April 2009 - Craigburn Capital

Get your mind out of the gutter, that is not what I was thinking. Although in truth you may not be far off, as noting can kill romance faster than worrying about paying your bills . Every where you look there are stories about companies getting billion’s of tax dollars so they can keep their poorly run companies afloat. AIG got over 130 Billion! Billions to Citibank, Bank of America, GM & Chrysler. At last count the amount of the US bailout package was over 787 Billion, or that would work out to $2,623.00 for every person in the US right now!

Ask yourself the following questions:

1) How are your tax dollars being spent?

2) Are companies using it to reduce debt, cover operating costs, grow the business or to give out as bonuses?

3) Are goverments creating policy that will foster long term economic growth or just mortgaging our future for poorly run companies?

4) Should these companies be allowed to fail?

5) Would the best use of the bailout fund be to return them to the tax payers and allow them to stimulate the economy?

The trouble is that there is no right answer, or just one answer. We are in challenging economic times, yet there are business that are thriving ( Take Apple for example). Even though unemployment rates are rising, 94% of people still have their jobs, and there is a light at the end of the tunnel, and no it is not in the form of an oncoming train. We can all play a part to insure that we all make it through these challenging times no worse for wear. Here are a few suggestions that can be used for business or personal finances. Know what your income expense ratio is, finance only what increases in value or adds to overall profitability and cut out any unnecessary expenses and use savings to pay off your debt as quickly as possible.

Cheers,

Pat

p.s- You can find me on Twitter,Linkedin, Facebookand friendfeed.
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Ok I am not asking you to kiss your sister. There is nothing unpleasant here (for you or your sister). Heck it’s practically free. I am going to break with one of my golden rules and talk to you about mortgage rates. Now before you get too excited, I am doing it to illustrate an opportunity rather than as a price comparison tool.

In the 7 plus years that I have been a mortgage broker, I have seen rates go up an down. I have seen 5 year fixed rates as low as 4.5% to as high as 6.2% for the discounted AAA rated clients. The current turmoil in our financial markets has caused a liquidity crisis for many major lenders ( specifically in the US). This has made it necessary for the US government to inject Billions into the capital markets and to the banks them selves. Our Canadian government, thanks to our stronger banks, only had to inject money directly into the capital market. Anyway back to my point, these injections of large sums of cash are now finely finding their way into a position to benefit the consumer. As a result rates are at all time lows. Current 5 year discounted AAA money is at 3.95% and this is unheard of.

You are probably asking yourself, “well what’s in it for me?”. Let me tell you, if you are a home owner and you currently have debt outside your mortgage, like credit cards ( interest rates of 17.99% or more), Car loans (6-9%), unsecured personal loans (at 20% or more), there may not be a better time than now to look at putting all your egg’s in one basket. Doing this will lower your overall cost of borrowing and possibly save as much as several hundred as month.

However I must tell you that there is a downside to these low interest rates. Yes you heard that right, and you deserve to know the truth. You may not know but mortgages are contracts, and if you are in the middle of your contract term and you go to break it, there will be penalties. If your banks says that they are not charging you a penalty that they are just giving you a blended rate, you are still paying the penalty but in the new rate. Unless you have a closed term you can get out of your current mortgage with either a 3 month interest penalty or an interest rate differential penalty. The banks will charge the greater of the 2 penalty’s.

I had a client call me recently about refinancing and they had just signed a new 5 year mortgage about a year ago at posted rates ( which are higher then discounted, today’s posted is 5.45). I did a calculation for them and found out that their penalty would be over 15K. Now don’t get caught up in the number, if you end up saving more over the 5 years than the penalty then it is worth it to pay the penalty. In this case it was not. Please contact my office today to find out if this makes sense for you.

Cheers,

Pat

p.s- You can find me on Twitter,Linkedin, Facebookand friendfeed.
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PatSawler@Craigburn.com