Mortgage 101 – Building Wealth Through Homeownership

Clinton Wilkins and Dan Ahlstrand discuss the importance of financial literacy, focusing on assets. They highlight the significance of home ownership, noting that it’s often the largest asset for Canadian families.

Dan Ahlstrand
Welcome back to Mortgage 101. We’ve talked about debt, which is credit to me anyway, we’ve we’ve talked about income. And the last part of the mix, Clinton is an asset.

Clinton Wilkins
I think assets are one of the biggest and most important to a lot of people. Here’s an interesting, fun fact. This is the 15th anniversary of Financial Literacy Month. There you go. Not the 15th year that we’ve been doing this, but the 15th year that the Financial Consumer Agency have been doing this for 15 years. One thing that we were saying during the break was that typically, older folks have better credit scores because they have a longer time to be able to pay, so younger people can have good credit, too. I always say start them early. But assets are so, so, so important, and the biggest asset in many Canadian households, guess what? It’s their home, right? And this is where it’s challenging for folks who are renting, and sometimes it’s hard to break into that property ladder. But before we even started the show, I said that I had customers who were in their 80s and were going to be buying a customer.

Dan Ahlstrand
To me, there’s no top end to when people can get into the housing market.

<strong>Homeownership and Mortgage Strategies</strong>

Clinton Wilkins
No. And guess what? These customers that I saw that were in their 80s, 30-year amortization, they’re like, the better longer because they don’t have any plans to pay it off. They’re like, we might live until we’re 100, but we’re probably not living to 110, and they’ve been renting the last 20 years, and they said, Well, we wish we had bought 20 years ago when we retired and sold our home. We’ve been living in an apartment. But guess what? Their situation with the apartment has changed, and that apartment is now being turned into condos. They want to buy the condo, et cetera. So, I will say it’s never too late. We also see that for some home buyers who are in their 50s, it really does happen. And again, I will say that the asset is the biggest or the home is the biggest asset. Oftentimes in a household, the mortgage is the biggest debt. So that’s why we’re here around, but it’s not the only asset. It’s important to protect the asset. Obviously, it’s important to build it up. And, we’ve had a very good job here in Halifax of if you bought a home in 2020, or before, your assets are probably close to doubled in value. But there are other assets that might be important, if you’re a renter, or even if you are a homeowner, building them up. And I think one of the first ones, and the first thing that really comes to mind for me, is an RRSP. Some people have pensions through work. Not everyone. Some people have RRSP plans through work. But in Canada, you can contribute 18% of your income, up to around 150, some odd 100 this year. So there’s a lot of money that you can contribute every year to an RRSP, and I always recommend that consumers make it automatic. If your work has a plan, get it set up with work. Sometimes they even do matching to take advantage of that free money. And if your work doesn’t have something, get it set up wherever you’re doing your banking, or get it set up with a financial advisor. But get that debited from your account every time you get paid. If you get paid bi-weekly, contribute to that RSP bi-weekly. If you get paid weekly, do it weekly. If it’s semi-monthly, do it semi-monthly. Make it automatic. You won’t even know or see, or miss the money. And you also get your tax benefit. When you contribute to your RRSP, you’re going to be getting that portion of that taxable income back. And I always encourage people, I’m like, when you get that tax check back, you contribute that to your RRSP as well, if you have room.

Dan Ahlstrand
Clinton, I hear from people who are looking at getting into the investment world and looking at RSPs and saying, Well, okay, I might be in a situation today where that makes sense, but who knows what’s going to happen tomorrow? And I’m scared that that money is going to be locked away.

<strong>TFSA vs. RRSP</strong>

Clinton Wilkins
So if you have an RRSP, and you’re a first-time homebuyer, and you’re buying a home, you can actually withdraw up to $60,000 from your RRSP, and you have 15 years to put it back in, which is significant. But if you’re not a first-time home buyer, and you might need access to the money, I think a TFSA is a great place to start, because any of the earnings within the TFSA tax tax-free, I love it. My TFSA maxed out. I love making money in my TFSA. I usually put more risky investments in that TFSA, because if that pays off, guess what, I’m gonna chit chat and make a couple of dollars here, and the TFSA limit is based on how old you are. So every year, the government allows a certain dollar amount that can increase, and you can put that in there. So I think a TFSA is a great plan. And down the road, if you want to take money and put it in your RRSP, if you have a limit, you can certainly put that money from a TFSA in. To an RRSP. That’s not a problem, but if you might need access to the funds that Tosa is really a good way to start another one that people are not really talking about, and it was an initiative from the government a couple of years ago, the first home savings account. It’s huge, especially for only for first-time homebuyers. Would this make sense? But if you’re planning on buying a home, I would definitely look into a first home savings account. You don’t hear very much about it, Dan, and there’s a lot of confusion, and a lot of we don’t know how much we can put in. Can we put it in this year? How does that work? Like an Education Savings Plan, a similar type of idea, but it’s the amount can only be used towards buying your first home. So again, like like an RRSP, like a TFSA, it’s another asset facility that’s earmarked specifically for first-time homebuyers. So even if you have a first home savings account, you can still do the RRSP withdrawal. It’s not excluding you from doing that. And every year that goes by, you can contribute more and more to that first home savings account as well.

Dan Ahlstrand
And if you put the money into that account and you don’t buy a home, what happens?

Clinton Wilkins
I think that’s actually a great question. I’ve never been asked that one before, but that’s a good one. I’ll take away, and maybe we can answer this at the end of the month when we do our live show. There you go. It’ll keep its call force tuning. It gets people, yeah, and I don’t want to give people the wrong information, but let me go and research that.

<strong>First Home Savings Account (FHSA)</strong>

Dan Ahlstrand
I know with education plans that if you contribute to an education, our ESP is called, and if you’re if your child doesn’t go to university, then there’s, there’s a mechanism that you can access.

Clinton Wilkins
And get a portion of it back. We don’t get it all right? I think it’s probably a similar type of idea, or maybe it becomes tax at that point, but we’ll look into it, and we’ll report back at the end of the month.

Dan Ahlstrand
And Clinton, obviously, assets and investments are, are important. But as you said a couple of times throughout the episode today is, is, everybody’s kind of stretched. There, there’s, there’s usually more a month than a paycheck these days, but it’s, it’s vitally important that, even if it’s a small amount, that you start to suck some things away for a rainy day.

Clinton Wilkins
I think some of it’s behavioural. Honestly, it’s not so much about the dollars or cents. It’s getting into a habit and then changing that habit over time. And I tell people, make it automatic. And when you’re paying your mortgage, or if you’re paying down your debt, or if you’re contributing to increasing your net worth, building an asset, make it automatic, set it and forget it. It becomes a lot easier. The other thing that I will say, there are certain hacks, so typically, most people get a raise every year, or every couple of years, and yeah, some of this will go to the government, but whatever’s left in your bank account, if you’re living within your means, how about taking that increase? Then maybe take that increase and put it on your debt. Or if you don’t have the debt, take that increase and put that into an investable asset. These are easy things that you can do, and I call them little micro increases that make a difference. And right now, consumers, by and large, are making more money in the marketplace than the cost of borrowing on a mortgage. So when people are asking me, should I pay down my mortgage faster and increase the net worth and the assets in our family? Oftentimes, I say, I think you need to talk to your financial advisor first to see does it makes more sense for you to contribute to an investment versus paying down the mortgage.

Dan Ahlstrand
That’s an interesting point and a lot of people don’t even consider paying their mortgage quicker than is prescribed in their original document. And there is some fallacy out there that there’s penalties attached to that.

<strong>Financial Advisor Guidance and Market Conditions</strong>

Clinton Wilkins
There’s certain I think that’s a misconception as well. Most mortgages come with the prepayment privilege. A lot of the lenders that we deal with every day allow a 15% annual lump sum payment. Some of them allowed 15% payment increases, and some of them even allow you to do double mortgage payments. And you can do all of these things. So some consumers can pay down their mortgage as quickly as five years if they take advantage of all of the prepayment privileges. But I say to a consumer, you have all these privileges, a lot of people won’t take advantage of them, and usually the people that are either get a big inheritance or they’ve won the lottery. So you decide which path you’re going to be going down. I’d like to win the lottery. I mean, I would too. You can’t win, though, Dan, if you don’t play, right? And I’m not saying that I condone gambling because I usually tell consumers, this is one of the funny kind of phrases that I say when I’m explaining a mortgage commitment. We go through all the details, and I say as a reminder, the bank is like the casino. They won’t lose, so understand your terms and conditions. Seek the advice of an unbiased mortgage professional, because we deal with a bunch of different lenders, and not all lenders are the same. I would say, Dan, more so now than ever before, the differences between lenders and mortgages are more today than they ever have been.

Dan Ahlstrand
Clinton, it’s been a lot of fun. This is the second time this year that we’ve had an opportunity to sit down. I always learn something when we do this, and I hope that listeners out there learn something today.

Clinton Wilkins
I hope so. Financial Literacy Month is so important. We’re kicking this month off right, breaking down these barriers, having the conversations at home, and we’ll be back here at the end of the month. We’re doing a live show during the week, and we’ll bring some guests on as well. If you’ve liked what you’ve heard and you want to learn more, feel free to visit us online at TeamClinton.ca.