Buying a home? Unconditional Offer?

When you are buying a home and would like to place an unconditional offer (subject free) to purchase, I want you to be aware of the risks.

Unless you have full purchase price in cash sitting in your bank account, you will need a mortgage.

Financing

No broker, bank, lender, realtor can guarantee that you will be 100% approved upfront.

The lender must review ALL your documents before approving a mortgage.

Let’s assume you have a large salary, great credit and a big downpayment, what can go wrong?

Property

Your lender must review the property as well. There are alot of things that can go wrong. Just a few examples:

– House could be a past grow op
– Condo can have insufficient reserves
– Condo with ongoing assessments or incomplete repairs
– Asbestos used in construction
– Bad condition of the property / teardown

The list goes on.

Financial conditions are there to protect you. During that time all the paperwork is reviewed by the lender and any problems are worked out.

Without it there is no safety net to withdraw your offer if you don’t get approved for a mortgage.

Now you know.

Call your broker before writing a firm unconditional offer.



Home renovation budgets rise as Canadians shift to outdoor projects

A new poll by CIBC finds that Canadians homeowners planning to renovate expect to spend an average of $13,000 on home improvements this year as the renovation focus shifts to the outdoors, such as building or repairing decks and patios and landscaping yards and gardens. But, many homeowners worry they will overspend.

Key poll findings include:
37 per cent of Canadian homeowners plan to renovate or improve their home this year, down from 40 per cent in 2015. Among those who plan to renovate this year:

$13,017 is the average amount they plan to spend, up from $12,293 in 2015

Landscaping, including decks and patios, is a focus for 42 per cent

54 per cent plan to do basic maintenance, compared to 55 per cent in 2015

Indoor renovations are less of a priority:
33 per cent look to renovate bathrooms versus 40 per cent in 2015;
26 per cent plan to update kitchens, down from 31 per cent in 2015

“The poll findings show that Canadians are focused on outdoor projects,” says Scott McGillivray, host of HGTV’s Income Property. “Spending more on the outdoors may not necessarily be the first option when it comes to return on investment, however you should never underestimate the value of curb appeal. If you’ve already taken care of the big hitters inside the home and have the renovation funds, why not turn your attention to outdoor projects?”

Biggest worry is overspending

While more than half (52 per cent) of homeowners say their biggest concern is going over budget, only a third (34 per cent) say they actually have a budget for their upcoming project.

“Whether you hire a contractor or do it yourself, you should have a good understanding of how much your project will cost and build in a contingency for potential overruns or surprises,” says Barry Gollom, Vice President, Mortgages & Lending, CIBC. “It’s critical to stay on budget as it is easy to lose control of your spending if you don’t have a detailed and comprehensive plan.”



Women Are Likely to Turn a Profit Within Two Years of Business

A report on Canadian entrepreneurs released by Bank of Montreal revealed that while there are challenges involved, Canadian women are seeing the benefits of entrepreneurship.

The report, which surveyed female entrepreneurs and was conducted by Pollara, revealed that they needed an average of $201,729 to start their businesses. However, 63 per cent turned a profit by the two year mark, belying the common notion that most small businesses fail within their few first years of operation. Additionally, almost three-quarters (73 per cent) are currently turning a profit.

The report also revealed some key challenges that female entrepreneurs faced when starting their businesses, including:
Supporting their families until business was profitable (51 per cent)
Obtaining capital to get started (43 per cent)
Building a customer network (43 per cent)
Getting advice on how to get started (20 per cent)

“Entrepreneurship is a challenging but rewarding venture when you have a plan in place and have the right help and advice. We’re here to help woman-owned businesses as they continue to expand in this growing market,” said John MacAulay, Head, Canadian Commercial Banking, BMO Bank of Montreal. “In 2014, BMO made an additional $2 billion in credit available to women-owned businesses across Canada over the next three years. Part of BMO’s commercial banking mandate is to address the growing needs to women in business.”

Service and Retail Sectors Featuring the Highest Number of Female Entrepreneurs

The Women’s Business Economic Advisory Council (WBEAC) states that firms wholly or partially owned by women represent 47 per cent of small and medium-sized businesses in Canada.

Overall, the retail sector tends to showcase the highest number of female entrepreneurs. According to BMO’s report, the major sectors in which women entrepreneurs are currently operating include:
Retail (wholesale, imports/exports and distribution): 30 per cent
Services (healthcare, real estate and food and beverage): 17 per cent
Professional services (technology, financial services, business services, consulting, marketing and telecommunications): 14 per cent

“The service sector, which includes retail trade, has been a stalwart this year, despite the talk of a technical recession,” said Sal Guatieri, Senior Economist, BMO Capital Markets. “Service sector real output is up 2.2 per cent in the six months to July relative to the same period last year, with retail trade up 2.7 per cent.”

Mr. Guatieri noted that continued steady consumer spending amid low interest rates should sustain steady growth in the service sector and retail industry in 2016.

Interestingly, the survey also revealed that manufacturing and construction (automotive, transportation and industrial) were other major sectors in which women are currently operating in at 17 per cent. Both sectors have been hurt by the downturn in energy production, but should improve when oil prices recover next year, added Mr. Guatieri.



Canadian Retirement Myths & Realities

There are some surprises in store for Canadian Boomers approaching retirement.

Already-retired Boomers (aged 50+) identified three retirement realities that contradict the expectations of their pre-retiree counterparts:
Retirees don’t miss their pay cheques from work as much as pre-retirees expect to, by a margin of almost two-to-one (26 per cent compared to 49 per cent). What retirees do miss most is their social time with colleagues at work (51 per cent).
While simply “taking time for myself” is how the majority of retirees (72 per cent) report they are actually spending their time, travel tops the “expect to do in retirement” list for a similar majority of pre-retirees.
Close to half (43 per cent) of retirees didn’t get to choose their retirement date, in contrast to the 80 per cent of pre-retirees who expect to have that choice. Retirees cited several reasons why they left their working lives behind before they were ready to do so, including health, the need to provide caregiving to someone else and employer’s request.

“Each of these realities has retirement planning implications for Canadians, including how they will affect the lifestyle they hope to achieve when they are no longer working,” noted Yasmin Musani, head of Retirement and Successful Aging Strategies, RBC. “They raise important questions for Boomers to consider about their life goals and priorities as they approach retirement. For example, ‘What social network will you have in retirement?’ and ‘How will you spend your time?’”

Through its annual poll and a separate research study, RBC also explored retirement income expectations of three specific groups of Canadians who are not yet retired: single women (not married, separated/divorced or widowed), business owners and the LGBT (Lesbian, Gay, Bisexual and Transgender) community.

As pre-retirees, single women and business owners were equally concerned (41 per cent each) that they would not have enough money to live well and do what they want when they retire. In a separate RBC-sponsored LGBT retirement study, conducted by the University of Waterloo’s RBC Retirement Research Centre, 30 per cent of LGBT pre-retirees shared similar worries, stating they expected their funds would be inadequate or barely enough to achieve the retirement they have in mind.

“When common concerns arise for Canadians heading into retirement, this reinforces the importance of sitting down with a financial planner to explore all your options,” added Musani. “By taking a wide range of possible scenarios around your lifestyle and finances into consideration, you’ll gain the flexibility to adapt to any unexpected changes in your life and the lives of those around you.”



Debt Freedom? Canadians expect to be debt free by age 56

A recent poll by CIBC finds that on average, Canadians expect to be debt free by the time they are 56 years old although some Canadians see themselves carrying debt well into their sixties. In addition, nearly a third (29 per cent) say they have no debt while 13 per cent say they will never be debt free.

Highlights of the poll include:
56 is the average age Canadians expect to be debt free
21 per cent say they will be stuck with debt until they are over 65 years old
29 per cent say they are completely free of debt today
13 per cent say they will never be debt free

“While Canadians expect to be debt free by age 56 on average, not everyone will hit that goal, which means a significant number of Canadians will still be carrying debt during retirement,” says Christina Kramer, Executive Vice President, Retail and Business Banking, CIBC. “As debt repayment goals push closer to retirement age, it puts an added strain on your ability to save for retirement and manage your cash flow after you retire.”

More than half of Canadians 65 and over still owe money

The poll found that over half of Canadians aged 65-plus say they still carry some form of debt today, with credit card debt and lines of credit as the most common types. This group also said they didn’t expect to have their debts paid off until they are 70 years old on average.

“Cash flow becomes a top priority in retirement, and having to make debt repayments out of your income will create a drag on your finances and your ability to have the retirement you want,” adds Ms. Kramer.

Younger Canadians optimistic about debt repayment

Canadians 25-34 years of age have ambitious plans for debt repayment. This age group on average expects to be debt free by age 47. However, a closer look at those currently carrying debt suggests this may be an optimistic goal, as more than 68 per cent of Canadians 45 and over still carry debt, including 31 per cent who still carry a mortgage.

“What people need to remember when attempting to shorten the road to debt freedom, is that paying down debt is just one part of a broader financial plan that needs to include saving for retirement, managing day-to-day expenses and maintaining an emergency fund,” Ms. Kramer says.

Balancing debt repayment and savings goals

Of all Canadians with debt, 32 per cent say they have made sacrifices or cut spending to better manage their debt this year and 25 per cent say they have made at least one lump sum payment towards their debt on top of regular payments. This aligns with a CIBC poll conducted last December which found that paying down debt was the top priority for 2015.

“As our poll findings show debt repayment remains a top priority for Canadians, it’s encouraging to see that many Canadians with debt are setting goals and taking action to pay it off,” Ms. Kramer says.

Three steps to create a debt freedom plan

Becoming debt free takes time and dedication. It’s best to have a clear plan that outlines the steps you should take each month to get closer to your goals over time. Here are a few tips for putting your plan on paper:

Step 1: Assess your debt. Make a list of everything you owe, who you owe and when the payment is due. Be sure to note the interest rate and monthly payment amount, separating out how much goes towards interest as opposed to principal.

Next, add up the individual debts to find your total outstanding balance, and how much you are paying each month in interest to service those debts. Talk to a financial advisor about possible ways to structure your debt and potentially lower your interest costs.

Step 2: Set priorities. It’s essential to make at least the minimum payment due on each debt to avoid penalties and to keep your credit rating intact. Beyond the minimum, focus your attention first on the debts that are costing you the most — those with the highest interest rate.

Step 3: Establish a timeline. Like any goal, it’s helpful to have a deadline; it gives you a “finish line” to work towards. Keep it realistic and achievable. This is where it can really help to talk to a financial advisor.



Half of Canadians don’t know what they can hold in their TFSAs

A recent poll by CIBC finds that half (50 per cent) of Canadians are unsure what they can hold in a Tax-Free Savings Account (TFSA).

Despite their lack of knowledge, the majority (80 per cent) of Canadians have never talked to a financial advisor on how to make the most of their TFSA, with half admitting they need advice.

“With TFSAs becoming a larger part of investment portfolios, it’s certainly eye-opening to see how many Canadians are unaware of how to use them to full effect,” says David Scandiffio, President, CIBC Asset Management. “It seems most people still view TFSAs as rainy day funds rather than vehicles to help them achieve their longer-term financial goals, such as building up your retirement nest egg or saving for a down payment on a house.”

With the annual TFSA dollar limit nearly doubling to $10,000, TFSA balances are expected to increase significantly over time, becoming a more and more substantial part of investment portfolios. That means longer-term investment options that produce higher returns, such as stocks and mutual funds, should be considered rather than only short-term or low-risk savings vehicles, such as cash or GICs, says Mr. Scandiffio.

Yet, the poll findings show that the majority of Canadians still view TFSAs as largely savings accounts, with only a small percentage of Canadians able to accurately identify mutual funds (29 per cent), GICs (28 per cent), bonds (23 per cent) or stocks (22 per cent) as being investment options for TFSAs.

“You don’t need to take on undue risk with your TFSA money, but it’s important to recognize that the TFSA can be a powerful retirement planning tool, especially given the increased annual dollar limit, its tax efficiency and the flexibility to include investments with higher-return potential,” he says. “The first step is to educate yourself and sit down with an expert to understand how a TFSA fits into your overall financial plan.”

Canadians confused over TFSA rules

The poll also finds that Canadians are confused about TFSA contribution rules, with 38 per cent saying they don’t know what happens to unused TFSA contribution room and another 13 per cent who think the unused contribution room is lost after the current tax year, when in fact it is carried forward and accumulates over the years.

“Investors stand to leave a lot of money on the table if they don’t fully understand the investment options and tax considerations related to TFSAs,” says Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC Wealth Advisory Services. “There are tax benefits to maximizing TFSA contributions.”

For example, if you were at least 18 and a resident in Canada since 2009, but have never contributed to a TFSA, your cumulative contribution limit now stands at $41,000 – and will rise by $10,000 annually.

“It often makes sense for investors to catch up on any outstanding contribution room from prior years because it can have a meaningful impact on your long-term savings and play a key role in helping you to reach your financial goals,” says Mr. Golombek.



Majority of Canadians say a rate cut unlikely to prompt them to borrow more

With the possibility that the Bank of Canada will cut interest rates tomorrow, a new poll by CIBC taken just days ago finds the vast majority of Canadians (93 per cent) are unlikely to increase their borrowing if rates drop. In fact, one-third of Canadians say they would use a rate cut as an opportunity to accelerate debt repayment, not take on new obligations.

Highlights of the poll include:
93 per cent of Canadians say they are unlikely to borrow more money if interest rates fall
60 per cent say lower rates would have no impact on them
33 per cent say they would use lower rates as an opportunity to accelerate debt repayment
Only 7 per cent of Canadians say they would consider borrowing more money if rates were lowered

“With interest rates historically low, and many Canadians already focused on debt repayment, it’s not surprising that a further rate cut won’t cause many Canadians to borrow more,” says Christina Kramer, Executive Vice President, Retail and Business Banking, CIBC. “For many Canadians, lower interest rates mean they can accelerate debt repayment by increasing monthly payments or making lump sum payments.”

While a further drop in interest rates might only prompt 7 per cent of all Canadians to consider borrowing more, 12 per cent of 18 to 34-year olds said they would consider borrowing more money at lower rates.

“Any change in rates shouldn’t be an incentive on its own for taking on more debt,” says Ms. Kramer. “Borrowing should be part of your overall financial plan, which takes into account what you need to borrow for and having a plan in place to pay it back.”



Interest Rate Rise Would Impact 64 Per Cent of Canadian Households

According to BMO’s Annual Debt Report released today, almost two-thirds of Canadians with debt (64 per cent) would be stressed in the event interest rates rose two percentage points, with one-quarter (25 per cent) saying they would be very stressed.

Meanwhile, there is optimism among Canadians regarding the pace at which they can pay their debt down and there remains an appetite for taking on more debt in the next year.

The annual poll, conducted by Pollara, revealed:
The average household debt in Canada is $92,699, trending slightly above the four year average of $88,303 dating back to 2012 when the annual polling began.
While almost half of Canadians (46 per cent) feel some stress about their current debt load, the percentage is lower compared with the past two years (54 per cent in 2014, and 57 per cent in 2013).
The majority (59 per cent) believe they will pay off their current debt in five years or less.
However, 46 per cent of those with debt plan to take on more debt in the coming year.

“The sizeable number of indebted households that would feel very strained by a relatively moderate increase in interest rates is concerning,” noted Sal Guatieri, Senior Economist, BMO Capital Markets. “This is a worrisome side effect of a prolonged period of low interest rates and needs to be closely monitored, especially if rates continue to fall.”

“Interest rates have been hovering around historic lows over the past few years, so many Canadians may have become more comfortable over time with managing their debt,” said Christine Canning, Head, Everyday Banking, BMO Bank of Montreal. “That said, rates will inevitably rise to normal levels, so it’s becoming increasingly important that Canadians stress-test their ability to afford the debt they currently have so they can effectively manage their finances in a higher rate environment.”

Ms. Canning added that managing debt is a simple concept but can be much more challenging in practice. Working with a financial planner to help assess your spending patterns and determine priorities, such as paying down debt and saving for other goals, can make the process easier. Additionally, she noted that the BMO Savings Builder Account can help Canadians get into the habit of prioritizing savings versus paying down debt. The account offers bonus interest for customers who make recurring monthly savings contributions.



Over half of Canadians plan to transfer their wealth to the next generation

A recent CIBC poll finds that over half of Canadians (51 per cent) expect to leave assets upon their death, but when it comes to having conversations about transferring their wealth, many say they have not discussed it with their family or a financial advisor.

Key findings of the poll include:
51 per cent of Canadians expect to transfer wealth, but almost half (47 per cent) have not discussed the inheritance with the recipients
79 per cent have not discussed the financial and tax implications of an inheritance with a financial advisor

Lack of communication about wealth transfer creating gap between generations

“Without the right amount of communication, Canadians run the risk of the next generation not being prepared to manage their inheritance”, says Sarah Widmeyer, Managing Director and Head of Wealth Advisory Services, CIBC. “To help bridge the gap, families need to become comfortable having conversations about wealth transfer.”

“There is a clear disconnect between generations when it comes to wealth transfer, and this can have a lasting impact on family legacies,” she says. “Without open, honest communication, family’s risk significant conflict, especially when parents’ wishes don’t align with their children’s.”

Key areas where there may be conflict within families who don’t communicate about wealth transfer:

Transfer of the family cottage: Parents may expect the cottage to be used for many generations, but their children may feel differently. This could result in lost planning opportunities for the property while the parents are alive.

Inheritance: Parents who want to protect their wealth for their children or grandchildren through the use of trusts may be concerned that their children could perceive it as not trusting their judgement.

Charitable gifting: Parents may look to reduce taxes at death through charitable gifting, but their children may not agree with or understand the benefits.

Probate: Parents may want to make children joint on investment or bank accounts to avoid probate, but may not realize it could potentially cause conflict among the children and limits estate planning strategies that could be leveraged.

Successful transfer of wealth threatened by insufficient planning

While discussions between generations are lacking, so is communication with financial and other professional advisors, including lawyers and accountants.

“While many estate planning strategies may help you achieve your objectives, all successful plans start with open conversations between spouses, professional advisors and, ultimately, family members to provide clarity and a vision for your legacy,” says Lana Robinson, Executive Director, CIBC Wealth Advisory Services.
“It is key to work with an advisor who can objectively help you understand what strategies are best for you, and can also provide advice on how and when to communicate the plan to your family.”

For those leaving an inheritance, Ms. Robinson stresses the importance of diligent estate planning with a team of professional advisors. “There can be significant complications for loved ones if arrangements for a wealth transfer are not properly managed,” she says. “Open communication with your advisors is critical. Strategies viewed in isolation, without the full picture of your situation, could cause unintended consequences.”

The following steps can help you start to develop a wealth transfer plan:

Discuss with your spouse or partner how you want your wealth to benefit the people you care about. What are your values? What are your goals? Are there areas where you disagree?

Think about who in your life may require special financial considerations, such as someone with a disability.

Complete an inventory of your estate, itemizing assets such as your house, cottage, car, investments, and insurance.

Initiate conversations about your intentions with your professional advisors to develop a plan.

Communicate your plans to your family and engage their feedback. Ensure your family has been introduced to your advisory team before difficult times arise.



40 per cent of Canadians say summer is the most expensive season

Today is Canada Day and with Labour Day just two short months away, Canadians believe that some of their most expensive spending days of the year are ahead. A recent poll by CIBC finds that 40 per cent of Canadians say they spend more money in the summer than during any other season. As well, nearly half (45 per cent) of those polled say they will need to use their credit card or dip into savings in order to foot their summer fun bill.

Key Poll Highlights:
40 per cent of Canadians say they spend more in summer compared to any other season
49 per cent of Millennials (aged 18-34) say summer is the most expensive time of year
$1,766 is the average amount Canadians plan to spend on summer fun, including travel and day trips, dining and dinner parties, recreational activities and summer goods like barbecues and sports equipment
45 per cent of Canadians say they try to save for summer fun, but find they use their credit cards or dip into savings to pay for extra costs

“Summer can be filled with social events and family travel as Canadians try to make the most of the short-lived warm weather,” says Christina Kramer, Executive Vice President, Retail and Business Banking at CIBC. “But if you haven’t budgeted for this, the costs can add up, forcing you to dip into savings or take on unplanned debt.”

When asked about this summer’s spending plans, 77 per cent haven’t saved enough to pay for summer – including 41 per cent who haven’t saved anything and 36 per cent have saved only some of what they need.

Watch out for “expense creep”

Compounding the challenge of keeping expenses in check is that in other seasonal events, Canadians often spend more than what they anticipate.

For example, a CIBC poll in November 2014 showed that Canadians expected to spend $517 on holiday shopping, however a follow-up poll in mid-December showed average spending was already at $678 with a busy weekend of shopping still to go before the holidays.

“During holidays, it’s important to avoid expense creep – which happens when you spend a little more than you expect over a period of time, and end up with an unexpected credit card bill at the end of summer,” says Ms. Kramer. “Having a budget and sticking to it is the best way to enjoy the holidays worry free. Canadians should treat these expenses the same as all others and make them part of your overall annual financial plan. Work with a financial planner so you can enjoy the summer sun and fun within your financial means and not have to hibernate for the rest of the year.”