides the protection. The credit card company takes a cut of the premium. At the end of 2003, some 22.2 million Visa and MasterCard accounts in Canada carried a balance.
This type of insurance is provided by a group policy arrangement between the credit card provider and an insurance company. Either party can cancel it at any time, and Graham will have no say in the matter. Information provided by the big five banks indicates that there are "limitations and exclusions" that will be revealed after he signs up.
Graham learned that:
- CBI life insurance maximum benefits range from $1,000 up to $50,000
with most in the $10.000 range.
- CBI disability protection only covers the minimum monthly payment for a limited period and you must be totally disabled to qualify for benefits. Interest will still be charged on the outstanding balance.
- CBI critical illness insurance typically covers only a few conditions, typically cancer, heart attack and stroke. Personal plans cover these and many more.
- CBI job loss protection only covers the minimum
monthly payment for a limited period and interest will still be charged
on the outstanding balance.
- Depending on the credit card provider, CBI coverage is only available
until age 65 or 70.
Graham learned mat he can get much better protection
with few, if any, limitations or exclusions through his insurance
advisor. He won't have to
worry about any unexpected premium increases or losing his coverage
all together.
Want your credit card debt taken care of in case of death, disability or illness?
Call Hans Mathisen today at (306)242-7042.
or email - hans@mathisen.ca
Copyright © 2004 Bowen Financial Inc. All rights reserved
Should You Lock In Your Mortgage Rate Now?
Judy was wondering if she should choose
a fixed rate mortgage in light of a recent interest rate increase.
She likes the idea of a fixed monthly
payment, but wants to know if there is a better way.
A recent survey of homeowners and potential homebuyers indicated that most felt that now is the time to lock in rates. But the feeling was much the same a year ago and even two years ago. Who knew that interest rates would get this low?
One of Canada's foremost authorities on
personal finance. Dr. Moshe Milevsky, studied fifty years of mortgage
rate data (1950 to 1999). He concluded that anyone who locked in at
a fixed interest rate paid
more than they should have for their mortgage. The average interest
savings on a $100,000, 15-year mortgage would have been over $22,000
using a floating rate mortgage.
During the above noted period, you would have been better off with a variable rate 88.6% of the time.
Does a variable rate mortgage still make
sense? According to CIBC mortgage and lending vice- president Paul
Mims (CanWest News Service,
September 2, 2004), "with interest rates expected to head north,
the natural instinct is to lock in, but if [you are] comfortable with
the variation, [you] may be better off over the longer term with a
variable rate mortgage." Mims also said that rates would have
to rise, by at least two percentage points, and stay at that level
for someone to do as well with a fixed rate mortgage as with a variable
rate.
Interest rate fluctuations can be a cause of concern or stress. What can Judy do?
Judy will need to choose a mortgage strategy that will allow her to sleep at night. It can still be a variable rate mortgage.
She has already qualified for an amount
based on current 5-year mortgage rates. By choosing a variable rate
mortgage and milking the same monthly payment as a 5-year fixed rate,
she protects herself from interest increase surprises and will actually
pay down her principal more quickly. She could accelerate the drop
in principal even more by calculating the 5-year
payment with a higher interest rate.
To illustrate, let's say Judy gets a 5-year
rate of 5% and a variable rate of 3.5%. Her monthly payments would
be about $657 fixed and $579
variable for a $100,000 mortgage over 20-years. This means that Judy
would actually pay a $78 per month premium for the "privilege"
of a fixed rate.
If she made payments of $657 on her variable
rate mortgage and rates stayed the same for one year, she would have
reduced her principal by almost $1,400 more than had she chosen a
fixed rate. Still keeping
the payments the same and assuming her variable rate went up to 4.25
for one year, she'll still be about $750 further ahead a year later.
If Judy uses a monthly payment of $712, based on a 6% mortgage rate
and her variable rate is 4%, she will be almost $1,600 further ahead
after one year. Either way, she'll be in a very good position to weather
rate changes.
Want help with your financial strategies?
Call Hans Mathisen today at (306)242-7042.
or email - hans@mathisen.ca
Copyright © 2004 Bowen Financial Inc. All rights reserved
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Mathisen Financial,
Inc.
335 Redberry Road
Saskatoon, Saskatchewan S7K 4W5
Bus. (306) 242-7042 Fax. (306) 242-4314
Email: hans@mathisen.ca