How To Handle Your Mortgage In A Divorce

Divorce and Mortgage

Short of getting married, buying a house with your partner for life (or intended partner for life) is possibly the most concrete commitment you can make to them. In fact, as marriages frequently end in divorce within ten years, and the average amortization period for a mortgage is considerably longer, it could be said that it is in many ways a bigger commitment. Regardless, joining together to buy a house which you will share as a couple is a big move, and bigger still if you are joint account holders on the mortgage. An even bigger move is if you divorce while you are still paying off the mortgage – creating conditions for some of the most unpleasant times of your life, if you do not both swiftly resolve to conduct the entire process with maturity and dignity.

When a couple divorce, there is always a question over the marital home. Will it simply be sold with the couple splitting the money equally or according to a ratio of their choice? Will one partner buy out the other? It is for both of you to decide. It may be that one partner wants a clean breakaway and intends to leave the area, in which case the only thing that remains is whether the remaining partner wishes to stay in the house and can meet the full mortgage payment. It is important at an early stage to consult your mortgage agent in order to find out exactly how it affects your specific mortgage.

There may be some justification for applying for a new mortgage – whether this be for the purposes of buying out your spouse’s half of the equity in the house or in order to search for a new home. If this is the case then it is important to take account of the fact that there will be some changed data on the new application and that you are unlikely to have the same borrowing power as an individual that you did as a couple. Indeed, it is often worth involving the mortgage in discussions between lawyers if the divorce is to be conducted with the help of legal representation. This can help to divide it fairly and equally.

It is also worth taking into account that debt taken out in joint names will affect the credit scoring of both parties. Sorting out the issue of the mortgage is in this case all the more important, as acrimony over a divorce can be multiplied if one partner is considered to be behaving in any way that is injurious to the other. Although the marriage may have come to an end – potentially a very unpleasant end – the couple who are separating will usually have bought the house together at a time when they were very much in love, and its sale, or even departure from it by one of the parties can cause a great deal of heartache. It is sensible in this case to be businesslike although not insensitive, and making things easier will include smoothing out any financial issues – in which the divorce must be considered a priority.

What Is The World Bank

The World Bank

One of the most important financial institutions in the world, if not the most important, is the World Bank. The World Bank is an international financial institution that provides leveraged loans to developing countries to help fund capital programs. Through the World Bank, the expressed goal of reducing poverty is worked towards.

Many people confuse the World Bank with the World Bank Group. The World Bank is made up of the International Bank for Reconstruction and Development and the International Development Association, while the World Bank Group is made up of those two organizations, as well as the International Finance Corporation, Multilateral Investment Guarantee Agency and the International Center for Settlement of Investment Disputes.

The World Bank was created in 1944 at the Bretton Woods Conference, which was the same conference where the International Monetary Fund was created. Like the IMF, the World Bank is headquartered in the United States. One interesting note is that while the IMF is traditionally led by a European, the World Bank by custom is always led by an American. The first country to be selected for World Bank aid was France, while Poland and Chile were rejected. The first loan was for $987 million, roughly half of what was originally requested and this was under strict conditions. The World Bank then monitored the use of these funds and it was required by the French government to provide a balanced budget and a plan for repayment to the World Bank. In addition, the United States required that the French government remove any communist elements within its cabinet in order to qualify for the loan. France, which had been decimated by the Second World War, complied.

The World Bank has set forward five factors that are necessary for economic growth within a country, which allows them to help countries improve their financial standing and the standard of living of the country’s citizens. These factors are:

1.   Build capacity to strengthen governments.

2.   Create infrastructure to implement justice systems that aid business and protect the rights of individuals and their property.

3.   Develop financial systems that are strong and can handle tough economic times through concepts like corporate ventures and micro-credit.

4.   Combat corruption by helping countries eradicate it within their borders.

5.   Research and train countries and their citizens, while providing the opportunity for citizens of these countries to get an education.

The World Bank has decided that it would try and reach some very ambition goals by 2015 in order to help make the world a better place. These goals have helped to improve the image of the World Bank from just an international bank, into an organization that is dedicated to making the world a better place. The goals set out by the World Bank for 2015 are:

·   Eradicate Extreme Poverty/Hunger

·   Universal Primary Education

·   Promote Gender Equality

·   Reduce Child Mortality

·   Improve Maternal Health

·   Combat the Spread of Diseases

·   Ensure Environmental Sustainability

·   Develop Global Partnership

Thanks to the World Bank, things are improving on many fronts.

These policies and goals are being pushed by the main voting powers of the World Bank. In 2010, the World Bank revised its voting system to help give developing countries more of a say in the decisions of the organization. Currently the voting powers of the World Bank are split as follows:

1.   United States:  15.85 percent

2.   Japan:  6.84 percent

3.   China:   4.42 percent

4.   Germany:  4.00 percent

5.   France:  3.75 percent

6.   United Kingdom: 3.75 percent

7.   Other members: 61.39 percent

Under the reforms in 2010, countries like Brazil, India, South Korea and Mexico saw their voting power increase. Many developed countries lost voting power while Russia did not see a change in its voting power.

Saving For Your Retirement

Retirement Planning

First Published: June 11, 2010 ADawnJournal.com

We all want to save for our retirement and we all know that hoping to win the lottery is a fool’s quest that should not be relied upon. You want to save as much money for your retirement because the more you save, the easier you will be able to live without an income. For example, if you save $100,000 for your retirement, that may seem like a lot but if your yearly expenses after 65 are $20,000 per year, then you end up only having enough money for five years. Likewise, if you save $1,000,000 for your retirement and you only spend $20,000 per year in expenses, you then have enough money for 50 more years. That doesn’t mean that you won’t have to pay out money suddenly for a large expense, but it does give you more breathing room.

Until the age you are 71, you can make a contribution to your Registered Retirement Savings Plan to a total of 18 percent of your earned income or $13,500 a year less your pension adjustments. This can give you more money for your retirement because your RRSP can grow by as much as eight percent per year. The thing is not a lot of people actually contribute everything they can for their retirement into an RRSP. In 2000, Canadians between the age of 24 and 64 put in $27.8 billion into their RRSPs, but that was only 10 percent of the total contribution amount available.

If you want to make sure you put money into your RRSP, then you should do an automatic withdrawal so that the money automatically comes out of your bank each month, or you can set up for an employer plan.

Another important way to save for your retirement is to get insurance. Critical illness insurance, disability insurance and life insurance can all ensure that you and your family have money if disaster strikes. Insurance is like a safety net for you that protects you from the worst. Remember the adage “Hope for the best, prepare for the worst” because that is how insurance works. Long-term care insurance can protect your finances if you suffer a disability or illness that causes you to need home care. This lowers the financial burden that you would have had to deal with.

You can also look at home equity plans through the Canadian Home Income Plan. The CHIP program comes from the government and it registers a mortgage on your title and you receive a lump-sum payment of 10 to 40 percent of the appraised value of your home. You own your home and when you sell your home the mortgage is repaid. Most banks offer CHIPs and you typically pay the cost of administration and the cost of the appraisal.

Planning for your retirement is very important because you do not want to be like the grasshopper that goes through life without planning for the winter. You want to be like the ant that works hard and enjoys what they have accomplished in their golden years.

Always consult a qualified financial/legal professional before making financial/legal decisions.

Mutual Fund Fees and Expenses

Mutual Funds 101: Part 3 – Last Part

The following is an Excerpt from my first book Invest Now. Invest Now is jam-packed with timely information and timeless advice for the beginning Canadian investor. Invest Now covers a broad range of topics including Internet Scams. To purchase a copy, visit Chapters Indigo or click here to buy online – Invest Now: A Canadian’s Guide to Investing

What Are Fees and Expenses?

Mutual funds would be an unbeatable investment vehicle if there were no fees. But without charging fees, fund companies would not be able to give you all these options. Many financial gurus and critics would tell you to avoid mutual funds because of these fees and expenses, but I beg to differ. I think it’s better to pay fees than to lose all your money. When you buy stocks, you pay to do that-and then pay again to sell. In mutual funds, things are different. You pay your fund company every day for as long as you hold the fund. So if you calculate the cost of a thousand dollars’ worth of investments in both stocks and mutual funds for ten years, your cost for mutual funds will definitely be higher.

Let’s look at these examples:

$1000 in mutual funds:

A 3% MER would cost $1000 × 3%, which equals $30 a year.

The 10-year cost is $30 × 10, which equals $300.

$1000 in stocks:

Standard trading fees to buy = $29

Standard trading fees to sell = $29

Total cost in 10 years = $58

Buying stocks looks good in the above example—if your stocks make money. Compared to losing your money in stocks, you would not mind paying fees to buy mutual funds instead. I invest in both mutual funds and stocks. In last 10+ years, a couple of my stocks have evaporated almost overnight. I lost money in mutual funds too, but the margins were very slim. I have never lost my whole investment in mutual funds. If you know any investors, ask them how many times they lost money in stocks and how many times they lost money in mutual funds. You will get the obvious answers. Try it!

Beware of and Avoid Mutual Fund Fees and Expenses

It is time to explain the fees and expenses associated with mutual funds. An educated investor, who knows how these costs and expenses occur, should be able to reduce overall costs significantly, thus achieving higher return.

MER

This is the major cost of holding a mutual fund. MER stands for management expense ratio. The MER measures a fund’s total expenses for a financial year. A MER calculates a fund’s expenses by the fund’s average assets. The MER is expressed as a percentage of the fund’s total net assets. If you break down the MER, you will get

MER = (M + ER) × GST

The M stands for “management fees.” The M is the big chunk of the MER. This is where fund companies make money. Management fees cover compensations to dealers, sales and marketing costs, corporate expenses, portfolio-management cost, investment research cost and so on.

The ER stands for “expense ratio.” Expense ratios include administrative costs, such as regulatory costs (provincial and federal), client services and administrative costs, custodian fees, fund-reporting costs (annual report, prospectus and so on), audit and legal costs, technology costs and so on.

GST: Yes, you pay tax again when you invest your already-taxed dollars.

The MER can be found in a fund’s prospectus and on the Internet. Also, you can call your fund company to obtain the MER. It is important that your funds do not have a skyrocketing MER. Always pick a fund with a reasonable MER—not more than 2.5%. You can actually shop around for a certain type of fund and pick one with a lower MER. I will discuss index funds shortly, which have a low MER compared to regular mutual funds.

The MER Mystery

New investors will be puzzled when they do not see costs, mainly MERs, coming out of their investments up front. It’s not on your statement, not on your receipts, not on your confirmation slips … not anywhere. Does that mean that fund companies are not charging you MER fees? Are they giving you everything for free?

No, not at all. You see, fund companies came up with this brilliant way to charge you invisibly every day. The MER comes off a fund’s NAV (or net asset value—the fund’s price per unit) every day, so you don’t see it. That’s why it is important to hold a fund with a reasonable MER: in the long run, you don’t want to evaporate your money by paying a high MER. Usually, Canadian funds have a lower MER than specialty funds (which we will discuss later), and specialty funds have a higher MER than foreign funds.

Huge MER gaps can exist. A Canadian equity fund at one fund company can have a 2% MER, and the same type of Canadian equity fund at another fund company can have a 3% MER. A higher MER does not necessarily mean a higher rate of return.

Let me give you a simple example of how you pay MERs invisibly. Suppose your fund’s actual unit price is $10.05 for any given day before adding any expenses or MERs. Now your fund company will add their daily cost to $10.05 and will charge you $10.30 (assuming cost for one day is $0.25). You will never see the actual value $10.05 anywhere. Investors will see $10.30, and this is what the fund company will publish on their Web site or in the newspaper as the NAV for that day. I wish fund companies would disclose MERs visibly, but it does not look like that will happen any time soon. That’s why you absolutely must do your homework before you invest anywhere.

Loads

Mutual funds come in a confusing variety of packages: front-end load, back-end load, low load, or even no-load. Let’s clarify these.

Front-end load: When you buy this load, you pay your dealer’s commission up front. Commissions can run from 0% to 5%. If you are buying $1000 worth of funds with a 5% commission, your dealer is receiving $50, and only $950 is getting invested. With this option, you don’t pay any charges or fees when you redeem your funds. Always buy front-end funds at 0% commission, so you invest the full amount. This option is also known as initial service charge, or ISC.

Back-end load: When you buy this load, you are agreeing to stick to your fund for a few years (usually seven), and if you withdraw before passing those years, you will get hit by redemption fees. Redemption fees decline every year until they no longer exist at all. If you have always wondered why your broker or dealer always wants you to hook up with back-end funds, it’s because these funds give them a flat up-front commission (usually 5%) from the fund company. Who eventually pays this commission? It’s you. Buying back-end means you have to stick to the fund for many years, or pay redemption fees, just to compensate your fund company for that commission. Your goal is to stay away from back-end load. Back-end load is also known as rear-end load, deferred sales charge (DSC) and so on.

Low-load: This one is a kind of back-end load with reduced commitment lengths (usually three years) and reduced redemption fees as well. Also stay away from this load.

No-load: This is just a 0% version of a front-end load. But make sure the MER is not higher than other loads, in which case this is a good option.

Trailer Fees

Fund companies pay your broker or dealer trailer fees as long as you hold the fund. Trailer fees are already in the MER. Trailer fees are service commission fees, meaning your dealer or broker should keep funds on track, answer your questions, service your accounts and so on. Generally, front-end funds pay 1%, and back-end funds pay 0.5% trailer fees.

Turnover Ratio

The turnover ratio tells you how actively your fund manager is trading. Lots of trading can be expensive. The higher the turnover ratio, the more expensive the fund is. For an open account, a high turnover ratio can translate into high tax bills. You should be able to find this information in your mutual-fund prospectus.

The Prospectus: Your Mutual-Fund Bible

I have described some of the fees and expenses involved with buying a mutual fund. There might be more fees and expenses, along with other risks. A successful investor is an educated investor who researches fees, expenses, and risks. Remember, an emotional decision will not make you a successful investor. Plenty of tools out there can help you with your research, and this book will show you those tools.

The prospectus is a powerful tool that will help you a lot with your research. A prospectus is a selling document published by fund companies. By law, this has to be distributed to you as an investor. This document, which looks like a magazine, must explain a fund’s objectives, holdings, performance, risks, fees, expenses and so on. In plain words, it must provide full and true disclosure of all the important stuff you need to know to make an informed and educated decision. You can obtain this document by calling your fund company, or you can download a copy on your fund company’s Web site for free.

Always read the prospectus carefully and thoroughly. Dissect all the information it provides and then reread key information, such as risks and costs.

Miscellaneous

– Pick funds with a reasonable MER. Be extra-cautious not to pick a fund with more than a 2.5% MER. The same types of funds can have different MERs at different fund companies. If my fund company charges me a higher MER for the same kind of fund, there had better be some explanations justifying that higher MER.

– The MER is shown annually and calculated daily. The NAV you are paying for each unit already includes the MER; you do not pay the MER separately.

– The NAV, or net asset value, is what you pay for your funds. In mutual funds, you buy one unit or one share, just like one stock or one bond. The NAV equals the fund’s assets minus the fund’s liabilities. Fund companies price their funds every business day after markets close. The NAV is what you see in the newspaper or on Web sites in the Fund Prices section.

– Fund companies pay your broker, dealer, or discount brokerage trailer fees as long as you hold your funds.

The Trailer Chart

Load Type Fund Companies Pay

Front-load Up to 1% annually

Back-load Up to 0.5% annually

Low-load Pays same as back-load at

first, but later changes to front-load

·   At www.sedar.com, you can find documents submitted by public companies and mutual-fund companies. You will be able to access mutual fund prospectuses, annual reports, financial statements and so on. This is a good place to start your research. Check this site whenever you need to look for a document and you don’t want to wait for the paper version to arrive in the mail.

Compound Interest Basics

The Idea of Compounding

Compound interest is something consumers hate. With compound interest, not only are you charged interest on the principle, which is the money you borrow, but you are charged interest on the interest. The interest compounds on itself, making you pay more and it is something most people could do without.

Compound interest has actually been with humanity for quite awhile, dating back 2,000 years to the days of the Roman Empire. Back then, compound interest was regarded as the worst type of usury and it was condemned under Roman law. As well, the Qur’an and the Bible both contain references to compound interest. In the Qur’an it says “O ye who believe. Devour not usury, double and quadrupling. Observe your duty to Allah, that ye may be successful.” In the Bible, there is a reference to it in Leviticus 25:36-37 which reads “Take no usury or interest from him; but fear your god, that your brother may live with you. You shall not lend him your money for usury, nor lend him your food at a profit.”

In 1613, Richard Witt wrote Arithmetical Questions, which is considered a landmark book on compound interested. Completely devoted to the subject of compound interest, it was in sharp contrast to other books because most devoted only a chapter to the concept.

Enough about the history of compound interest though, how does it work? Well, if you take out a loan that has interest compounded on a monthly basis then it will work like this:

The loan is for $1,000 and you have one percent interest per month, which means that at the end month one you owe $1,010, and at the end of the second month you owe $1,111 and so on. So, the interest from month two is being added to the principle you owe, plus the interest you owe from month one. Naturally, this can quickly get out of control, especially when you are dealing with very high interest rates.

Most people prefer to see interest as a yearly percentage and for this reason many governments force banks and other financial institutions to disclose the equivalent total interest for the year. So, for one percent interest per month, the annual percentage rate would be 12.68 percent. This prevents people from being misled into thinking they are only paying one percent interest on their principle.

Compound interest should not be confused with simple interest, which is interest that is not compounded on top of it. Sadly, simple interest is not used very often. Compound interest is used quite a bit in finance and economics and if you have a credit card, you are paying with compound interest.

It is important to look at the laws dealing with usury to ensure that you are not becoming a victim of it through compounding interest. You want to ensure that when you get a loan, you are not going to be paying interest on interest to a degree that could cause you to default on the loan itself.