Are you comfortable asking questions when it comes to your money?
Many of us trust that “the system” has our best interests at heart. That the bill we are being asked to pay for services provided is fair and accurate. But here is the thing….no one is looking out for you! The bank, the insurance company, the phone company, the car dealership….they are all concerned primarily with maximizing profit. You have to be comfortable asking the difficult questions. Let me provide some examples.
Scenario 1; Hidden Fees: You walk into a car dealership looking for a new car. A helpful salesperson spends the time with you to determine your needs and budget. You are quoted a price of $20,000 for the car you want. Then, after an hour of sitting in their office, you are presented with a bill of sale….for $24,000. What happened? Where, there is GST of course. There are also fees associated with the sale. And a fee for registration. And a fee for cleaning the car. And an admin fee…And…And…..Gee, all of these charges seem reasonable but no one told me about them and my budget was only $20,000. Some of these charges will be necessary and it is assumed that you would have done some research on the additional fees – but some can be waived with a bit of negotiation. Don’t be afraid to ask what the charges are for to determine if they are really necessary.
Scenario 2; Unexpected Expenses: You and your spouse finally saved up enough money to buy your first place. The bank approves you for a mortgage of $250,000. You calculate that your monthly mortgage payments will be $1300. Off you go, searching for that perfect townhome. Your realtor finds you the perfect home and you sign on the dotted line.
Then the first months bills roll in…..
The mortgage payment comes out for $1300. Then the condo board sends you a notice. As the new owner you will be required to pay condo fees of $300 per month. These fees go to maintaining the building and providing services like insurance and garbage pick up. They will need payment within 30 days. The condo fees don’t include utilities (water, heat, and gas). Last month these were $150, payable to the local utility provider by next month. The city sends you a notice in the mail – property taxes are going to be due in three months. As you declined the TIPP program offered by the bank (what does TIPP stand for anyways?), you’ll be required to pay $1,500 in a few months time. (*Note: TIPP stands for tax instalment prepayment plan. The estimated annual property taxes are taken from your account on a monthly basis, making the payments more manageable than a one time lump sum).
Let’s revisit your monthly budget. Mortgage: $1300. Condo Fees $300. Utiliities $150. Taxes $125 ($1500 over 12 months). Total: $1875. That’s 44% increase from what you originally budged when you bought the place, yikes! That’s an extra $6,900 per year you have to now factor into the budget.
Typically the bank factors some of these things in when approving your mortgage. However it is in their best interest to provide the maximum mortgage amount possible (in order to gain the most interest from you), while balancing their fiduciary responsibility to not lend you so much that you will default on your payments.
The onus is on the consumer to do their homework. The above is a great example of how shocking it can be from going to a renter status (pay one person once per month and that’s it!), to a homeowner who has obligations to many people.
There are lots of websites with helpful tips and information when it comes to buying a first home.
With things like insurance and car purchases, it is up to you to ask what you are being charged for. It can be an uncomfortable conversation and many times you may be given high level answers which do not really provide insight. Don’t be afraid with speaking up! It is YOUR money after all….the best companies are the ones who will have no problem answering your questions because they know an informed customer is a happy customer.