Historical article note: This article was originally published on 2018-12-27. Rates, policies, home prices, statistics, product names and qualification standards reflect the environment at that time and may have changed. This archive is for historical record and general education only. It is not mortgage approval, investment, legal or tax advice.
I mail a letter to all my clients at the end of every year. A letter to customers in 2018 is shared with readers as follows:
It’s that time of year again when I summarize my experience over the past year with my friends. First of all, I would like to wish all my clients and friends who trust and support me a Merry Christmas and all the best in the new year, and may all your wishes come true.
In January 2018, I opened my own WeChat public account "Henry Wang in Canada". My small goal is to share my thoughts and ideas through articles on the public account. I strive to write 50 articles a year to force myself to think and sort out my work experience and experience. In June, the first two-day Chinese Financial and Business Forum was held in the Niagara Falls area. The discussion content was compiled into a journal and an ISBN was applied for, which has been officially published and distributed. At the forum, everyone jointly set a small goal of financial freedom - to insure each other's life insurance for 500 to 1 million yuan between husband and wife; to pay off the home loan before retirement; to achieve 2 million financial assets when retirement. More than 200 people attending the meeting formed a WeChat group to share experiences and insights. The forum’s guest speakers provided professional answers to the group’s questions. Through this forum, I have gained a deeper understanding of financial intelligence, and I will share it with you below.
Looking back on the work in the past nine years, I feel that I have done well in disseminating knowledge about mortgage loans and doing what I say. However, there is one job that is very weak and needs to be reviewed by all customers. According to the requirements of the Commercial Banking Law, banks need to remind borrowers of debt risks and explain the bank's various preservation and protection products, which are actually life insurance, critical illness insurance, disability insurance and unemployment insurance. In the past, I didn’t pay much attention to this work and entrusted it to colleagues in the branch. Through this financial and business forum, I gained a new understanding of the importance of insurance. In the case of a personal accident, even if there is a will, the estate will be processed very slowly. Although there is no inheritance tax in Canada, many of the deceased's assets are equivalent to being sold at death, so income tax is required. If there is not enough life insurance during his lifetime, the beneficiary of the estate may be forced to dispose of assets at an inappropriate time to pay taxes because he does not have the cash to pay taxes. Whether the insurance amount is sufficient is related to the debt. I bought 500,000 life insurance before, but now I have an extra 600,000 loan. If I cannot quickly dispose of illiquid properties such as houses, the original 500,000 life insurance is obviously not enough. This is why banks require customers to sign a document confirming the risks before handing over the house. Critical illness insurance, disability insurance and unemployment insurance are also very important. I remind you to re-examine whether your various insurances are sufficient. Minimum insurance amount = 500,000-1 million = total insurance amount - (current assets - liabilities).
The upper limit of Canada's social security benefits is about 15,000 per person per year. If you have not paid off your home loan when you retire, you will not be able to retire. We can see white-haired old people working in many service industry positions. Not everyone of these retired old people likes to work. Canada's corporate annuity system is divided into two categories. One is to provide pensions until death, such as Sears department stores. Companies like this can easily be dragged down by the longevity of employees; the other is to provide pensions based on the amount of contributions during the working period. There may be an embarrassing situation where the money is gone while the person is still alive. 99% of self-employed people do not have corporate annuities, and their retirement life can only rely on social security and their own investments. Therefore, large consumer loans such as home ownership must be paid off with retirement funds.
When you retire, it is not recommended to still hold investment properties. It is best to hold financial assets. If you have 2 million financial assets, a fixed investment return rate of 5%, and an annual income of 100,000, you should be able to maintain a decent retirement life.
From the perspective of life-cycle debt arrangements, my suggestion is: don’t increase your home loan after the age of 45, and allow 20 years to pay off the home loan. At least from the age of 50, start withdrawing cash from the additional mortgage on investment properties to invest in financial assets. Because the compound interest effect of investment in financial assets takes time to accumulate, it is too late to start investing in financial assets when you retire at the age of 65.
Canada's interest rate hike cycle will continue for another 1-2 years. It is recommended that everyone speed up the repayment of their home loans as long as they are able. For financial asset investment, it is recommended to choose floating-rate preferred stocks or bonds.