Banks generally put posted rates on their websites and in their branch windows. These rates are generally much higher than the banks’ current lowest possible rate. It’s similar to the car sticker price.

Banks have done this successfully for years and it worked well when the goal was to have Peter pay a higher rate so he could subsidize Paul’s lower rate mortgage.

However, this is becoming increasingly difficult. The internet, and books like this one, help consumers figure out what is going on and ensure Peter also gets a fair deal.

Recently a few financial institutions have started to publish their best discounted rates, or specials, on websites and in ads. This, in my opinion, is a step in the right direction. At the time of this writing ING Direct and BMO both do this. Many credit unions have started doing this as well. Envision Financial and Prospera both practice naked banking.

Unfortunately, there are still several banks in Canada where this is not the case. Instead, these institutions still speak with terms like “1.00% off posted” or “1.25% off posted.” For most people this is just plain confusing.

The other reason banks are reluctant to axe posted rates is because they tend to calculate payout penalties based on the higher posted rate, not your lower contract rate. This usually results in a much bigger penalty if you payout your mortgage.

When you are quoted a rate, make sure you get the actual rate you will pay and make sure to ask how your penalty is calclated. A lower rate mortgage with a nasty formula for calculating the penalty can end up being very expensive.

If you have questions on posted mortgage rates or want advice on how to lower your penalty or mortgage rate please contact me.

Yes banks, like them or not, have been known to take advantage of long-time loyal customers. Banks are keenly aware that a long-time loyal customer is less likely to shop around and get a second opinion. Yet shopping around is a simple way to ensure you are always getting a good deal.

Now I am not suggesting all banks are bad, but I have seen many loyal customers who have had the wool pulled over their eyes because their bank had become too comfortable with the relationship. Every relationship can get stale.

When you have been married for a long time, the indiscretions are usually minor and amount to dirty socks being left on the bedroom floor, or failing to put the lid back on the toothpaste. Incidentally, both are criminal offenses in my home. However, if your bank begins to treat you like Zsa Zsa Gabor treated her 8^th husband, you know you have a problem.

Mortgage renewals are a perfect example. When a client has an existing mortgage they are typically mailed a notice with various rate options. The idea is for the borrower to choose an option, sign it, and send it back in. However, the rates quoted on the renewal notices are typically 0.50% -1.00% higher than the best available rates at any given time!

If you have a 30 year $200,000 mortgage, an increase of 0.50% over the life of the mortgage amounts to over $21,000 in interest! Not a small sum of money.

The crazy thing is that new customers who have no pre-existing relationship will typically be offered lower, more attractive rates in order to convince them to become a customer. Then, unfortunately, once you are a customer, the onus is on you to make sure you always get a good deal.

My suggestion is as follows – begin dating your bank, do not get married. Commitment is sound advice for most relationships, but it can be very costly when it comes to your finances. The best way to ensure your bank treats you like a first date instead of a 3^rd marriage is to get educated. Understand your options and for heaven sakes, always shop around before you sign on the dotted line. Make a few calls to make sure you and your business are courted, not taken advantage of!

If you are feeling like your bank is not giving you the love you deserve contact me and I’ll be happy to introduce you to a bank who treat you like the queen or king you are.

Just think of us as a dating service for your mortgage.

At one time it was easy for banks to get away with this. In the good old days it was nearly impossible for Peter to even realize what was happening. Unless he happened to run into Paul and the topic of mortgages came up, but let’s face it talking about mortgages is about as exciting as watching Cricket. It was very unlikely Peter would ever be aware of his Banks larceny.

Now thanks to social media and our hyper-connected society business are becoming much more transparent. You may think, “Banks being open and honest -it’s never going to happen.”

Well my friend I have proof. It is not exactly overwhelming, but it is the beginning of a new trend and Credit Unions are spearheading the movement. It is called ‘Transparent Banking.’ I personally think Naked Banking sounds better, but they never asked for my opinion.

Transparent Bank is simply a policy of no games and no posted rate nonsense. Basically the lowest prices and rates are displayed on websites and in branches. Credit Unions are simply saying, “Here is our price and here is the level of service you can expect. Do you want to do business?”

I love it. Simple and to the point and best part is Peter and Paul both get a fair deal.

Do you think banks will adopt this policy? or will they continue business as usual?

Unfortunately when he got here the construction industry slowed. (Remember 2008)

He is now finding it hard to keep busy. He has a young family and I really felt bad for him.

I started to imagine how hard it would be to move to a new country, learn a new language and attempt to raise a family. I sometimes forget how good we have it.

I really didn’t know what sort of advice to give him. I finally made 1 suggestion and 2 phone calls for him.

First I told him to consider looking outside the area for work. Like Fort MacMurray or possibly Saskatchewan. I have other clients who work in those areas and they make a lot more money.

Second, I contacted two other clients in the construction industry to see if they were hiring.(I told him no guarantees, but I would certainly ask.)

Here is what I would like to know:

What is your best employment advice for someone in my friends situation?

Alternately if you are between jobs or work is slowing down contact me and I’ll see if I know someone in my network who could possibly help you out. (Again no promises, but I’ll certainly try)

Cheers

Scott

The truth is the Walmart executives will have their work cut out for them.

What does this mean for traditional banking? And does Walmart have any hope of challenging the Canadian Banking industry? -God I hope so. (but I’ll get to that in a later post)

Last I heard there were over 40 applications for Canadian banks in Canada. It seems everyone wants a shot at the Canadian consumer. This will be good news for fee sensitive Canadians but will Walmart’s foray in the financial business end poorly like Canadian Tires’ did?

Of all the retail and grocery store giants attempting to enter the financial space Walmart may actually has a decent chance of succeeding, provided they don’t muck it up.

When Canadian Tire entered the mortgage business a few years ago it just seemed weird to me. I couldn’t imagine sitting around a dinner party and telling my friends about my Canadian Tire mortgage. The brand didn’t seem to make sense to me.

To be fair Canadian Tire had a really good mortgage product for while. It was a strong competitor to the Manulife One and the National Bank All-in-One product, but it just didn’t have any sex appeal and it never really got any legs. (pun intended)

Now granted having a Walmart mortgage is probably not going to be considered sexy, but when I think of Walmart I immediately think -low prices. I can envision a Walmart Bank running on razor thin margins and passing the savings on to their customers.

I think if the Walmart bankers are smart they will enter the market gradually. Much like ING direct did when they came to Canada. ING established a strong foothold by offering a really great high interest saving account. It got them noticed and built brand loyalty.

I think Walmart’s chances for success are much higher if they can build a flagship product and build some momentum.

If they come out with every service imaginable I suspect even if the prices are low the service will probably suck. It takes time to build a quality service team.

I for one am excited the retail giant it treading into the banking industry. Whether they survive or not the increased competition will rollback rates on mortgages and lower the cost of other financial products.

What do you think?

Scott’s latest video demonstrates the difficulty in selling potential value. Sellers occasionally attempt to list their home for more than market value because of a perceived notion of potential value. Unfortunately it is often difficult to convince a buyer of this potential value.

For instance a home in the Agricultural Land Reserve (ALR)may have the potential to be changed to multi-family use, but there are rarely any guarantees until you will have the zoning approved. Of course once the zoning has been changed it is no longer potential value, but real value.

Let us know your thoughts, comments or feedback.

Managing money in our paperless, wireless and cashless society is like trying to bottle fog –no matter how hard you try you cannot seem to get a grip on it. It raises an important question: How do you manage money if you never actually see it?

Cash has become all but absent from most daily transactions. A Vanier Study indicated the retail use of credit card transactions has increased 60% from 2002 to 2007 alone! The same study indicated 76% of the value of all retail transactions, excluding autos, were put on a plastic.

It is no surprise people are quick to flash plastic when paying. Many offer rewards, travel points and purchase protection. Credit cards have certainly made shopping simpler and safer.

What is the catch?

This reliance on plastic instead of paper does have a cost. According to Dunn and Bradstreet Americans spend 12-18% more on credit compared to using cash. The reality is it is difficult to manage money when we never actually see it.

The problem is when consumers use credit cards they tend to spend more and run the risk of going into debt. It is difficult to spend more than you make if you are using cash. With credit however, you can pile on debt gradually until it becomes unmanageable. In fact, debt has increased 6 times faster than income since 1990.

What is the solution?

A simple way to get a handle on your money is to go on a temporary, “Crash Cash Diet.” Six weeks will usually work and allow you to get in touch with your money again.

Try using cash instead of credit cards or even debit cards for a 6 full weeks. There is a very real sense of loss when you hand someone a twenty dollar bill and get back a meager handful of coins. You will also notice your cash stuffed purse or wallet begin to shrink as the week progresses. This alone is enough to jostle most people into paying more attention to their spending.

I would not suggest ditching your credit card completely, credit is too important and besides I like the points. However, a temporary hiatus could be good for your relationship with your money.

Instead a faster, less painful way is to focus on the bigger ticket items. Negotiate like crazy on major purchases like cars, homes and appliances. It is much easier to save hundreds or even thousands of dollars by tackling the larger purchases.

A smart way to ensure your large purchases do not take a bite out of your budget is to build and maintain an excellent credit rating.

Unless you plan to pay cash for everything you will need to borrow money at some point. A high credit score will ensure your big ticket items cost you as little as possible.

Don’t get me wrong. Skipping the Latte’ can save you money, but the difference between a 650+ credit score and a 540 credit score is substantial. In fact, it can be as much as $64,000 over 25 years. That adds up to over 12,000 lattes! (see chart)

How good of a credit score do you need?

A credit score of 700 or higher should ensure you qualify for the cheapest money for credit cards, loans and mortgages.

How do you find out your personal credit score?

It is possible to get a free copy of your credit report from Canada’s two largest Credit Reporting Agencies, Equifax and Transunion. You will have to search the website to find the number to call. Alternately, you can purchase your report online and have instant access.

Avoid websites offering “free” credit reports. Many of these sites offer a free credit report under the assumption you sign up for a monthly subscription service. It is possible to cancel the service once you have your free credit report in hand, but make sure you know what you are signing up for and how to get out.

The credit score has quietly become the standard test of your financial intelligence. Long gone are the days of acquiring a loan based solely on reputation or your past history with your bank. It is important to not only understand how credit works, but how to improve and maintain your score.

In an upcoming series I will examine the all important Credit Score how it works and give you tips on how to negotiate everything from mortgages, to mini-vans.

Next week: The A, B, C’s of Credit

For more insights on mortgages and money visit http://www.scottpeckford.com

Think of it this way. If the cost of everything doubled your debt would only cost you half as much. (Try making sense of that as you go to sleep tonight.)

Unfortunately, there would certainly be carnage along the way. One side effect would be higher interest rates and a corresponding increase in default rates as some borrowers would be unable to make the higher interest payments.

If this is implemented it may be the cure we have to worry about instead of the disease.

Now don’t think this idea has only been suggest by wing nuts or a few crazed economics professors who have never worked in the real world.

A few very, very smart billionaires, Warren Buffett and Stephen Jarislowsky have both suggested it may be the best way to deal with our ballooning debt.

A great article on the perils of this strategy can be found here:

Trying to Inflate our Way out of Debt is Like a Monkey Trying to Outrun a lion

Food for thought, and probably the sanest suggestion he writes is, “…our massive debt can only be dealt with by starting to pay down the debt.”

Sounds a little old fashioned, but it is just crazy enough to work.

Content provided by:

Scott Peckford
www.robyourbank.com

I figure I can watch the few programs I actually enjoy online or, on Apple TV for much less than $120.

Zig Ziglar is famous for calling a television an income suppressant, at $159 a month I tend to agree with him. As a side note if you were to average 2 hours a day watching television you would waste over 30 full 24 hour days a year. That is an entire month! It is almost sick if you think about it.

Here is how we saved the additional $120.

Previous Internet and HD TV charge $159

Current Internet cost $39.

The total to date has been relatively decent considering I have not even had to work too hard at it.

SWP

Content provided by:

Scott Peckford
www.robyourbank.com

A recent trip to New York City highlighted a unique Calorie law which make it mandatory for franchises to disclose the calorie content of their menu items directly beside the price. A bold move to be sure, but one intended to combat a growing obesity problem. With world famous bagels, pizza and cheesecake is it any wonder New York is one of the first places to adopt such a law?

From a practical perspective, it seemed to work. Visiting a famous eatery in Times Square, an easily purchased and consumed Brownie Explosion dessert contained a whopping 1500 calories! Looking at that big number made it very, very easy to just say no. It appears New York Legislators are keenly aware that if consumers see the caloric cost they will change their habits.

This brings up an interesting point. It is much easier to say no to the Brownie Explosion when you see the actual 1500 calories it will cost. The same is true of money. Money in modern society has become almost nonexistent. More and more Canadians are opting for Credit or Debit instead of cold, hard cash.

This reliance on plastic instead of paper comes with a cost. According to Dunn and Bradstreet, Americans spend 12-18% more on credit compared to using cash. In Canada we are not much better. The reality is it is difficult to manage money when we never actually see it.
Don’t get me wrong. Credit Cards and Debit cards are great and have made purchases easier and safer, but when you never have to hand over the $5 cash for a Latte you never feel the pain of loss.

A simple strategy to improve your money management skills and fatten your wallet is to go on what we call a Crash Cash Diet. For the next 30 days avoid all types of credit and debit card purchases. Instead, take cash out of your bank account and use it to pay for all of your daily living expenses.

If you have never tried this you will feel very rich the first time your wallet is stuffed with real money. However, you will also notice your wallet getting lighter and thinner as the week progresses and you begin to fork over money for groceries, gas and fun.

To implement your own Crash Cash Diet there are a couple guidelines. First, you cannot pay your mortgage or rent with cash and there will undoubtedly be expenses you have on a preauthorized payment which wouldn’t make sense to change for this exercise, but you get the point. Any purchases with variable costs that are not set up on preauthorized payments are to be paid with cash.

You will find it remarkable to see just where your cash goes and how quickly. For the record, we are not suggesting abandoning credit cards for good, but a healthy dose of real money is a great way to get a firm grip on your finances.

Who knows, maybe once you feel your wallet shrinking every time you order a $5.00 double grande mocha frappe latté you will skip it and go for the lemon tea at work? And that would be good for your waistline and your wallet.

Why would I squander such a rare opportunity to get what I want and have my wife wholeheartedly agree with me? It’s simple -The cost was a much higher for the IPhone than the IPod Touch.

I know you are probably thinking: Hey can’t you get an IPhone for free with a phone contract? Well unfortunately not in Canada. The cost of an IPhone was only $199 with a 3 year contract, while the cost of my IPod Touch was $299. At first glance it would appear the IPhone is less pricey, but once I determined the cost I chose the Touch. Let me explain my reasoning and why I think there is a major difference between price and cost.

Why I Didn’t Buy the IPhone

Price is what you pay once, while cost is the total of price plus any ongoing expenses. In the IPhone example I could have paid $199 for the IPhone with a 3 year contract. Unfortunately the ongoing contract was going to cost $85 a month for the plan I required! Plus it would have cost me another $400 to cancel the contract on my existing Blackberry.

Now don’t get me wrong I love the IPhone. I will own an IPhone. But currently it doesn’t make sense for me to switch.

Here is how it breaks down:
IPod Touch
Purchase Price: $299
Monthly Charge: $0
Total Cost: $299

IPhone
Purchase Price: $199
Monthly Charge: $85 x 36 months
Total Cost: $3,259

Now admittedly the above example doesn’t include my existing phone cost. But I am paying that anyway, and it is much cheaper than the IPhone plan.

From Phones to Homes

Where this focus on price alone can be really expensive is in buying Real Estate. I have a friend in Northern BC who was thinking about buying a mobile home for $43,000. (Homes in the area sell for around $100,000). To her she could never imagine buying a home with price tag above $100,000. Once we did the numbers she realized the cost was much higher on the $43,000 mobile than on the $100,000 home.
The higher cost of the mobile is not readily apparent until you realize a couple key points. First, interest rates on mobile homes tend to be higher than regular detached homes. Also, the amortization on mobile homes is usually the life expectancy of the mobile less 5 years. (This tends to be much shorter than free standing homes and makes the monthly payments higher still.) Finally, mobiles not on their own land have rent which can be quite expensive and it is a cost you pay forever. Once we did the calculations we quickly realized the price was lower but the cost was much, much higher.

See the below numbers:

Mobile Home
Purchase Price $43,000
Interest Rate: 6.25%
Pad Rent: $300
Payment: $364
Monthly cost: $664

Detached Home
Purchase Price: $100,000
Interest Rate: 4.39%
Taxes: $150
Payment: $464
Monthly Cost: $614*

When buying any item, especially expensive items like automobiles or Real Estate make sure you determine, to the best of your ability, the true cost of buying and not just focus on the price. Focusing on price alone can be very costly.