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A few short weeks ago, the 95% of Canadians who gave gifts went on a holiday spending spree that might limit individual opportunities for owning real estate in 2004. Those who spent cash may be ahead since they start the new year without holiday debt. Canadians who used credit cards may benefit from a behaviour-modifying post mortem of their spending habits to reduce debts and increase saving.

The greater your debts, the less eligible you are to borrow mortgage financing and the less you'll save for a down payment. The smaller the mortgage you qualify for, the greater the down payment necessary for the same home. This may mean you settle for a lesser house.

November 2003 surveys recorded Canadian holiday shopping intentions this way:

  • Four in ten planned to spend an average of more than $350 on people designated as "getting the most" -- usually their children.
  • Two-Thirds expected money would be wasted on "bad gifts" -- 33% of which would end up unused in the closet.
  • Twenty percent did not know what they wanted.
  • Canadians with an annual household income of $60,000 or greater ($441.44) are more likely than those with an annual household income of $30,000-$59,999 ($333.48) or less than $30,000 ($216.48) to spend the most.
  • Just over half of Canadians did not typically set a budget for their holiday shopping and nearly half of those who did set one spent more last year than they intended.

    How did your holiday spending pattern match up?

    Along with your New Year's Resolutions to shape up in other ways, adopt these financial fitness resolutions to keep more of the money you earn so you can afford the housing of your dreams:

  • Credit cards are the primary method of payment for holiday shopping for Canadians, and since two in five Canadians expect to carry a credit card balance well after the holidays are over, credit cards are a continuing source of high-interest Canadian debt. Stop fooling yourself about the value of convenience and take a close look at what you are spending in interest.
  • Did you know that some financial institutions impose convenience fees for non-clients using their ATMs? These fees are on top of the INTERAC fee and regular account fees. If you withdraw money from those ATMs, you might have to pay total fees of up to $4.00 per transaction. For an idea on how much you might be charged at various ATMs, including white-label ATMs, please consult the federal government's Financial Consumer Agency of Canada chart on fees for cash withdrawals at an ATM.

    An ATM message such as "This transaction will cost you $X, do you want to continue" means you will have to pay convenience fees on top of your INTERAC fee and any regular account fees. To save money, you should:

    1. Use your own financial institution's ATMs as much as possible.
    2. Withdraw cash when you make a debit card purchase in stores that allow this free of charge.
    3. Try to minimize the number of transactions you make by withdrawing larger amounts at a time.
    Note: For more information related to the issue of ATM fees, please refer to the Canadian Bankers Association website.
  • Reassess your priorities. More car than you need, means less house. More clothes, entertainment, cell phones and other "discretionary" spending, means less house. Make choices that reinforce your real estate goals.
  • Keep your GDS and TDS ratios in mind before you spend. Banks, credit unions, insurance companies and other financial institutions lend mortgages based on their interpretation of your ability to repay or to service the debt. They set their Gross Debt Service (GDS) ratio at about 28 to 32 per cent of your total before-tax income(s). This means that the combined principal, interest and property tax payments must be less than about one-third of your income.

    If you have additional debt, the qualifying percentage or Total Debt Service (TDS) ratio goes up to between 38 and 42 per cent. Life insurance premiums are not included in TDS calculations, but credit card payments, car loans and all other debt combine to decrease your borrowing power. If lender calculations suggest you may borrow 40% of your gross family income, the more of your income involved in debt repayment, the less there is for mortgage payments (principal repayment and interest) and property tax. When condominiums are involved, half the monthly condominium fees are added to the debt side of the equation. As heating costs escalate, estimated heating costs may also be included in debt calculations.

    Try this "lessons learned" approach to improve your money habits and achieve your 2004 real estate goals.

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