When it comes to getting a mortgage, there are two choices. You can either go to your local loans officer, who represents just the bank they work for. Or, alternatively, you can go with a mortgage broker, which is a liaison between you and a finance company. Which should you choose? It’s not such an easy question.

Advantages of Using a Banker

The big advantage to using your local banker is the fact that they have most of your info on file already, which speeds up the whole application process. When you go to a mortgage broker, they have to create a whole new application for your mortgage, since the lender they’ll submit to doesn’t know you from a hole in the ground.

Also, often your bank will have additional stuff on record. If your down payment is coming from your savings account, just a few taps on a keyboard can verify the money is there and has been there long enough to satisfy CMHC requirements. The bank can also take a quick look into your account to make sure your income is steady. A mortgage broker will ask a borrower to supply copies of these records, so a borrower saves time by sticking with his bank.

Also, if you’ve been a customer of that particular bank for a while, you might have fostered a relationship with the loans officer. Perhaps this is your 2nd or 3rd mortgage, and you’ve used the same girl for all of them, and she’s treated you well the whole time. You’re certain the rate being offered is as low as the bank will go, because you trust the loans officer. A good relationship with whoever handles your mortgage is essential.

Many mortgage brokers will tout the number of lenders they work with as a major advantage. The fact is, most brokers send all their AAA business to just one or two lenders, since they know those lenders so well. It kind of ruins the whole mantra of shopping your mortgage hard to get the best deal, doesn’t it?

Advantages of Using A Broker

Saying what I just said, the big advantage of using a mortgage broker is the ability to shop your deal to the best lender for your situation.

If you know you’re going to make large lump sum payments, then a lender who will let you do that without an interest penalty is ideal. Or, maybe you know you’re not going to pay down a nickel more than absolutely necessary, since you’re in no hurry to pay down your mortgage. If that’s the case, then you’ll want to go with a mortgage that has sacrifices prepayment privileges in exchange for a low rate. A good broker will ask these questions and find you a lender that fits your needs.

Another advantage to using a broker is flexibility. One of the reasons online banking has become popular is that people just don’t have time to go to the bank when it’s open. And it’s the same thing with arranging their mortgage. So, the broker comes to them, maybe after dinner or on a weekend, and starts the ball rolling on their deal then. What a great deal for those people who have to work during normal banker’s hours.

Banks are starting to eat away at this advantage though, introducing mobile mortgage people who will come to your house.

Which Should You Use

Well, that’s a tough call.

Using both a broker or a banker has merit. If you’re a disorganized person who hates a lot of paperwork, maybe using a broker isn’t the answer. Or, if you really have no idea about the whole process, maybe a mortgage broker is the route to go. Ultimately, the choice is up to you.

But, if you’re relatively astute financially, you might want to weigh out the options yourself and just approach the lender you like the most on your own. Mortgages aren’t that complicated, most everyone can understand the terms by educating themselves. Doing a little research beforehand will make either route easier.

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Mortgage Broker or Banker? originally appeared on Canadian Finance Blog on October 13, 2011.

Find the Highest Interest Rate You Can Get

If you are placing your hard earned savings into a savings account that doesn’t give you the highest interest rate you can get, you are leaving money on the table and not giving your savings account the best chance it has to grow. Over the course of time, even small increases in the interest rate you receive can have a large impact on the amount your account will grow to.

With the Internet, it is easy to research and find the best interest rate for high interest savings. Online banks are typically able to offer higher interest rates because they have less overhead, but with a simple click of your mouse, you can peruse many banks to find out their minimum opening requirements and interest rates are as well and schedule of fees.

Try to find banks that offer savings accounts that compound the interest daily. Most banks only compound interest on a quarterly basis, so look around for a daily compounding bank.

Start Saving While You Are Young

The power of compound should be used to your advantage. The longer period of time you can save, the more powerful the compounding will be. If you can start saving while you are young, you can save large sums with relatively small deposits.

Make Regular Deposits Into Your Account

It is wonderful if you have a large amount of money to place into your savings right away, but that is not an option for most people. Saving money can seem difficult, but if you make small, regular deposits, it is easier to save than you think.

The best way to make regular deposits is to set up automatic withdrawals from your checking account and have the money sent to your savings account every month or on a weekly basis if you prefer.

Start with an amount you can handle, whether its $10 a week or $50 or $100 per month. You can always increase the amount later as you make more money. The key is be faithful to your savings plan and not to deviate from it.

Do Not Withdraw Money Out Of Your Savings Account

A savings account is meant to be left alone to grow. Resist temptation to treat your savings account like a checking account. After you put money in the savings account, do everything you can to not take the money out. One way to leave the money alone is to make a list of emergency situations that would warrant taking money out of the savings account. If a situation doesn’t appear on that list, then don’t take the money out of the savings account.

Avoid Paying Banking Fees

Be sure to always read and understand the terms and conditions of the account you choose to watch out for hidden fees. Some banks offer high rates of interest, but watch out for high fees that are imposed if your balance drops below a certain minimum level. Some banks may charge fees if you want paper statements or using other bank’s ATMs. Many banks charge maintenance fees every month. Be sure to avid fees that exceed what you make in interest.

Set a Budget and Stay Focused on Savings

Saving money and sticking to a budget go hand-in-hand. If you stay within your budget, it is easier to save money as planned. There are many websites and software tools that can help you set up a budget and save.

Many money experts recommend that you try to save ten percent of your income on a regular basis. Even if you can’t save ten percent, pick an amount you can respect and stick with it.

Even small amounts saved regularly can add up to large sums over a period of years. Speak with a financial advisor or your bank manager about the best option for your personal situation.

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Tips For Growing Your High Interest Savings Account originally appeared on Canadian Finance Blog on October 1, 2011.

Some people always get worked up when they hear that some banker earns dozens of millions of dollars a year. It is difficult to imagine that the endeavor of any human being, let alone a banker, could be so profound as to earn such compensation.

I would agree with that proposition. My reaction has always been: let stupid shareholders pay however much they like to whomever. There is no way to justify such salaries.

But then again, it is not my money. This was our ultimate consolation.

That, as it turned out, was a misjudgment. When the big banks and insurance companies got bailed out by their governments in New York, and in London, the top executives nevertheless insisted on their bonus payments. AIG, probably the most incompetent financial company of all time, had to be bailed out to the tune of $160 billion, and yet its executives felt they were entitled to several hundred million dollars worth of bonus payments. Of course, these bonuses were small relative to the sums involved in the rescue of the bank, but they symbolized the unfairness better than anything else. Bankers were so incompetent that they had to be bailed out by the government, and then they rewarded themselves for their failure.

It is no surprise that this outrageous behavior has greatly contributed to what I call regulatory revenge. It may or may not be a good idea to levy surcharge taxes on bonus payments, but the financial industry has no right to complain. They handled the situation with such incompetence and insensitivity that this result is inevitable. They have left behind an incredible space of torched earth.

There is reason to suspect that the bonus system played an important role in this crisis. It created incentives for traders to take on excessive risks. If the risk resulted in failure, it was most likely to be a systemic failure. This means: Heads you win, tails you get bailed out. So this attitude was a clear example of privatizing gains and socializing losses.

But how could traders and their superiors take on such risks?

The reason was they were in a unique position to extract high rents, as they were sitting on the sources of funds to finance the economy. Money and finance are catalysts for economic activity that would otherwise not take place. If, in an old-fashioned banking system, you run the only bank in town, you would be in a position to charge monopoly prices. Everybody would have to come to you.

The modern financial world was an oligopoly of a few large institutions. Most of the activity in the business for credit default swaps (CDSs)—a market with a notional value of some $62 billion at one time—was controlled by a group of ten banks.

There was a handful of large investment banks, and a group of large global commercial banks that ran most of the business.

Almost all the transactions in this transaction-oriented form of capitalism went through them. If you wanted an interest rate swap, chances were that the swap was organized by one of those large banks. Oligopolies can be fiercely competitive, but they generally do not produce ruinous price competition.

This was certainly the case in the financial sector, where chairmen habitually spent millions installing open fireplaces in their fiftieth-floor office suites, where executives and traders expected to receive large bonuses, to be paid early and on time each year.

Just think of how the bonus system worked in our credit bubble. Each year, the CDS market would more than double.

Companies had no time to go bust, as one trader famously put it. The safest way to make money was to take on maximum risk

The more of these toxic papers you created, the bigger your profit, and the bigger your bonus. There was virtually no immediate risk in such transactions, and the long-term risk was not apparent. For as long as the bubble continued, the CDS Ponzi game worked.

The case for regulating bonus payments is therefore very clear. The system as it works at the moment produces the wrong incentives. It has what economists call negative externalities.

The bonus payment may benefit the recipient, but it harms society by setting perverse incentives. The idea that bonus payments are needed to attract the best and the brightest is complete hogwash. These people were not bright, they were merely risk-loving. And taking on too much risk is never a smart idea.

The bonus system was an important factor in this crisis, and it certainly deserves our regulatory attention, to put it mildly.

There is a strong case to tax these bonuses out of existence, or at the very least to create bonus systems that are far less extravagant, more long-term oriented, and most importantly, not procyclical.

But alas, the bonus system did not cause the financial crisis.

It was in place long before this crisis erupted, long before the bubble. It was one of those many factors that contributed to the crisis. The current situation would have happened without it. As disgraceful as those bonuses may be, we should strike them off our list of fundamental causes.

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When Greed Is Not Good originally appeared on Canadian Finance Blog on February 19, 2011.

I didn’t realize this at the time, but this bank account was a local credit union that my parents had been going to since they moved into the city. It continued to be my bank account until I moved off to college, where they didn’t have a branch. Once I got a job out there, it just made more sense for me to have a bank branch nearby, so I started a new account at a different local credit union. This one continued to work well for me for a couple of years, until I moved, again, and yet again I did not have a local branch to go to, so I switched banks to yes, another local credit union.

I’ve always avoided big banks. I don’t exactly know why, but it probably has something to do with the fact that I was taught to use a local credit union, and that big banks have never offered anything for me to consider switching. In fact, in talking with friends who do use bigger banks, I’ve found that their banking solutions leave much to be desired.

The biggest reason why is the simplest one. My local credit union doesn’t charge me to use their bank. There is simply no monthly fee. I know of friends of mine who pay anywhere from $3.50 to $10+ each and every month for the privilege of using their bank. To me, that is insane, as you’re directly cutting into the profit that you’re making (interest) keeping it in the bank in the first place! My bank doesn’t charge me a monthly fee. It doesn’t charge me to use cheques (just to buy them in the first place). It doesn’t charge me to use ATMs (unless I use a non-credit union bank). It doesn’t charge me to use my debit card, no matter how many times I swipe it. These small differences can end up saving me a lot of money, as I’m not losing $3 here, $5 there to small petty things like using my debit card more than 15 times in a 4-week period.

Now, they do charge me for things like overdraft on our chequing account, or using an out of system ATM to deposit or withdraw funds, but that is true across all banks (as far as I know). And while my local credit union only has a few branches, and therefore ATMs, within a fair distance of me, the benefit of being with a credit union is that I can use any credit union’s ATMs without fees. That doesn’t just double or triple the ATMs available to me, it increases the chances of me getting a free ATM 6 or 7 fold.

Another huge positive for using a local credit union is the fact that they often offer better interest rates than big banks. As a smaller company they are more flexible and therefore able to ride the waves of the market, allowing them to offer their customers better interest rates. Personally, my bank has offered us a rate lower than my wife’s big bank loan. Again, because they are smaller and more adaptable to your local situation, the banks are more likely to work with the customer. Every time I’ve had to go into our bank to deal with them directly I’ve almost always had a pleasant and positive experience. The last time I sat down with the bank manager himself and told him that they needed to up their interest rates in order to remain competitive with online banking, and he not only agreed, he said that he has been talking with upper management about it for quite some time and is hoping to get it changed as soon as possible. Personally, this made me feel like this was “my” bank, where I had a say in what happens.

Unfortunately, the small, flexible, local credit union does have some drawbacks. While it deeply cares about its customers, it also cares about its employees, and that means that a lot of the branches don’t have the best hours for availability. I know that each branch is often closed throughout the weekend, and closes pretty early on weekdays too. When I work full time 9-5 Monday through Friday, I have a hard time finding a branch whose hours work with my schedule. And as I found out when I went to buy a car a couple of weeks ago, the entire bank, including the call centers, closes down every single day of a long weekend.

The most annoying problem, I would estimate, of using a local credit union, is the same problem I discovered when I moved from city to city. The locality of the bank means that when you are no longer local, the bank is more or less useless to you. I’ve had memberships at 3 different credit unions because of this. If I was someone who moved around a lot more often, or if I travelled for extended periods of time, or if I had two different properties where I split my time, then a local credit union wouldn’t make sense for me because I would need something that was national.

All in all, I would recommend a local credit union every time, simply because it costs less, seems more personable, and provides a sense of security. Unless you’re constantly travelling, moving, or need a lot of one on one attention from your bank, a local credit union is a surefire solution to your banking problems.

Do you use a local credit union? What positives/negatives have you had with your bank?

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The Pros and Cons of a Local Credit Union originally appeared on Canadian Finance Blog on June 9, 2010.

The first step towards online security should be making sure you have an anti-virus program installed and kept up to date. Lately I’ve used the free versions of AVG or Avast!, thought I plan to try Microsoft Security Essentials the next time I install of Windows.

A firewall should also be used. Most Windows users likely have the Windows Firewall activated, though the free versions of Zone Alarm and Comodo may offer more security since they question almost every action when first installed.

The passwords you choose can create a huge risk to the security of your banking info. Using passwords such as your maiden name, birth date, or home town may be easy to remember, but it’s also likely that someone could find this information and guess your password. Maybe you have a great password that includes numbers and symbols and would be impossible to guess? That’s a good start, but if you use that same password on every site and it becomes compromised, everything you have online could be accesses. To be best protected, you need a different, secure password for every site. You should also consider changing your passwords after a certain period of time. To help organize and remember these try KeePass, it’s a free program that can protect all your passwords with one master password.

Beware of phishing emails. These are emails that ask you to log into your bank or PayPal and ask you to log in to update your password or other information. The problem is that what the link takes you to may look like the actual site but are actually fake version designed to capture your passwords and other important information. Never click a link asking you to log in. Even if you think it’s legit, go to the site on directly from your browser and log in there.

Taking these steps will help to keep you secure when you bank online. However, since new threats could appear at any time, keep your software up to date and consider the risks when using email and your internet browser.

Image by Jorge Franganillo

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How To Protect Your Online Banking Info originally appeared on Canadian Finance Blog on January 11, 2010.

Image by Twon

Coventree, Canada’s largest ABCP administrator, warned dealers in July 2007 that the assets backing some of their debt were sub-prime mortgages from the US. These companies then continued to sell Coiventree’s ABCP into August of that year. When the US mortgage market fell apart, the asset-back commercial paper it was tied to was frozen. Commercial investors holding these ABCPs were stuck and unable to sell these worthless investments.

The issue here is that the banks and brokerages did not take proper measures to protect the interest of their clients, as they are required to do so by provincial regulators.

The fines imposed were not small, here is the current list of which Canadian banks and brokerages have been found at fault and how much they were fined:

• National Bank of Canada $75 million
• Scotia Capital Inc. $29 million
• CIBC $22 million
• HSBC Bank Canada $6 million
• Laurentian Bank Securities $3.2 million
• Canaccord Financial $3.1 million
• Credential Securities $200,000

Much like the Ponzi schemes that were all over the news, this should serve as another reminder that all investors should fully understand the products that they are investing in.

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Canadian Banks Fined For Selling Asset-Backed Commercial Paper (ABCP) originally appeared on Canadian Finance Blog on December 22, 2009.

Canadian banks will hold the balance on a dormant account for 10 years, then they transfer the outstanding balance to the Bank of Canada. The Bank of Canada will then maintain custody of the funds for an additional thirty years for accounts under $1,000, balances of $1,000 or more will be held for 100 years.

The Bank of Canada will hold onto a variety of Canadian dollar accounts from Canadian banks, including:

• deposit accounts
• bank drafts
• certified cheques
• deposit receipts
• money orders
• traveler’s cheques

To search a name, go to the Bank of Canada’s Unclaimed Balances page. Since the names are exactly the same as how they were entered at the original financial institution, be sure to try all possible variations of your name. This could include maiden names, an initial for your first name, or maybe even some common misspellings. The search form also allows “and”, “or” and “*” for more precise searching.

If you find that there is an account that you may have a claim to, you will need to fill out the claim form and provide proof of your entitlement through either your own signature, identification and a will, if applicable.

Wondering if there are really that many accounts that are unclaimed? At the end of 2008, the Bank of Canada reported that they are holding approximately 1,023,000 accounts with a total value of about $351 million!

I searched every possible name variation of me and other family members, unfortunately I didn’t find anything. After you search, if you find out that you may have money to claim, please leave a comment to tell us about your find!

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Forgot About An Old Bank Account? Find Your Money! originally appeared on Canadian Finance Blog on October 20, 2009.

Common Fees and How To Avoid Them

Late Fee

This is the most common of all fees. Most people pay late fee because they either forget, or couldn’t afford to make the payment. If you’re the forgetful type, pay your bills as soon as you get them, or schedule automatic online bill payments. It’s also a good idea to write down due dates directly into your organizer or calendar so you’re constantly reminded.

If you’re paying late fees because you can’t afford to pay on time, you have a more serious issue. In this case, you need to better understand your finances, which you can do by starting a budget. Next work on cutting down your expenses and spend less. Properly done, this will give you the extra cushion you need to pay your bills on time

Overdraft Fee

Overdraft fee is more costly than other types of fees because you’ll end up paying other fees in the process — i.e., late fee, and finance charges in the case of a late credit card payment (assuming you usually pay off in full each month).

If the root cause is the same as above, you fix it in the same manner But if you’re bouncing checks because of poor management (e.g., not transferring enough money in to your checking account, or not transferring on time) then there are easy solutions. You can keep money in a high yield checking account (to avoid back and forth transfers), or enroll in an overdraft protection plan (usually for a small fee).

Finance Charge

Last but not least are credit card finance charges. If you’re only paying the minimum on a $10,000 balance at 20% interest rate, it will take you more than 9 years and $11,680 in interest charge to pay off the original amount borrowed. Yes, your $100 iPod actually costs you $216.80. Finance charge is easily avoidable if you pay off your credit cards in full each month. If you can’t afford to pay off your credit card bills, don’t charge it!

Of course, there are plenty of other fees we can talk about. But you I am sure you got the idea. Fees are your enemies. Do what you can to avoid them.

Pinyo is the owner and primary author of Moolanomy Personal Finance blog. Moolanomy focuses on practical money management concepts, personal finance tips, and wealth building. If you like this article, please visit his blog and follow him on twitter @moolanomy. Lastly, you can leave financial question on Moolanomy Answers where Pinyo and other community members participate to provide you with answers.

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Avoiding Fees Is Smart Finance originally appeared on Canadian Finance Blog on August 25, 2009.

You may be familiar with a Home Equity Line Of Credit (HELOC). This is a credit line that is secured by the value of your house, less your mortgage. Secured lines of credit normally provide a better interest rate than an unsecured LOC. For a regular HELOC, you would apply for a set amount, maybe $10,000 or $100,000, as long as the mortgage and the HELOC are less than 80% of your home’s value. The STEP, and other mortgages like it, give you this amount automatically. You can setup a flat amount like other HELOCs, or you can have a line of credit that automatically increases as you pay down the principle on your mortgage. Scotiabank had previously been criticized for not having an auto limit increase, you would need to call in every time to request an increase. In April they added the ability to have an auto limit increase which makes it a much simpler process.

The benefit to this readvanceable mortgage is that you can use the equity in your home as a tool for leveraged investing. As an example, if you’ve recently paid down $5,000 of your principle, the credit line would increase by $5,000. You can then invest with this available credit and the interest would be tax deductible, making it a better debt than your mortgage. Tomorrow we will look into this investment strategy some more as it is a great way for Canadians to convert their mortgage into a tax deductible investment loan.

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Scotiabank’s Scotia Total Equity Plan (STEP) originally appeared on Canadian Finance Blog on June 8, 2009.

Adding bank accounts to Quicken Online is simple, you search for the name of your bank and then use your regular web login for that bank. Quicken will pull in all your accounts and categorize most of the expenses, though some of the category guesses were incorrect and I’ll have to go through and change them.

Like Wesabe, Quicken Online also has a mobile version for smartphones. Unfortunately, neither web site supports my most used credit card. I sent in a request to both sites to get it added, it will be interesting to see who responds sooner for this type of request.

I’m leaning towards Quicken Online for my own finance tracking. Quicken Online is made by Intuit, who also produce TurboTax and point of sale software. I would like to see complete investment tracking, or at least integration with their desktop software. Give Quicken Online a try if you simply want to track your expenses within a user friendly interface.

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Manage Your Accounts With Quicken Online originally appeared on Canadian Finance Blog on May 6, 2009.