Money123: Prenup popularity, loonie on the rise, housing market faces rate hikes

Prenups getting more common. What to know

Millennials getting ready to say “I do” in the summer wedding season are also increasingly opting for prenuptial agreements, according to experts who say they’re a good idea for marital — and financial — bliss.

Prenups are financial contracts that layout a couple’s assets and states how wealth should be divided if the relationship were to fail.

“Separations can be very, very messy,” said Laura Paris, an associate lawyer at Shulman and Partners LLP, a family law firm in Ontario.

“They could take a significant toll on people, not only financially but mentally, emotionally,” she added. “So I think there’s a lot of benefits to doing these things when you still care and are still in love with each other.”

Read more here on how to set up your own prenup.

Can the housing market take another rate hit?

The latest numbers from the Canada Real Estate Association show the housing sales rebound continued in most markets in May — but that was before the Bank of Canada’s return to interest rate hikes.

Randall Bartlett, Desjardins’ senior director of Canadian economics, said in a note this week that the strong housing market data from April and May supports the Bank of Canada’s decision to come off the sidelines and take more steam out of the economy with a rate increase last week and ups the odds of another rate hike in July.

The return to rate increases might not be enough to spur a fresh housing correction, but will at least moderate the growth seen in the spring housing market, economists and market watchers told Global News.

If you’re hoping for a price drop to come alongside a cooler market, economists say the country’s tight housing supply should ensure that home values continue to rise even if demand abates.

See what experts predict here.

A good summer could be in store for the loonie

There might be an upside to the Bank of Canada restarting the tightening cycle at the same time the U.S. Federal Reserve is taking a pause.

The Canadian dollar typically gets a boost when the Bank of Canada’s policy rate edges closer to its U.S. counterpart’s, explains BMO’s Benjamin Reitzes.

Indeed, news that the Fed would forgo a hike in June for the first time after 10 consecutive increases was one of the reasons why the loonie hit highs this week not seen since last September, according to BMO.

A stronger Canadian dollar would be welcome news to the Bank of Canada, as it means businesses north of the border will get better prices on imports from the U.S. such as food.

Reitzes argued that a little bit of aid in the inflation fight could mean the central bank won’t have to be quite as restrictive with its own rates in the future.

Read more here on how the U.S. Fed rate affects the loonie.

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– THE QUESTION –

“I’m looking at buying a property but I’m not sure how much of my savings I should use for it right now. My budget is around $500K. I have enough for a downpayment of 20 per cent right now between my TFSA and my RRSP, but I’m wondering if I should maximize the downpayment to lower the mortgage with higher rates, or if I should let the savings in my RRSP keep growing.”

— A Money123 reader 

“With any investing decision, unique personal circumstances make blanket advice difficult. But here are a few considerations.

Putting down 20 per cent has tradeoffs. For one thing, it lowers your interest cost and default insurance. For example, if you put down only 5 per cent on a $500,000 home, you’d pay a $19,000 insurance premium. That’s typically added to the mortgage, so you’d pay interest on that premium until it’s paid off (currently around 5 per cent per year, assuming a five-year mortgage). Over five years, you’d also pay at least $22,000 more interest on the amount borrowed over $400,000, versus if you put down 20per cent.

On the other hand, if you took ($75,000) out of your registered account to come up with a 20 per cent down payment and you earned over 7 per cent a year, you’re losing over $30,000 of compound returns over five years. Those are taxed-deferred returns, or even tax-free returns if the funds come from a TFSA.

There’s also the rate factor. Default-insured rates are usually much lower than uninsured rates. As we speak, a 5-year insured rate is 0.45 percentage points cheaper. On a $400,000 mortgage, you’ll pay $8,650 less interest over five years if it’s insured. But it doesn’t end there. You also enjoy this rate advantage every time you renew, assuming you don’t change the mortgage.

The decision also hinges on what kind of buyer you are. If you’re a first-time buyer under the government’s definition, you can withdraw up to $35,000 from a regular RRSP without tax withholding. This is preferable to pulling money out of a TFSA where you’ve already paid tax on the contributions. (If you’re not a first-time buyer, you’ll pay tax on RRSP withdrawals at your marginal rate and lose contribution room—not good.)

Lastly, after your down payment is made, leave yourself access to emergency liquidity (savings, a credit line, etc.) for three to six months of living expenses.

This is all just a math exercise, so I’d have a professional financial advisor run the total numbers based on your circumstances.”

– Rob McLister, mortgage strategist, MortgageLogic.news

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