This weekend I was reminded how beneficial getting away for a couple of days can be. I love the mountains and biking so I decided it was about time I did some biking in the mountains again. After some use of Google I found that a new trail from the East Gate of Banff Nation Park to the town of Banff had been built. The Legacy Trail runs between the TransCanada highway and the wildlife fence. The trip is approximately 12 KM one way. I road into Banff, had lunch and rode back in 2.5 hours. It was definitely an experience.

After my ride I went back and soaked in the hot tub at the Copperstone Resort. I don't normally endorse anything on my blog, but this resort is worth a mention. The rooms were fabulous, the staff was friendly and the setting was incredible. It is different than a hotel in that it comes equipped with a full kitchen. Rather than eat out 3 times a day I was able to bring my own food and buy some groceries to save a few bucks. I woke up in the morning to 6 - 8 deer about 100 feet from my suite. The last two days have prompted me to take my vacation in the same place. Two days was not enough, two weeks should be!

Remember to get out and enjoy once and awhile because you can`t take it with you!

Finding your best loan option is a difficult task. While qualification restrictions help the process, you need to make sure that the one you choose is the one that’s right for you, saving you as much money as possible. Here are some government loan programs worth exploring:

FHA Loans

Any loan insured by the Federal Housing Association is considered an FHA loan. And because they are insured by a government association, banks are much more willing to lend them out, meaning that you could qualify for an FHA loan even if you can’t qualify for a conventional loan. Anyone can apply for an FHA loan since there isn’t an income limit, but they’re best for those looking to buy smaller homes, as mortgage loans are generally on the smaller side and based on house price of the area. Major benefits that will save you money include…

• You can finance up to 96.5% of the purchase price of your home and still have only 3.5% down payment
• Monthly Insurance Premium of only 1.5%
• Low closing costs

VA Loans

If you served in the armed forces and are looking to buy, build, repair, or refinance a home, start looking into the VA loan program. Backed <entirely by the government, VA loans truly are meant to help as many veterans as possible – 8 out of 10 VA loan borrowers could not have qualified to borrow with a conventional loan. And not only can VA loans be offered to more people, but their lending rules save their borrowers lots of money as well:

• No down payments, even when financing 100% of your home’s cost
• No required Private Mortgage Insurance (PMI), a monthly payment associated with most conventional loans
• Lower monthly interest rates than conventional loans, usually lower by about .5%-1%

USDA Loans

If you live in a rural area, a USDA loan may be a good option for you. Like VA loans, USDA loans require no down payments (even with 100% financing) as well as no mortgage insurance – two simple ways to keep more money in your wallet each month. To qualify, you have to live in an area with a population of 10,000 or less, however if you’re in a town or small city, sometimes the population limit is extended to 25,000. Unlike FHA loans, USDA loans have income restrictions for their borrowers, so they are geared towards a certain income bracket and not everyone can qualify. But if you meet the requirements, USDA loans are definitely worth looking into.

I want to caution you that you do not need to purchase any software to set up this process and most of the time this software will not pay down your debt as efficiently as possible and may hurt your progress in the long run.

For nearly two years we have been making mortgage prepayments when we have had excess cash in our bank accounts.  This made an incredible difference in the projected interest we would pay and the balance itself.   Our mortgage balance was approximately $239K after  22 months of prepayments.  If we did not make any prepayments our balance would be approximately $311K.  Our prepayments made a huge difference.

Every month for the past 22 months we would sit down and work out an amount we were able to prepay against the mortgage.  We had to keep track of when money was coming in and when bills had to be paid in order to prepay the right amount without going into overdraft.  Although it was very effective it was not the most efficient way to use our time.

We were able to hit a "sweet spot" when rates were increasing and refinanced our mortgage.  The penalty and legal fees were absorbed by the interest savings so we switched to National Bank's "All in One Mortgage".  In my opinion, this is the perfect mortgage product.  It enables you to separate the line of credit portion into different sub accounts and use each as a chequing account.  All of our income goes into one account and all of our bills come out of it.  The line of credit is re-advance-able.  When we make a mortgage payment the principle portion becomes available in the line of credit.  The beauty of this is we no longer have to plan around our income and expenses.  The money is always available.

Currently we are set up like this, $310K All In One Limit, -$189K in a fixed portion at 3.65%, -$43,726.62 in our main line of credit account which receives all of our income and pays all of our bills at 3.1%, -$832.25 in a second line of credit account to cash dam our rental property (explanation post to follow) at 3.1% and $86,441.13 available overall in the lines of credit.

The goal is to not have any money idly sitting around but have every penny we bring in offset mortgage interest.  The interest rate on the line of credit accounts will fluctuate with the Prime Rate.  As it increases we will pay down our main line of credit account so when our line of credit interest rate is above our mortgage rate at 3.65% we will no longer carry a balance.  It would be ideal  to have that account always at a $0.00 balance but with income and bills coming in and out that is not practical.  The balance will likely fluctuate $1,000 either way.

This account has allowed us to use our money to offset as much interest as possible and has simplified our financial lives.  All of our bills, utility, credit cards, taxes, phone, etc are automatically debited from our line of credit account.  Well, all except for the AMEX, they won't do direct debit without a personalized void cheque.  We will work on that later.  We no longer have to sit down and work things out on a monthly basis.   Our finances are fully automated!

Our total debt currently is $233,558.12 which must decrease by $6312 a month in order to be debt free by July 2013  which is the goal.  Although that is a lofty goal, we are waiting for the proceeds from the sale of one rental property and may sell the other next year if the tenants do not want to stay.

The only possible down fall with this is not properly managing our spending.  We will have to monitor it and keep it in check.  That is after our tropical vacation.

If I have to send them in excess of $3000 again for the 2010 tax year they will ask me to pay my taxes in quarterly installments. My business income is sporatic so I do not want this to happen. This was an easy fix. I simply supplied my employer with a TD1 Form requesting more tax be taken off of my cheque. Although I will get paid less every month, I will not have the same tax liability in the spring of 2011.

If you work a part time job you may want to consider doing the same. Your part time employer will only be considering your part time income when they take tax off of your cheques. This will likely require you to pay taxes the following spring.

If you want to read more about quarterly installments check out this link from the C.C.R.A.

The GDS is the maximum percentage of your gross income that is allocated to paying the costs of carrying your home. This ratio includes your principal and interest mortgage payment, property taxes, heating and/or condo fees. To qualify your monthly carrying costs cannot exceed 32% of your gross monthly income.

The TDS is the maximum percentage of your gross income that can be used to pay your GDS plus all other debts. This ratio includes everything from the GDS as well as any other loans, credit cards or lines of credit. To qualify it cannot exceed 40% of your gross monthly income.

I want to mention that these are guidelines only and those with good history of managing their credit are allowed to go as high at 44% TDS without considering GDS at all. Yes, if people are not carrying any other debt and have no other monthly obligations their housing costs can eat up 44% of their gross income. This is somewhat scary as someone wanting a $400K mortgage could qualify making just under $60K per year. If you want to read further click here for the CMHC Quick Reference Guide.

I take the attitude that if CMHC uses 44% at the maximum TDS then that is what we should attempt to achieve. For 2009 our TDS was 41%. Not bad, but why were we unable to achieve 44%? $5523 represents that 3% of our income that we did not use for housing costs. This means that we were short approximately $460 per month for mortgage payments. Could we have found that money? Of course we could have. Cut gym memberships, cut donations, cut eating out, cut new computer, cut new theater seating, cut vacations and take advantage of public transit more often. Making up this $460 per month would be very easy for us.

Although achievable, I don't see cutting those "luxuries" as an option. We are making great progress paying down the mortgage and as long as we are able to stay on track we are not going to change our lifestyle.

I want to note that we are at 41% by choice. Although with our regular mortgage payment and prepayment averaged just over $5,900 per month we are not locked into this payment and we have no other monthly obligations. There would be considerable stress if we were locked into those payments.

When considering your mortgage options ensure that you are not over extending yourself.

Earlier this month I submitted an online form to my mortgage lender with a request to make a prepayment of $500. It is pretty easy and I have never had any problems in the past. A couple of days later I was woken from a nap my my better half because our joint account was in over draft because the mortgage lender had taken $12,500.

After transferring funds from our line of credit I tried to figure out how that could happen. I was 99.9% confident that I submitted the right amount, but had a little self doubt because I could not see how the bank could confuse $12,500 from $500. On the other side of that doubt was the fact that I knew we had enough money to cover a $500 mortgage prepayment but an amount of $12,500 for a mortgage prepayment would cause all kinds of havoc.

This happened over the weekend so nothing could be done and the end result was a NSF change for $40 as the bank had reversed the mortgage prepayment.

I contacted my mortgage lender and explained what had happened. They were able to see the $12,500 being withdrawn from and then put back into our account. The were not able to explain how a $500 mortgage prepayment could turn into a $12,500 mortgage prepayment. They asked for a bank statement to refund the $40 NSF fee.

I faxed in the bank statement and the $40 was back in our account within 2 days. I followed up with a phone call to see how that may have happened and they didn't know. I was advised to phone in to make prepayments rather than completing the online form.

At the end of the day their mistake cost me about 20 minutes of my time to correct, but I was very happy with how quickly it was corrected.

I remember learning how to make a pair of shorts from a pattern in Home Economics, make a plastic dish in Industrial Arts and the value of pi.  I am confident that there was a purpose to learning these things, but looking back why did they not teach me anything about money?  I am happy to report that things have changed in the last 22 years.

Government of Alberta Education has a mandatory Career and Life Management program that provides some financial education to high school students.   This is definitely a step in the right direction.  I would be interested to see if the students get something out of this program or just see it as being necessary to graduate.

Like most things, if you want it done well do it yourself.  Educate your children about personal finance.

In spite of all of the number crunching I do, I have never looked at our net worth or bothered tracking it. Just like everything else, it cannot be managed if it is not being measured. We don't have a great number of assets or liabilities so keeping track of our net worth should be relatively easy. For simplicity I have combined our information. Our assets and liabilities as of January 1, 2010 are as follows:

Assets:
House: $396,000
Two Rental Properties: $420,000
Pension Plans: $223,000
RRSPs: $135,000
Bank Accounts: $8,000
Two Vehicles: $30,000

Total Assets: $1212000

Liabilities:

Mortgage on House: $249,500
Mortgages on Rentals: $358,000
RRSP Loan $7,300

Total Liabilities: $614,800

NET WORTH: $597200

We are going to concentrate on paying down the mortgage on our home, and tracking our net worth will be secondary. We will look at it again in a year and project there will be a 10 - 15% increase.

Coming from an 8 - 9 year stretch where I put earning money at the top of my priorities I have learned that you must enjoy life now. I am nearing the two year anniversary with my wonderful common law spouse and realize the positive influence she has had on me. I no longer accept overtime shifts on a weekly basis. She has taught me to enjoy my life now and find a balance.

Looking back over the last two years I am very grateful that I have "loosened up" the wallet and enjoyed numerous weekend road trips to the mountains and to visit relatives. Our biggest journey was our trip to the Dominican Republic in the spring of 2008. It was an incredible experience and gave us ample opportunity to recharge our batteries. You need reward yourself occasionally.

Back to the new couch. Earlier this year we realized that we were on track with our financial goal of paying down our mortgage and decided to reward ourselves with a home entertainment center. We purchased a big screen TV and surround sound system for our bonus room. We have continued to aggressively pay down our mortgage so this month we decided to add some home theatre seating. This purchase completes the bonus room and gives us a very nice room for our enjoyment and the enjoyment of our guests.

We have set a lofty goal of retiring a $316K mortgage in 5 years and we are on track. We do look forward to being mortgage free and will continue to work towards this goal. We will not however sacrifice enjoying life in the present. I believe that we are achieving a good balance and if the B.C. Lions can achieve some balance with the score with the Montreal Alouettes I will enjoy our bonus room much more.

The last three months have been very busy and fun. A vacation to Kelowna, two weekends in the mountains and another three weekend road trips to other cities. Pricey, but well worth it.

My other half helps me put things in perspective and I am hoping I can get her to do some posts on my blog. She reminds me that we have to have some fun in the "now" and she is right.

We are fortunate enough to be debt free with the exception of our mortgage. We have a beautiful home, two reliable vehicles, two well paying jobs with defined benefit pension plans and the bonus of some business income on the side. Looking at the big picture there is no need for me to stress and it is time for me to be thankful for what I do have.

Remember, you can't take it with, and you do need to enjoy life. I have to be reminded of both sometimes.