Budget like a Boss

“You have got to tell your money what to do or it will leave.”

This is one of our favourite quotes from Dave Ramsey. Without a budget, Jacques says, you’re on your way to nowhere. It’s a tool - a financial roadmap - to ensure that you’re on your way to success. We have created a free budget tool that you can download and use here. This will get you started on the basis of a great and effective budget! Jacques also mentioned some great budgeting apps that you can download, and use quickly and easily - EveryDollar was one of them! Check it out, and keep track of your spending with the click of a button.

Let’s hop right into the basics.

What is the definition of a budget?

A budget is simply a categorized estimate of income and expenses for a set period of time. There are different types of budgets to use, but we recommend a zero-based budget.

The zero-based budget is simply: income minus outgoing items equals zero. Take note that we did not say income minus expenses equals zero. This is because the outgoing items comprise of a lot more than just expenses. To avoid all of the income going to expenses and your bank balance being zero at the end of the month, you need a budget (a realistic plan) that will help you manage your finances.

Let’s talk about your budget

Do you have one?

Gasp! If not, don’t worry - we’ve got your back. There are many free and pay-for-use budget programs available on the web or you can make your own using Excel. Of course, you can also use ours for free here.

What is my maximum property purchase price?

Don’t depend on the bank to tell how much of a mortgage you can afford. This is because banks don’t calculate your mortgage affordability criteria - only your mortgage qualification criteria through the Total Debt Service (TDS) and GrossDebt Service (GDS) Ratios. Your budget should be used to determine what your maximum total payment should be for your home. Use our calculator to find out your maximum purchase price here. Remember that it shouldn’t be about what you qualify for, but rather about what you can afford.

Should I have no debt before purchasing a home? 

At Mortgage Allies, we are debt adverse, so we recommend that you have no debt before purchasing a home, however, this is a very personal matter, so we leave it up to your discretion. You can set up a call or meeting to chat with us about it further - we’re here to help. It is important to note that the TDS/GDS ratios will reduce your maximum eligible mortgage amount when your monthly debt payments exceed more than 5% of your monthly, gross income.

How can I pay off debt?

There are many ways to pay off debt and many debt-payment philosophies, but we prefer the Debt Snowball Plan. You can read all about dealing with debt on our website and even get a copy of our free Debt Snowball file here. 

Budgeting is hard (Sing it from the corner!)

Budgeting is not easy, but then so is exercise, thinking, and anything else that is good for us. If it was all so easy everyone would be doing it and be perfect at it. Even Jacques says that he has to remind himself of this often because honestly, budgeting is uncomfortable and hard. If you haven’t got around to downloading our free budget template already, you can grab it here. The topics covered in this webinar are diverse, and the 

What you need to know about credit

Jacques says that there are many people who are in the dark about the importance of credit. You need to have an idea of where you stand with your credit, and when it comes to getting a mortgage, it’s crucial to ensure you know your credit score.

Credit Scores

Your credit is one of the five most important criteria that lenders consider for mortgage eligibility. It determines whether you will be eligible for a prime, alternate or any mortgage, as well as how much of a mortgage you qualify for. Poor or damaged credit can also be very costly in many ways. It can be a difficult process to restore damaged credit. It is important to note that Canada’s two primary credit bureaus are Equifax and TransUnion. These are public companies. If your mortgage is not insured, some lenders require a score of 700. As a general rule, you want to try and keep your credit score at 700 and above, as it keeps you eligible to apply for any mortgage out there. There are many free credit reports out there, and as great as the service is, it won’t mean much to the lender. To ensure accurate, official and useable information, it is important to stick to Equifax and TransUnion.

Diversity

At Mortgage Allies, we encourage as little debt as possible. Unfortunately, you need to have credit to qualify for a mortgage. Diversification creates credibility, and that’s why we tell our clients to try and diversify their credit over time. It’s a process, but definitely worth it at the end. It also helps in situations where there may be damage in one stream, at least there is another stream to show creditworthiness. Try to get a mixture of credit cards and lines of credit from recognized, major financial institutions. Normally, we look for at least two facilities of credit card - with each being two years old, or one facility that is at least five years old. Having only one stream can be dangerous, as if there is damage it will be hard to bounce back. Car payments can build or break your credit, but this credit facility will collapse overtime when the car is paid off. 

Maturity

The more mature (older - think of good, red wine) the credit facility, the better for your credit. It can be very powerful! Think of Balances vs Credit Limit, and try to use less than 35% of your total, available credit. Your balance should be no more than 35% of the overall credit - keep it in mind!

Amount of Credit Checks

How many credit checks should you allow? There are a lot of myths around this. If you have good credit, it shouldn’t affect your credit to have it checked. As a mortgage brokerage, we need to be able to check your credit in order to determine whether or not you qualify for a mortgage. Try to have as few institutions as possible check your credit, especially over a short period of time. Also, be selective of the individuals you allow to check your credit.

Derogatories 

This is a pretty straightforward category! Late and missed payments, collections, liens, consumer proposals, credit counselling, and bankruptcies are all reported on your credit report. Your credit is one of the five most important criteria that lenders consider for mortgage eligibility. Your credit determines whether you will be eligible for a prime, alternate or any mortgage, as well as how much of a mortgage you qualify for. 

A quick point - you go to the bank and ask your bank to lower your rate, but when you check your credit again, there is a note put on your credit record. Always make sure that by requesting lowered rates, it won’t be negatively reported to the Credit Bureau or impact your credit score. Make sure that this is upfront from the beginning - clear and direct. 

Manage 

Your CreditCredit bureaus such as Equifax have credit alert programs to which you can subscribe at a cost. Think about subscribing to this proactive cause. Be aware of the small print, and make sure that you’re clear around the fact that no one can check your credit without your permission.

Jacques gave the example of finishing off the payments on a car. Once you’ve paid in full, you should request a letter from the institution stating that the balance is 0, and ensuring that this is updated on your credit record. The incentive for the institution to report back on your credit is lost once the balance is paid off, so just to spark the letter on file - take control to make sure that real data is reported. 

Consent

Be the captain of your ship, and ensure that every institution that wants or needs to check your credit score has to get your consent in writing every time that there is a request to check your credit. This changes the game by allowing you to be in control of the access to this information.

Updates

Most credit bureaus only update the data on your credit report once a month and there is also no guarantee that all the credit facilities are updated on the same day every month. This is an interesting point that you need to keep in mind!

What is the minimum information required to check my credit?

The minimum information required by lenders to check your credit is as follows: legal names, date of birth and address. An interesting point is that one doesn’t legally need a SIN number to check an individual’s credit. We ask for that information because of the duplication of names (there are many John Smith’s for example), and the second reason is that all of the lenders insist on having a candidate’s SIN number before going forward with a mortgage.

Copies of your Credit Report

Jacques cannot give you a copy of your own credit report. This is because of the terms and conditions with Equifax and TransUnion that make Mortgage Allies and other mortgage brokerages members of their organizations. A member cannot give a non-member a copy, but you are able to get your own copy of your credit report from the organizations directly. Equifax and TransUnion are for-profit businesses and not for government institutions. They are commercial businesses, and they make money from the requests to provide a credit report. Amongst other activities, they generate revenues by charging the institution a fee for accessing borrowers’ credit reports. 

It’s powerful to be informed around your finances.

Getting mortgage-free faster

While it is inspirational and catchy, Jacques says that the slogan “own your home, not a mortgage” is about as useful as exhorting you to climb Mount Everest without showing you how and/or helping you to do so. Unless we create the plan, buy the gear, do the training and book the ticket to Kathmandu, you probably won’t climb Mount Everest. Very, very few (apparently only 1% of Canadians homeowners) pay off their mortgages faster than the original amortization period. Partially because life is busy, they get distracted and they don’t have a plan, but also because their mortgage lender has every incentive to keep them in a mortgage for as long as possible to optimize their own profits.

A Google search for “mortgage-free” renders 562M results, so why is it that with a sea of information at their fingertips, so few Canadians are mortgage-free faster? 

We have a few thoughts on this:

Philosophy

The philosophy of the institution lending you the mortgage money determines its business model and goals. If the lender is a for-profit institution its basic goals would be to sell you debt so that they can earn interest and take your investments at reduced returns so they can lend it out at a profit.

Information vs Transformation

While information is easily and abundantly available, information by itself does not achieve goals. Transformation and results occur when we understand the information, incorporate it into our goals, and work those goals.

The Wrong Focus

Which is the more expensive pair of shoes; a pair of major brand dress shoes at $150 or a pair of leather shoes priced at $650? This is one of Jacques’ most popular questions to ask in illustrating sticker price vs lifecycle costs. Which shoe is the most expensive here? The principle is this: if you evaluate the shoe by its sticker price, then yes, the cheaper shoe would come out as the better-priced shoe. If you evaluate something by its life cycle - the pair of leather shoes come out as having the best price - being three to four times cheaper than the “cheaper” pair. A mortgage should not be treated as a commodity.

Unrealistic Plans

We as homeowners often have great and admirable plans to pay off our mortgages in record time, but those plans are most often not realized because we don’t heed Mike Tyson’s advice. Iron Mike is known for saying; “Everyone has a plan until they get punched in the mouth”. A plan needs to be in writing - we can’t stress this enough. The second point is being able to make small, incremental changes in your daily life. These small adjustments add up, day-by-day and over time you will see how you have moved towards the life you've dreamed of. Support is also a big factor, there is evidence that people who have had coaching in fitness, rather than undertake a new routine on their own, are more likely to succeed. A lack of support can be the underlying reason for failure.

Okay. So how can Mortgage Allies help me?

Talk is cheap! Jacques realizes this and will always try to back up his words by action. How are we different and how do we help you become mortgage-free faster? Well, to start, we have a different profitability model. We don’t get any of the mortgage interest you pay, so we are not in conflict of interest with you. It is very profitable for us to help you become mortgage-free faster. Whether or not you are mortgage-free tomorrow or in twenty years makes no difference to our profits - we are boosted by your success and friendship through getting you debt-free quickly. 

Why?

We make many friends and create a lot of advocates by helping you pay off your mortgage faster and because we savour skills, time and efforts generously, these friends and advocates become our clients and kindly refer us to their families, friends and colleagues. It’s simple, we have the same goals as you, and we only win when you win.

Jacques loves what we do because we’re able to do something great for our clients - we get them out of their mortgage commitments as fast as possible. We are flooded with referrals because of the way we work, and it’s a privilege for us to honour our clients and their families through our work.

Our Mortgage Allies mortgage-free pledge to you

• You will get three written mortgage-free-faster plans from us when we arrange your mortgage for you. 
• Our team will review these plans with you during your mortgage process. 
• We will check in with you once a year, to remind you of your plan. When we check in with you, we will offer to execute your plan on your behalf with your mortgage lender. Our aim is to make your life and your mortgage, more manageable.
• The Mortgage Allies team are constantly working and developing industry-first mortgage-free tools. These digital solutions are created with passion just for you, our clients, to help you to become mortgage-free faster. As soon as all of these tools are complete and ready for action, you will be the first to get access to these tools with all our support and care.

What do we want in return?

We humbly ask you to tell your winning story to your friends so that they can be inspired and have the opportunity to contact us. We would love to be able to help them too. Who knows, maybe we can climb Mount Everest all together and when we’re at the top, we’ll all burn our mortgages together. 

We love clients that are hungry for information because it leads to the right mortgage.