How to leave your bank and start a new relationship with a credit union in 5 simple steps

notepad, pen, glasses and cup of coffee

There’s never been a better time to switch from your bank to a credit union.

From ever-rising fees, to poor service, to criticism over aggressive sales practices, Canadian banks have come under heavy scrutiny in the past year. So what stops angry and frustrated bank customers from immediately closing up their bank accounts and embarking on a new relationship – with a credit union?

At YNCU, the number #1 reason we hear is ‘it’s too much work to switch.’ And the truth is it can be complex and time consuming. On the other hand, it can be a smooth and relatively painless experience. Much depends on attitude, as well as having an organized approach.

Here are some things to consider if you’re planning to switch your bank accounts:

Chequing and savings accounts

Your first step is shopping around and deciding where you are taking your business. Before closing out your bank account, open up a personal chequing or savings account at your new financial institution.

Remember to go through several monthly statements from your existing account since they’ll have nowhere to go once you close your old account.

Here’s a handy account switching checklist courtesy of Your Neighbourhood Credit Union.

Depending on your bank, you can close a chequing or savings account at a branch by phone or online. There is usually no fee to close a chequing or savings account. BMO charges a $20 fee if the account is closed within 90 days. CIBC charges a $20 fee to close and/or transfer accounts to other financial institutions. Royal Bank’s $20 fee is waived if you close the account in person.

Credit cards

Credit cards and bank accounts are independent of each other. So you can have a credit card with one financial institution and a bank account elsewhere. Cancelling a card can be done at a branch or by phone and should be effective immediately.

There is no fee to close a credit-card account. Of course, you still have to pay the outstanding balance, fees, carry-overs and interest.

Remember that pre-authorized payments set up on the credit card will no longer be processed, so you’ll need to provide billers with your new credit-card number.

calculator and banking statements

Personal loans

You will first need to decide which new personal-loan product you want and apply for it through your new lender.

Once you’ve qualified, you’ll need to notify your current lender in person and pay the balance plus interest either by cheque or debit at the time of closing, or your new financial institution can arrange to pay out the loan for you.

Mortgages

For a conventional mortgage, it’s a good idea to wait until the mortgage term matures to avoid paying penalties. But you should start looking at mortgage rates several months before your term ends.

Plan to give yourself several months before the renewal date to pre-qualify with a new lender (you can lock in a rate 90 days in advance of the renewal date). This lead time allows the financial institution to process your mortgage application, which requires a property appraisal for a fee and proof of income and employment. The lender also needs to do paperwork to get a payout statement from your current lender indicating the mortgage balance.

Banks will charge a discount fee of several hundred dollars to transfer the mortgage title to your new lender but credit unions will sometimes cover it (try to negotiate this!).

If you decide to transfer your mortgage before the term matures, you’ll have to pay a penalty. Your mortgage document will have the formula to help you estimate the amount. But your bank will tally the exact amount.

Remember to provide the new mortgage details to your home insurer.

Investments

You can hold your registered savings wherever you want, including those that are employer-matched. In addition to simplified record-keeping (one statement and one slip at tax time), consolidating your savings means you could get a better rate on higher balances.

To transfer registered investments, such as RRSPs, RIFs and TFSAs, you’ll need to meet with your new financial institution and bring your statements. Once you settle on the appropriate investment vehicle, the adviser will fill out a transfer authorization form, which will be sent to your bank to request the transfer.

There is a transfer-out fee per transfer. Since you’re a new customer, it’s worth asking your new financial institution to cover this fee.

The transfer process takes several weeks to complete.

If you hold non-registered investments, such as GICs or term deposits, it’s advisable to wait until the maturity date to transfer them to avoid penalties.

Source: Chu, Showwei. How to Break up with Your Bank. Special to The Globe and Mail. Published Thursday, Apr. 06, 2017.

The low-down on down payments

Buying a house

Recently, we discussed things you need to be aware of when buying a home – I want to talk specifically about the various options to building your savings for the all-important down payment.

Let’s say you’re a young adult, just establishing your savings plan – with the ultimate goal of, one day, owning a home. The minimum requirement for a down payment is 5% (*The minimum down payment requirement for mortgage loan insurance depends on the purchase price of the home. For a purchase price of $500,000 or less, the minimum down payment is 5%. When the purchase price is above $500,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion. Mortgage loan insurance is available only for properties with a purchase price or as-improved/renovated value below $1,000,000), with Canada Mortgage and Housing Corporation (CMHC) insuring your Mortgage.

There are a few ways of going about saving this money – I’d recommend using a Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA). Each have unique costs and benefits.

 

RRSP Savings and the Home Buyers Plan – If you are currently, or have considered contributing to an RRSP, there is a program designed to allow you to withdraw up to $25,000 from the plan (without penalty) to put towards a down payment. The plan requires that you repay the amount back to the plan, just as if you borrowed it. If you don’t make repayments over the allowed 15 year period, you would claim 1/15th of the withdrawal as income in the given tax year.

What I like best about this strategy is, you take advantage of your smart investment moves and open an opportunity for another investment. This plays very well into long-term building of your net worth and, if your employer is making matching contributions to your RRSP, you can quickly build up your savings balance.

Running short on your RRSP contributions? It might be worth considering an RRSP investment loan to catch up on unused contribution room. The increased contributions can drastically reduce your taxable income and yield a larger tax refund.

A really smart move would be to contribute that tax refund to your loan – or, contribute the refund to your RRSP’s.

More information on the Home Buyers Plan can be found on the Canada Revenue Agency website: http://www.cra-arc.gc.ca/hbp/

 

Tax-Free Savings – Similarly to RRSP’s the interest earned on any deposits in your TFSA are exempt from taxation – meaning, your hard earned dollars will receive interest and you will not need to claim the returns as income. Withdrawals from the plan are very simple – there are no penalties, and the funds can move freely from the plan to your down payment without filling out any extra paperwork.

You cannot, however re-contribute the money taken from the TFSA until the following calendar year. And, there is no additional tax benefit for contributing money to your TFSA.

While the TFSA is a great investment vehicle for short or long-term investing; I am of the firm belief that, when it comes to down payments for first time buyers – it’s best to take advantage of the Home Buyers Plan mentioned above.

red piggy bank

So, you may be asking yourself, what if I don’t have an RRSP or a TFSA and I’m not very good about saving money – what else could I do?

Well, some Mortgage companies, Banks and Credit Unions will offer a personal loan for your down payment – but I’d caution against this. In addition to making payments for the Mortgage, Property taxes, heat/utilities, insurance – you’re also going to have to make an additional loan payment. If your budget can sustain this – by all means, it’s worth looking into further.

Alternatively, you could also venture in the direction of having a gifted down payment from a family member or really good friend (and trust me, they’d be a very good friend if they are willing to give you money to buy a house). This is becoming more of a norm in the home buying market. With house prices rapidly increasing in the region, you may feel like you’ll be playing a game of cat and mouse – your savings grows, but the price of housing grows too. So, sometimes having Mom and Dad or a grandparent help out, is a great hand up.

 

Here are some great links to CMHC’s website for more information and tools:

CMHC – Homebuying Step by Step: http://www.cmhc.ca/en/co/buho/hostst/index.cfm

CMHC – Ready, Set, Home App: http://www.cmhc.ca/en/co/buho/buho_018.cfm

** Ready Set Home is a tool to help homebuyers, especially first-time homebuyers, make informed choices when buying a home. Ready Set Home offers tools to guide you to figure out how much you can comfortably afford to spend as well as keep track of all the details during your home buying process.

How to Finance a Renovation

blueprints, calculator and piggy bank

CMHC offers Purchase Plus Improvements program

My recent blogs have focused on purchasing and building new homes. I wanted to pause, re-focus and tackle a topic that is near and dear to my past: buying a house and renovating. I’m going to focus on, specifically, borrowing to accomplish both goals.

First, let me take a moment and explain a little. Typically, you buy a house – you scrimp and save for a down payment, and whatever savings is left you allocate this to your renovation; or maybe you dip into your personal line of credit; or, maybe you apply for a Home Depot/Lowes Department Card. Both seem to be the typical approach to buying and renovating. Though, I propose that there is an easier way to go about this whole project.

I talk a lot about CMHC (Canada Mortgage and Housing Corporation) – they are the folks who insure Mortgages with less than 20% down. They have programs for green financing, new to Canada purchasers, rental properties, vacation/secondary properties – but they also have a fantastic program for renovations. The program is called “Purchase plus improvements” and it deals specifically with Mortgages where the renovation budget is rolled into the balance of the purchase loan.

So, let’s pump the brakes a little here and talk about the reason behind the program. We know that as years go on, home fashions change, home systems age and become less efficient and there just aren’t enough builders and land to be building new homes. If you’ve ever spent a rainy afternoon watching HGTV or the DIY network – you’ll see that renovating a property can significantly change the look and value of the home; and taking this route is becoming more and more popular.

CMHC recognized a shift in the market – there are homes in desirable neighbourhoods that aren’t as desirable as they once were – so they created a program whereby the purchasers are able to finance their renovation project into the balance of their Mortgage. The work these buyers undertake will improve the market value – and CMHC approves the loan to be in excess of the purchase price, but in line with the return on equity with renovations.

Here’s an example of a purchase plus improvements loan we recently completed (names and addresses have been replaced with fictitious ones)

Buyers: John and Mary Smith

Address: 111 Neighbourhood Avenue, Kitchener

Purchase Price: $300,000                              Renovation Budget: $30,000

Down Payment: $16,500 (5% down + 5% of renovation budget)

Renovation plans: Remodel main bathroom, paint interior of entire home, replace air conditioner, build deck and replace main level flooring with hardwood

Improved Value: $330,000

Total Loan (net of CMHC Premiums):     $313,500

                                                                                $285,000 for purchase of 111 Neighbourhood Avenue

                                                                                $28,500 for renovations

Because John and Mary included the renovations in their Mortgage – they avoided having to pull more funds from their savings or borrowing this money from a personal line of credit. They were able to realize the potential of this home by fixing up some of its needs – and now they have the house exactly as they wished. The pre-work they invested into researching the renovation paid off big in the end.

https://www.creditsesame.com/blog/extreme-makeover-home-addition-06302011/

 

More information pertaining to the CMHC program can be found on their website:

http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_020.cfm

Wondered where to get the biggest bang for your buck on renovations? Here are some great resources:

Kathy McCleary – HGTV: http://www.hgtv.com/design/decorating/clean-and-organize/which-home-improvements-pay-off

Scott McGillivray – HGTV: http://www.hgtv.ca/incomeproperty/article/top-5-renos-for-return-on-investment/

Mike Holmes – HGTV: http://www.hgtv.ca/holmesinspection/article/where-to-put-your-reno-dollars/

 

 

Buying a Home: 6 things you need to do before closing the deal [Infographic]

6 important items on your home buying checklist!

Let’s face it, while buying a new home is exciting, it can also be extremely stressful. This infographic breaks down 6 important items you’ll need to check off your list before closing day.

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