MORTGAGE INSURANCE: THE FACTS YOUR BANK DIDN’T TELL YOU

Congratulations!! You have bought a house and are signing off all of the final paperwork. Your bank has mentioned mortgage insurance to you, explaining that if something happens to you, it will ensure your mortgage gets paid off so that your family is not homeless. Makes 100% sense. After all, if something happens, we want our families to be able to maintain their lifestyle and be safe. Sign me up!! Right?

Let’s start with the basics. The rate you will pay for your mortgage insurance will remain the same throughout the time frame of your mortgage. Your amortization period may be 10 years or 25 years or perhaps even 30 years. So based on a mortgage amount of $250,000. 00, you and your spouse being in the 30- 35 age range, your mortgage insurance will, on average, cost you approximately $55.00 / month. With each payment you make, the amount you owe on your mortgage goes down, small amounts at first, a little more as time goes by.
So, scenario one, 4 years into your mortgage, you now owe $220,000.00 (based on monthly payments plus extra payments made occasionally from your tax refund, etc). Your spouse, who is a smoker, dies of a heart attack. You now have a young child and anxiously wait for the insurance to pay off the house so that your unexpected struggles can be relieved. The insurance representative contacts you and asks questions about your spouse’s death. You answer freely so as to move the process along. Weeks later, you receive a letter in the mail saying that the insurance will not be paid out as your spouse’s risk factors (smoker) plus dying as a result of a smoker’s related disease, your safety net turns out not to have been quite so safe after all.

Scenario two. Your spouse has no major risk factors and dies in a not at fault car accident. The insurance is paid out many weeks after the passing of your spouse, directly to the bank. You were paying for insurance of $250,000, owe only $220,000, so you assume you will get the balance of $30,000. 00 which will help cover funeral and other minor expenses. Unfortunately you are wrong and will not see the difference.

So what happened? At the worst time of your life, you do not want to have to deal with these problems and expenses. Let’s start with the important things you need to know before buying mortgage insurance. It is always underwritten after death. This means that the medical questions and risk factors are not calculated when you the purchase the insurance. They will all be investigated however, with close scrutiny, after you die. So if you have a risky lifestyle in either your activities (extreme sports etc) or lifestyle (obese, smoker, etc) the claim is likely to be turned down. Furthermore, no matter how little is left on your mortgage, the bank is the one that gets paid and ONLY for the amount owing on the mortgage.

What are your options? Life insurance, whether Term or Permanent (these will be discussed in my next blog), will be underwritten prior to acceptance and will remain in place for the full amount ($250,000) and will be paid directly to your beneficiary (spouse, children). If your mortgage amount is down to $220,000.00, you will be able to pay off the mortgage, pay for the funeral and have a little left over for other immediate expenses. The cost will vary based on what type of insurance you purchase, your age and risk factors, however it will often be in the same range as your mortgage insurance payments.

The bank / lender, will never tell you these details and will never disclose to you the refusal rate on mortgage insurance claims. Get in touch with me to discuss your options. Let me help you take care of those you care about the most.

Write to me at myfuture@unleashtheknow.com. Protect your family even when you are no longer there to do it in person. Leave them with fond memories instead debts.

This is part three in the I WISH I KNEW THAT THIRTY YEARS AGO series, brought to you by UnLeash the KNOW.
http://www.Unleashtheknow.com

ARE YOUR INVESTMENTS KEEPING UP WITH INFLATION?

ARE YOUR INVESTMENTS KEEPING UP WITH INFLATION?

 

I have been watching with fascination, the recent run of ads on Canadian radio and television for various banks.  They run the gamut from Canada’s chartered banks to banking co-ops.  What are the new ads talking about?  Something that is limited in time, special and amazing and something we should all be running to these institutions for…..HIGHER INTEREST RATES THAN WE HAVE SEEN IN A LONG TIME!  Yes indeed….holy lucky us!!!  From 1.75 to an entire 2% interest rate!!!!   SERIOUSLY?????

Let’s begin with a few facts.  The average rate of inflation in Canada, is 3%.  It has been this for many years and is likely the minimum rate of inflation for the foreseeable future.  Any bank account or investment account where the interest rate is less than 3% is, in fact, negative interest.  Given common bank fees $5.00 – $30.00 MONTHLY), you are in fact, technically at least, better off keeping your money in your mattress.  When you deposit money into the bank or purchase common investments (also paying between .5 and 2.5 % interest), the bank borrows that money and re invests it to help THEIR bottom line…..at rates of 7 – 12% interest.  You get your 2% but they make an extra 10% on YOUR money and, on top of that, charge you service fees unless you keep a minimum of $5000.00 (on average) in your account.  Is it any wonder bank profits are in the multi billions quarterly?

I am not advocating using your mattress as your savings account.  It is an exaggeration (if only a small one). I am however, advocating ensuring that you ask questions and get informed.  A free financial checkup, where you can see all of the facts of your personal financial situation, is an investment of time which you will never regret.  Know and understand what your FIN# is (financial independence number), understand how what you are doing now is getting you towards that number and what you can do in the immediate future to get you there faster.   Many people I talk to these days, respond to the question “at what age do you plan to retire?” with a quick chuckle then say maybe age 70…or 80….or never will be able to.  Their investments, whether they be RRSPs or GICs or savings accounts, are simply being depleted by inflation, faster than they can grow.

So you only have $100.00 per month to invest.  You are paying $150.00 per month into mortgage insurance (by the way, do you know the facts about that “investment”?) and you do not have any way of coming up with more money than that to invest.  With so little money, 5% or more is just a dream as a rate of return on any investment or account.  It is just a dream…right?  If only you could save taxes, you could invest more…but Canada Revenue Agency doesn’t make that possible so $100 / month it is. UNLESS……….naw…..or maybe…….is it possible?

Contact me for your financial check up.  I will teach you about everything from mortgage insurance to life insurance how to grow your investments beyond the rate of inflation.  There is no cost for this service and you may be surprised at what you can learn.  I am available to do this whether you live in Ontario or Quebec or elsewhere including the USA.  Book your appointment soon.

myfuture@unleashtheknow.com

 

This is the second article in the series, WISH I KNEW THAT 30 YEARS AGO.  Part one was published on July 6^th.

What is your financial plan??

As a single mom who didn’t receive child support, life for many years was about getting through that day, each day, making sure the phone didn’t get cut off, the children were fed and the roof stayed over our heads.  I had no plan and frankly, no concept on how to create a plan to change my life and the lives of my three children.  It took me many years to see a way forward and to make real changes in my life.  I am not “there” yet…but I am on my way and the way forward seems so obvious now.

In school, we are taught so many things which we are told “you will surprise yourself someday and find yourself using this”.  Well the fact is, I have never used many things I was taught in school.  I am in my mid fifties and while I am glad that I know what I know, where were the basic life skills on the school curriculum?  We need to teach our young people about credit scores, how to spend and how to save.  We also need to teach them how to make a plan for your finances.  How many of you reading this know your FIN# is?  Do you know what a FIN# is?  Your Financial Independence Number, the amount of money you will need to retire in a comfortable style where your needs in your senior years are taken care of.  Having many people in my family living to and past the 95^th year, I have witnessed firsthand, the cost of being very senior, in good health and bad.   It can be very expensive and way beyond the means of many who thought they were safe.

So what can the average person, of any age, do to ensure that comfort?  How do you go from surviving today to living in 40 years?  Barring inheritance or winning the lottery, we need to start with the basics.

Number one: Invest in yourself.  Investigate opportunities to increase your skills.  Explore opportunities you would never think of yourself in but which would give you that freedom.  Do not be afraid to approach others who are successful and find out how they achieved it.  Ask someone to mentor you.  Open up your world.

Number two: Be ready to work hard now for payoff down the road.  The most worthwhile things in life take time and work.  The most rewarding thing in my life and the lives of many, is my children / motherhood.  Nearly ten months of pregnancy per child, nausea, labor, getting comfortable with nursing, worry, stress, money, no sleep and no private time…but the rewards are endless and lifelong.  So why not be ready to make fewer sacrifices than that, for rewards that are also endless and lifelong.  The ability to take care of those you love, travel, giving to charity, the home you want, the education you want, going to concerts, shows and most of all, saving for a quality retirement.  All for a few dollars a month, invested well and being as much of a habit as showering.

Number three: Talk to an expert.  Talk to a lot of experts!! Do not allow one person at a bank or investment company tell you that you do not have enough to invest to make it possible or feasible to participate in the best programs with the highest returns.  There are companies out there who can make it work for you.  You can start your savings plan with only a few dollars a month.  Add to that, possibly switching out certain programs you are participating in for other ones with superior payoffs and even, possibly, at a lower cost.  I know of some families that were paying tremendous interest fees plus insurance and with some changes were able to save up to several hundred dollars a month AND increase their portfolio and the value of their overall plan.

My new plan started when I was at a point in my life when I should have had it all.  My car had been repossessed, I was at risk of losing my house, both of which I had struggled to save for and buy.  I was devastated.   I had worked so hard but the world’s economy changed my world.  I knew I had to work smarter to make my plan work.  If I wanted a change in my life, I had to be that change, once again.  The plan began and life is amazing.  I know now that my future is secure and I am helping others secure their futures too.  I did not take NO for an answer, instead I made sure I KNOW all that I need to create my future.  What is your FIN# and what is your plan?

 

Andrea Blaustein

andrea@unleashtheknow.com

www.unleashtheknow.com