What Is Mortgage Valuation?

Mortgage Valuation

First Published: September 10, 2009 ADawnJournal.com

Oscar Wilde once said that a cynic is someone who “knows the price of everything but the value of nothing”. This is a quote that is still used today, although it is more commonly applied in our society to economists. Whether or not it is a fair task, it certainly has some currency in a world where, more and more often, prices can be applied to anything, and are described as “valuations”. The time has come when “price” and “value” mean more or less the same thing for a large branch of society. When it comes to buying or selling a house, the word “valuation” will be bandied about with unerring regularity. The house you wish to buy must be independently valued before the bank will even consider giving you a mortgage.

In valuing a house, the bank is able to value your mortgage. They are, after all, forwarding the money to you in order that you buy the house, and they do not want to back an investment that they consider to be excessively priced. If the time comes when you are unable to pay back the mortgage and they need to repossess the house the bank will have to sell it, often below its market value, in order to recoup some or all of what they lent to you. In this case, if the bank had backed your purchase of a house at what they considered to be an inflated price, they would be in a far worse situation when it came to selling on the house that they have inherited. They would have lent you too much, recouped too little, and spent time and resources doing so.

In some ways, then, it is the economist’s job to know the price of everything and the value of nothing (as Mr Wilde would have had it), but they would be more likely to say that the price of something is its value, because that is what the average buyer would be willing to pay for it. More accurately perhaps, things that you already have possess a value, and things that you want have a price. Ensuring that you have the property valued before advancing the process of applying for a mortgage will save you time in the long run, and could avoid the unnecessary raising of hopes and expectations.

The banks’ valuation of your desired property could even work in your favour. If they are seen to value it at a price beneath the asking price on the property, then it means that the person selling the house is more likely to accept a lower offer. You could save yourself some money by trusting in the bank’s valuation – after all, they have people who are paid to be what Oscar Wilde would have considered cynics. Persuading people to part with a property they loved for a price which is less than they valued it at may seem cold-hearted to some – but in the end, they would not be selling it if they didn’t need the money.

What Is A GIC (Guaranteed Investment Certificate)?

What Is A GIC (Guaranteed Investment Certificate)?

First Published: September 13, 2009 ADawnJournal.com

GICs are investment product (like mutual funds, bonds) that guarantees you to protect your principle (the amount you put in) with a guaranteed income for a particular period of time.

How Do GICs Work?

When you buy GICs, you are lending your money to the financial institution at a fixed or a variable interest rate, or based on a pre-determined formula (or arrangements) for a certain period of time. In return, at the end of the term, financial institution is giving you back the money you originally invested (called principle or capital) plus the interest you earned.

How Many Types Of GICs Are There?

Financial institutions will try to confuse you by giving many fancy names for their GICs. However, there are mainly two types of GICs. The first type pays fixed interest rate, and the second type pays variable interest rate. The second type can be linked to an index, a stock market, or a prime interest rate to pay you variable interest rate. Now let’s look at some other common terms institutions use:

Cashable GICs – You can cash it any times based on the terms provided by financial institutions. This may also be known as Redeemable GICs.

Non-Redeemable GICs – You won’t be able to redeem it until your GIC matures.

Index-Linked GICs – GICs that are linked to stock markets. This may also be known as Market-Linked GICs.

Where Can I Buy GIC?

Various financial institutions sell GICs such as banks, credit unions, discount brokerages, and other financial institutions. Also, your financial advisors are able to sell GICs through the institutions they are affiliated with.

Advantages of GICs

Here are the main advantages of GICs:

Principle Protection: Depending on what you buy, money invested in GICs can be safe and secure. At the end of the term, you will get back your capital you original invested. However, if you have security in your mind, it is recommended that you talk to a qualified financial professional.

Safe Parking: If you are not sure where to invest your money for the long term, you can park your money in short-term GICS while you can search for other options.

Higher Interest: GIC pays higher interest than traditional savings account.

CDIC Protection: Some GICs offered by CDIC insured institutions are protected for up to $100,000. Talk to your financial institutions to investigate this further.

Easy and Simple: GICs are easy to understand and simple to manage. You don’t need to have an MBA to invest your money in GICS.

Disadvantages of GICs

Here are the main disadvantages of GICs:

Liquidity: GICs aren’t very liquid (easy to withdraw) when you need your money
right away. A high interest savings account offers better liquidity than
GICs in most cases. With a GIC, your money is tied up for a specific period of time, i.e.,
one to three years.

Interest Income: If held in a non-registered account, interest earned on a GIC is
is taxed at a higher rate, for example, taxed at your full marginal tax rate.

Don’t Forget Inflation: Let’s say your GIC is giving you 2% interest. And consider that the annual inflation rate is 3%. If you keep $100 in your GIC for one year, you should have $102 in your hands after one year, right? Well, yes, technically, but that $102 is less than you started with. Due to inflation, you need $103 to buy same goods you would have bought with $100 a year ago. So actually, you lost money-$1, to be exact. Yes, real rates of return GICs can be negative or lower than what you actually see.

Final Word

I am not a fan of GICs. In Invest Now: A Canadian’s Guide to Investing I have discussed how to invest without being a financial guru in non-GIC products such as mutual funds. If the idea of losing money makes you lose sleep and you absolutely can’t take the slightest risks, may be GICS are an option for you. Talk to a qualified financial professional – before making any decisions.

LoungeKey Increases Lounge Visit Fee | Should You Pay $32 US for Lounge Entrance?

MasterCard LoungeKey Increases Lounge Access Fee

We all want free airport lounge access and high-end credit cards that provide two different lounge access programs. 

World Elite Series MasterCard credit cards use Mastercard Airport Experiences Provided by LoungeKey to provide free lounge membership + free visits. Depending on the World Elite Series credit card, some of these cards provide free visits and some of these don’t.

If you do not have free lounge visits, starting October 1, 2019, any chargeable airport lounge visits will increase from $27 to $32 US per visit per person. It will not affect your free or complimentary visits. 

For example, credit cards like the BMO World Elite MasterCard and the BMO World Elite Air Miles MasterCard come with 4 and 2 free lounge visits, respectively. But if you want additional visits beyond your free entitlements, you will pay $32 US for each additional visit starting October 1, 2019.

Many other Canadian World Elite series credit cards come with free lounge membership provided by LoungeKey, but not free visits. The Brim World Elite MasterCard, Rogers World Elite MasterCard, WestJet World Elite MasterCard, and possibly PC World Elite MasterCard are just a few examples. If you have one of these cards, you can visit a lounge that’s covered by the LoungeKey program by paying $32 US per visit.

Another lounge access program, Priority Pass, which is owned by the same parent company as LoungeKey, already increased their lounge visits (after free ones) to $32 US about a year ago. 

You may ask whether it is worth paying $32 to visit a lounge if you don’t have free access. The answer is it depends. If you eat at an airport restaurant and have a few drinks, you will exceed far more than $32. A lounge can provide you with all the food and drink you want and more. 

You will also enjoy a far superior ambient relaxing environment and better seating arrangements. Some lounges also have shower facilities and amenities that can far exceed the $32 spent. 

However, my recommendation would be to get a credit card that provides free lounge access if you use a lounge more than two times per year. 

You many want to view these videos on Lounges:

Business Class Lounge Reviews 

Points & Miles 101 - Tips, Tricks, & the Basics

Australia Travel Blog: Just Landed in Sydney

Sydney Travel Blog: Part 1

At the SYD Airport

Passing airport immigration and customs was a breeze. It was all done electronically, and no one stopped me to ask any questions. Now, it was time to head for public transit. Sydney Airport is far from downtown, and it would cost a lot to take a taxi.

The train station I needed to take was the Sydney International Airport Station. The station was located at the northern end of the terminal; just a few minutes walk. I had only a piece of carry-on luggage, so it didn’t bother me to walk a little.

Sydney Metro Experience

I knew I had to reach Kings Cross Station, but I didn’t know how to reach it. After going underground a few levels on escalators, I saw the ticket counters and machines. It was close to 9:30 and I didn't see any humans, so machines were my only way to buy tickets.

The card I purchased from the machine for a one-way ride to my station was called Opal. Opal is the smartcard ticket you need to ride public transport systems in Sydney and many other cities in Australia. 

My trip cost me $18.70 AUD, which was close to the same amount in Canadian dollars. Once I tapped on the Opal card and got inside the station, I asked someone to tell me which platform to use and how to get to my final destination, Kings Cross. People seemed to be friendly and one young gentleman who looked like a student explained everything to me in detail. I needed to change the train at Central Station, i.e. change to platform 24 to take the Eastern Line train. 

Chinese Market Set To Rebound

China’s Economy Is Rebounding

First Published: September 17, 2009 ADawnJournal.com

While much of the rest of the world has been dealing with a financial crisis that has seen economies contracting, China’s experience of the global downturn has been a different kettle of fish. They have not been immune to the overriding pessimism that has gripped most nations, but their economy has continued to grow – just a lot slower than before. Chinese Prime Minister, Wen Jinbao, has stated openly that he wishes to drive a recovery from this slow expansion by continuing a level of government spending which has been described as “unprecedented”. Speaking to the World Economic Forum meeting in the north-eastern Chinese city of Dalian, Wen said that he would not change his government’s financial policy when the conditions did not justify such action.

Though paying heed to the undeniable fact that China’s economy is rebounding, like many of the major global markets, Wen admitted that the rebound was currently “unstable, unbalanced and not yet solid”, and continued a global commitment to maintain government action to ensure a steady and long-term recovery from the deepest global recession since the Second World War. While the level of government loans is expected to taper off in order to ensure that any growth is “genuine” – a good analogy here would be the effort to ensure that a patient with a broken leg can eventually walk without crutches – investment will not fall away completely, rather it will remain at enough of a level to give the patient breathing space to recover properly.

Key economists such as Wang Qing, chief Asia economist for the Morgan Stanley bank in Hong Kong, feel that although the worst of the recession has undoubtedly passed, a hang-up in Chinese exports may muddy the waters when it comes to driving an overall recovery. Over the past nine months the country’s exports have fallen as struggling economies showed a reluctance to look overseas when they had problems of their own to correct. This has had the knock-on effect in China of creating an overcapacity in their marketing sector and resultant unemployment – meaning that the record government stimulus package of 4 trillion yuan (More than US$586 billion) has not had as pronounced an effect as might have been hoped.

One of the key indicators of Chinese market performance, the Shanghai Composite Index, has shown a recent slide of 20%, reflecting wider concerns that continued government lending could in fact have a negative effect on Chinese economic growth. The initial results from the government’s stimulus lending have been positive, arresting that slide and creating growth. Wen has judged from this that the government’s liberal and proactive economic steps are the way forward for the moment, but that the time had come when some stimulus measures had to be left to do their work, some having almost completed that process and others likely to take some time to become fully effective. With the global economic sector awaiting the publication of August’s figures, a look at China’s results in the next few days will make for instructive reading.