Unlocking Hidden Benefits: How AI Legalese Decoder Can Assist First-Time Home Buyers with 36m ÔÇô Beyond Down Payments and Mortgages
- October 13, 2023
- Posted by: legaleseblogger
- Category: Related News
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Heading: Considering Allocation of Savings and Income for Retirement Planning
Introduction:
As individuals navigate their financial journey, one common dilemma is whether to allocate their savings and income towards a longer-term retirement portfolio or focus on maximizing monthly mortgage payments for a potential down payment. This decision requires careful consideration and an understanding of investment philosophy. Fortunately, advancements in artificial intelligence, such as the AI Legalese Decoder, can provide valuable insights and guidance in making this important financial choice.
Discussion of Savings Allocation:
While it may seem tempting to allocate a portion of the current savings, amounting to $200,000 in a High-Interest Savings Account (HISA), towards a longer-term retirement portfolio, it is crucial to assess the potential benefits and associated risks. The use of AI Legalese Decoder can come in handy here, as it can analyze market trends, historical data, and risk factors to offer personalized recommendations based on an individual’s financial goals, risk tolerance, and time horizon. By using this technology, individuals can make well-informed decisions about whether to allocate a specific portion of their savings towards a retirement portfolio or explore alternative investment opportunities.
Maximizing Mortgage Payments:
Alternatively, individuals might consider channeling all their resources towards maximizing monthly mortgage payments in order to reduce total mortgage interest paid. However, it is important to take into account the potential returns from investing in a retirement portfolio. The AI Legalese Decoder can analyze the current market returns, approximate 7% in this case, and provide projections on future returns considering various investment strategies and asset classes.
Benefit of AI Legalese Decoder:
One might wonder if their investment philosophy is missing something. This is where the AI Legalese Decoder can be particularly helpful. By utilizing advanced algorithms and machine learning techniques, it can evaluate the potential advantages and disadvantages of each approach. It helps individuals understand the long-term impact of their financial decisions, illustrating how factors such as inflation, inflation-adjusted appreciation of the house asset, and potential market volatility can affect their investment philosophy.
Conclusion:
In conclusion, the decision to allocate savings and income towards a longer-term retirement portfolio or maximize mortgage payments is a complex one. However, the AI Legalese Decoder simplifies this process by providing tailored insights, projections, and recommendations. With the help of this advanced technology, individuals can confidently navigate their investment philosophy and make informed decisions about their financial future.
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AI Legalese Decoder: Simplifying Legal Language for Everyone
Introduction:
Legal jargon and complicated language can be an obstacle for many individuals when it comes to understanding and navigating the legal system. Traditional legal documents are often filled with complex terminologies and convoluted sentences that make it difficult for the average person to comprehend. However, advances in artificial intelligence (AI) have made it possible to simplify legal language and make it more accessible to everyone. The AI Legalese Decoder is a groundbreaking tool that can help individuals decode and understand legal documents with ease.
Understanding the Challenge:
The legal system plays a crucial role in our society, but it can seem intimidating and overwhelming, particularly when it comes to reading and deciphering complex legal documents. The dense language and excessive use of technical terms pose a countless hurdle for individuals who lack a legal background. Consequently, it may lead to misunderstandings, misinterpretations, and even detrimental decisions.
AI Legalese Decoder: Simplifying Legal Language:
The AI Legalese Decoder is designed to address this challenge. Using machine learning algorithms and natural language processing techniques, this tool can analyze, understand, and simplify legal documents, making them more comprehensible for the general public. It breaks down complicated sentences and phrases into plain language, eliminating unnecessary jargon and replacing it with easily understandable terms.
Doubling the Original Length:
By using the AI Legalese Decoder, individuals are empowered with a tool that doubles the original length of legal content. Equipped with advanced AI technology, this decoder not only simplifies the language but also expands on the original content, providing further clarification and context. It achieves this by providing additional explanations, alternative phrasing, and real-world examples that help individuals grasp the legal concepts more effectively.
Enhancing Accessibility and Inclusivity:
The AI Legalese Decoder has the potential to revolutionize the legal industry by promoting accessibility and inclusivity. By breaking down the language barrier, it enables individuals from diverse backgrounds and different professions to understand legal documents. This tool facilitates informed decision-making and enhances access to justice, making legal information readily available to a broader range of people.
Benefits in Varied Contexts:
The benefits of the AI Legalese Decoder extend beyond individuals seeking legal services. It can help businesses understand contracts, identify potential liabilities, and avoid costly legal disputes. Additionally, lawyers and legal professionals can utilize this tool to streamline their work, save time on document analysis, and focus on higher-value tasks, such as providing legal advice and representation.
Conclusion:
The AI Legalese Decoder offers an innovative solution to a long-standing problem in the legal field. By simplifying legal language and expanding the content’s length with comprehensive explanations, it empowers individuals with an understanding of complex legal documents. This technology has the potential to democratize the legal system, making it more accessible, and ensuring that legal information is comprehensible to all. With the AI Legalese Decoder, navigating the legal world becomes less daunting, promoting transparency, inclusivity, and justice for everyone.
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Hold back some funds beyond an emergency fundthe first year or two can be particularly expensive as you settle in. You can always lump sum later.
Just leave an emergency fund in case shit breaks.
It was a different discussion when the rates were sub 2%, now with around 6% I think the smaller the mortgage on a principal residence the better. Apart from a small emergency fund I would put as much down as possible.
Not missing anything.
Mortgage paydown and TFSA have the same tax effects. When mortgage rates were 2-3%, mortgage paydown was ignored because that’s a small return. Now they’re at 6%, that’s better than nay HISA (even tangerine, at 6%, because tangerine has taxes).
When you retire, you’ll want to be mortgage free. Paying down the mortgage is part of a “long term” retirement portfolio. How often do you hear of people retiring with large mortgages? It causes all sorts of headaches because you then need to use all your retirement savings to service the mortgage. Its simpler just to payoff the mortgage.
Leave at least enough for a good emergency fund, and remember most mortgages allow you to pay down extra principal and some will even let you reduce payments to keep the same amortization. So you could keep emergency +10-15% of your mortgage that you could paydown next year once you are settled. There are a lot of costs like furniture and repairs that could come up in your first year.
I would keep money aside for things that come up with ownership.
Less important in a condo, but in a house, there will be expenses that come up.
From an investment point mortgage rates are high enough that I would look to have a smaller mortgage at this time and you can always take equity out in the future if rates drop and investments are looking more lucrative.
Another consideration is liquidity. Should you need a bunch of money for something and it’s all locked up in your house you have fewer options.
Check this discussion for some more nuanced opinions on mortgage vs. investment:
https://www.reddit.com/r/financialindependence/comments/175vni7/should_people_pay_off_a_mortgage_asap_when_fixed/
It’s all about how much risk you are willing to take. There is no right or wrong, but you don’t want to retire with no savings either.
For a down payment, putting down 20% or more will eliminate CMHC fees, so absolutely do that if you can. And if you can’t, be sure to put down no less than 10%.
For ongoing, it’s a balance. I don’t like an all or nothing approach. Maybe you have an employer matched RRSP. Maybe you want to put something every paycheque towards a TFSA.
I don’t love paying interest, so it doesn’t hurt to throw money at the mortgage until 50% of the house is paid off. At that point you can reassess and see whether you want to ease up a bit.
There are also quality of life issues at play too. Some portion of your income should go towards guilt free spending.
At my renewal in like 10 months im putting everything i own and then some.
>Would there be any value in allocating any portion of my current savings ($200k in HISA) or income to a longer term retirement portfolio?
Yes, you would diversify away some of the idiosyncratic risk that comes with home ownership.
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>Am I missing something when it comes investment philosophy here?
Yes, see my comment above but essentially, in wealth management you need to consider **risk adjusted** returns which you aren’t fully taking into account with this calculus:
>At current rates, reducing total mortgage interest paid would roughly be equal to real average market returns (~7%), not even taking into account appreciation of the house asset.
The first year of home ownership tends to have a lot of trips to Home Depot.
It’s pretty scary how fast money evaporates.
If you like the idea of putting a big amount on your mortgage, you don’t have to put it down right away. You can opt for a mortgage with good prepayment options. E.g. Scotia offers 20% annual pre-payment, optional 20% increase to regular payments, and their “Match a Payment” option which you can use to double any mortgage payment and have the amount go to principle. Most big banks offer pre-payment terms like that. When you get into the “no-frills” lenders they may offer a better rate but fewer options.
There is one thing you’re missing though, and it’s that market returns are ~7% long term (10+ years), but your mortgage interest rate can change.
E.g. consider your mortgage is 6% 5 yr fixed, and your stock market expected returns are 7% over 10 years.
For a $100,000 lump sum that you put on your mortgage or invest right now, in 10 years it would save $81,939 on your mortgage at 6% OR earn $100,966 at 7% invested. IMO that’s close enough that the guarantee of the 6% is attractive and worthwhile.
However rates may not stay at 6% for 10 full years. In fact, if variable is 7% right now but fixed is 6%, it literally means that banks are expecting rates to decline over 5 years. 5 years from now you have to renew your mortgage, and it may only be at 4% for the next 5 years. While that’s great and will save you money on the rest of your mortgage, it also means that the $100k lump sum you put down on it at the beginning is now only saving 4%.
When you work it out, 5 years at 6% followed by 5 years at 4% is only a total savings of $64,694, whereas the market is still expected to perform at 7% long term ($100,966 earnings). The difference there is starting to look big.
Interest rate risk doesn’t often come into play because normally we know the expected returns or rates through the entire period, but in the case of a mortgage, you only know the rate for up to 5 years. Changing your mind on the $100,000 is not impossible, but it’s not trivial either. You can either take out a HELOC, or you can opt for a cash-out re-finance on your renewal if the rate comes back lower, essentially re-leveraging your mortgage.
Interest rate risk is the reason I’m not suddenly dumping my investments onto my mortgage. The investments are expected to get 7% over 10+ years, but my mortgage may only be at 6% for a few more years before it edges back down to tamer rates.
The high rates do impact my decision on whether I utilize my prepayment options though. I’ve certainly started using my prepayment options.
The last thing I haven’t discussed yet is the monthly payment amount. Most prepayment options that I’m aware of will not reduce your monthly payment obligations. E.g. if you choose to prepay $100,000 on your mortgage, it will shorten your amortization term instead of decreasing your payments. So if your mortgage is $3k/month and you put $100,000 on the mortgage, you still owe $3k next month. If your income is strong enough, this may not phase you one bit.
Alternatively, if you put that $100k down on *signing*, then your payments may be significantly lower, for example $2000/month or less over 25 years. When it comes to making ends meet on a tight budget, it can be very nice having that flexibility.
when rates were below 3.5% i would say its better to invest but now with rates at 6% or more its better to pay down but the real question where do you think rates are going over the next 5-10 years? if you think they are going to stay about 3.5% then id say just have an emergency fund then shovel the rest into the mortgage. you will literally shave years off your term by doing so.
I read that as 36 million first time home buyer
Lots of people have to dump everything in. Keep an emergency fund of you can.
I literally had to put everything in including my paycheque from two days prior to buy in Vancouver a couple years ago.
I’ve got decent savings now though
You need a home maintenance fund in addition to an emergency. Home maintenance should not be a surprise. You won’t know what needs fixing first exactly but you should have a general idea.
Unless the fund is in a registered account (tax free growth) then you have to consider that income off that fund is taxable income. Interest not paid on a loan is not taxable.
So let’s say you are in the highest tax bracket (50%) and your HISA pays 7% interest on the $200k. That is $14k in income, less 50% in tax. That is $7k net.
If you put that $200k into your down payment and your mortgage has 6% interest then you are saving $12k in interest payments. That is $12k net.
There are plenty of reasons to hold that back, including an emergency fund, top up registered account being top among them.
If you buy a house, make sure you have at least 20,000 in cash for unexpected and expected costs. You will need to buy furniture and whatnot.
With that said, if you are worried, facebook marketplace saved us thousands when we bought our first houes a few years ago.
Good luck!
Keep some for any repairs or renovations you might want to do.
Yeah put as much towards mortgage as you can
Part of your 20% should absolutely include maximizing your FHSA, also note that it needs to be in there for at least 30 days, so depending on when you want to buy or close, make sure you have that. $8,000 this year, $8,000 next year. You get all the benefits of an RRSP without any of the downsides of paying it back.
Depending on your marginal tax rate, that can be an easy $2,500 of free money.
I would dump it all in the mortgage because of interest rates. You can always pull some back out when rates drop / renewal. Also I would get a HELOC with the mortgage so you can have liquidity in an emergency plus it costs nothing unless you carry a balance. If want a HELOC later you will have more fees so get it with the mortgage. I’m not in anyway qualified to give advice but that’s what I would do.
I think money in reserve is essential.
Bought my first home a few years ago, several months later discovered the foundation was turning to dust (century home, finished basement, inspection cleared from what was visible) – without an emergency fund (and all my savings) it would have been impossible to overcome without the complexity of borrowing against a newly bought house.
I hope your experience is better!
Leave it in an investment for first term of mortgage and continue adding to it if you can, after first term all the kinks of the house should be worked out and you can put most of it on your mortgage and keep some in there for emergencies
Depends. What’s the LTV and your income? Remember a house is a very illiquid asset so it’s going to be hard to access any of that money once you put it in. So you do want some other forms of investments for diversification and cash flow reasons.
The house you live in is also not an investment.
2 things:
1) you should compare LONG TERM expected market returns with LONG TERM mortgages rates. If rates are 5-6% for the next 5 years then you are getting comparable returns to investing over 5 years, but assuming rates come back down then from years 5-30+ you are now losing out, which are the years where compounding matters the most.
2) paying down a mortgage only returns those ÔÇ£guaranteedÔÇØ market returns if the value of your house stays the same or rises, which isnÔÇÖt guaranteed. The bulk of your returns in housing long term come from appreciation, so your actual return on money put towards a house actually has little to do with rates anyways, as the majority of gains and losses are in home value anyways.
Which brings me to the most important point: stop thinking about your house as an investment. Make the decisions based on what makes the most sense for your comfort and lifestyle, not for maximum returns. ItÔÇÖs a house, a place to live. DonÔÇÖt compare it with stocks. If it makes sense for your life plan to pay it off sooner or later then do that.
Buy a house find unexpected expense, maybe want furniture, you donÔÇÖt want to be messing with your emergency fund to handle those since then lose your job boom your screwed.