Author: Oskar Malone

The last few years have brought unexpected financial turbulence. Rising interest rates, fluctuating home prices, and persistent inflation have tested the resilience of households across the country. As we enter 2025, many Canadians seek ways to regain control of their finances and adapt to the evolving economic landscape.

The good news? Canadians can learn from the financial lessons of recent years to better prepare for what’s ahead.

Household debt to disposable income shows a slight improvement

According to Statistics Canada the household credit market debt to disposable income ratio improved slightly in 2024. As of the third quarter, Canadians owed $1.73 for every dollar of disposable income, down from $1.83 in 2022. This decline indicates progress, but debt levels remain high, reflecting the financial strain on many households.

To illustrate the change, consider a household with $50,000 in disposable income. In 2022, that family would have carried $91,500 in debt. Today, their debt would be closer to $86,500 — a step in the right direction but still a significant burden.

Bank of Canada rate ease: Interest rate cuts offer some relief to borrowers

For those with mortgages or variable-rate debt, 2024 brought some relief. The Bank of Canada lowered its overnight rate to 3.25% on December 11, 2024, down from 4.25% a year earlier. This change translates to reduced borrowing costs for many Canadians.

For example, a homeowner with a $300,000 variable-rate mortgage saw their monthly payments decrease by approximately $200, thanks to this rate cut. While this is welcome news, interest rates remain elevated compared to the pre-pandemic years, requiring continued prudence.

Household debt service ratio shows gradual progress

Another sign of financial improvement is the household debt service ratio, which fell to 14.72% in the third quarter of 2024, compared to 14.97% in 2022. This metric measures the proportion of disposable income required to cover debt payments.

Although the decline is modest, it reflects incremental progress in Canadians’ ability to manage their debts. For instance, a household with $50,000 in disposable income would now allocate $7,360 annually to debt payments, down from $7,485 two years ago.

Housing affordability remains an ongoing challenge

Despite falling interest rates, housing affordability remains elusive for many. Rising borrowing costs over the past few years have outpaced declines in home prices. For prospective buyers, this means that owning a home is still a significant financial commitment.

If you’re planning to buy, avoid trying to “time the market.” Instead, focus on finding a home that fits your budget and long-term goals. Remember, a home should be a place to live, not merely an investment vehicle.

Practical tips for managing grocery costs amid inflation

Grocery prices have been a persistent pain point, with inflation pushing up the cost of essentials. While the price of a head of lettuce reaching $9 may have been an extreme case, food costs remain high. To combat rising expenses, consider strategies such as meal planning, buying in bulk, and reducing meat consumption.

For example, switching from canned beans to dried ones can cut costs while offering the same nutritional benefits. Price matching and loyalty programs can also help stretch your grocery budget. Other suggestions include:

• Buy in bulk whenever you can to reduce your overall costs
• Meal plan for the week based on what’s on sale
• Switch to less expensive protein options, such as beans
• Purchase dried beans instead of canned
• Reduce your meat intake
• Price match if your grocery store allows it
• Join the store loyalty program so you can earn points that can be redeemed for free groceries later.

Building financial confidence for the year ahead

If all of these financial headlines have left you shaken, you’re not alone. According to the fifth annual edition of the IG Wealth Management Financial Confidence Index the “financial confidence” of Canadians dropped by 11% in 2023, compared to 2022 and over the last few years it only got worse.

If you’re feeling uncertain, consulting a financial advisor could help you set clear priorities and develop a plan tailored to your situation. Remember, improving your financial outlook begins with small, deliberate steps — whether it’s building an emergency fund, paying down debt, or investing for the future.

Bottom line

Even though many Canadians are still confident about their individual situations, there’s no denying that what’s happened in the last year has had some impact on their budgets. Looking back at what’s happened can help, but don’t let it leave you in a shock. It’s always best to plan for the future. How you do that will depend entirely on your personal situation.

The financial landscape in Canada has shifted significantly in recent years. While challenges remain, there are clear signs of progress, such as declining debt ratios and interest rates. By reflecting on the lessons of the past and planning strategically, Canadians can take control of their finances and face 2025 with greater confidence.

— with files from Romana King

Sources

1. Statistics Canada: Household credit market debt to household disposable income, seasonally adjusted (2024)

2. Statistics Canada: Household sector credit market summary table, seasonally adjusted estimates (Dec 12, 2024)

3. Statistics Canada: HNational balance sheet and financial flow accounts, third quarter 2024 (Dec 12, 2024)

4. IG Wealth Management: Financial Confidence Index (2023)

This article A new year won’t solve all of your financial problems: Tips for a better 2025 originally appeared on Money.ca

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Imagine waking up and realizing that in your pocket you hold the key to a massive windfall — a winning lottery ticket. This is exactly what happened when Reddit user, OpulentWords, and her partner realized that they’d won more than USD$20 million. As U/OpulentWords explained it: “It was a life-changing amount of money.”

Rather than blow their windfall lottery winnings on big cars and fancy trips, the couple chose to be responsible. They invested money in cash-positive rental properties, set up a high-interest savings account — for living expenses — and set up accounts that would preserve the principal sum for future generations.

But that wasn’t it. In a show of generosity, the couple generously gave USD$2 million to the sister and mother (of one spouse) and set aside USD$1 million for friends.

Despite this generosity, the lucky couple was critiicizsed, particularly by their sister and mother. Their family’s argument was that they weren’t generous enough and that they should’ve been less stingy, particularly when it came to paying for a family beach house.

What’s worse is that extended family began to overwhelm the couple with financial requests and, as a result, put massive strain on the overall family dynamic.

“My sister and mom think we’re being selfish for not giving them more money," explained U/OpulentWords. "My family is neither poor or rich [sic] and for the most part, [they] have good to great jobs. My sister is a VP in her deparment for a well known tech company. My mom has a retirement savings beyond the money I’ve given her." U/OpulentWords continued by saying that money is set aside so she and her partner can provide for a future family, but currently, she wants to stop feeling like a bank machine for her family.

"I don’t want to keep feeling like I’m the family’s ATM machine," explained U/OpulentWords, "I’ve heard them say I am stingy and this is extremely hurtful."

Tactics to help you handle an inheritance or financial windfall

The question, of course, is whether or not a person should disclose a major inheritance or financial windfall, like a lottery win. And people had opinions.

In general, Reddit posters had four key takeaways:

• Generosity doesn’t obligate continued giving — boundaries are essential.
• Transparency laws around lottery winners can exacerbate personal challenges.
• Financial planning and diversification are critical for safeguarding winnings.
• Building boundaries and maintaining relationships require effort and emotional resilience.

While your win may be public, your wealthy lifestyle doesn’t need to be

While the win may require you to complete some publicity requirements — such as taking a picture with a large cheque — that doesn’t mean you need to be public with how you plan to use your windfall.

According to Experian, a US-based consumer credit reporting company, stealth wealth is “the practice of keeping your accumulated assets private.”

There are several ways to achieve stealth wealth:

• Avoid conversations with friends and family about income, assets or debt as this may reveal too much about your windfall gain
• Avoid lifestyle creep — like suddenly upgrading your old Toyota Camry to a fully kitted-out Dodge Challenger — because, again, this is a dead giveaway that you may have access to a lot of cash

By practising stealth wealth, you’ll have an easier time of untangling your finances from personal relationships. This makes it easier to dodge awkward situations, like friends and family hitting you up for a loan or “to invest in their startup.”

There are no obligations

While stealth wealth and tying your money up in trusts and investments are all good ways to keep money seekers at bay, it could be quite mentally draining to hide your good fortune from those closest to you.

Several Reddit users alluded to this when replying to the original post. One said it is “perfectly ok to say no” to people asking you for cash favours and that you shouldn’t have to live a lie in order to avoid awkward discussions about your windfall gain.

“People need to be ok with being genuine and honest to the people around them,” explained Reddit users. “By saying no because they want that money invested in other means provides a more accurate example of building and maintaining wealth to others than lying about it.”

Another person wrote: “I never understand this problem. What’s the issue with saying no and cutting contact with those who don’t take no for an answer and don’t respect your boundaries? If having too much (or too little) money would ruin my relationship with someone, I’d consider that a bullet dodged, since they never cared about me in the first place.”

If you’re lucky enough to land a windfall gain and you’re not sure how to structure your finances, consider talking to a professional who can help you come up with a plan and a strategy for how to breach that topic with your friends and family.

Avoid spending if debt is still an issue

While an unexpected inheritance or windfall gain can prompt a desire to go on a shopping spree, you need to heed the advice of others about focusing on your current and future financial health.

For instance, rather than setting up an investment fund, consider paying off all debt, first, and building an emergency fund. Then turn your attention to creating a secure future, such as establishing a safe and secure place to live and developing a retirement fund.

Bottom line

By following these strategies, anyone with an unexpected inheritance or windfall gain can secure their financial future, achieve their goals, and enjoy their windfall responsibly — and, hopefully, maintain their relationships with family and friends.

Sources

1. Reddit: R/OffMyChest

2. Experian: What is Stealth Wealth?

— with files from Romana King

This article Lucky lottery winner generously gave family millions — but it wasn’t enough! Now, they’re sick and tired of being used as the family ATM machine originally appeared on Money.ca

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Despite some cooling, Canadian real estate investment is still humming along, with 26% of Canadians looking to buy an investment property and 4.4 million currently invested, according to a report by Royal Lepage.

What’s more, almost half of all wealth accumulated in Canada in the last 30 years was tied to equity growth in residential real estate, according to research conducted by RBC using Statistics Canada data. Suffice to say real estate is the path to wealth for many.

With this in mind, let’s take a look at why getting a loan to invest in real estate is still a good idea and some of the best loans for property investors.

Why buy investment property?

Think about it like this: As long as a country continues to see positive population growth, more people will need a place to live. This brings us to the traditional economic model of supply and demand. Since demand will increase over time, so too will the property value.

However, Canada’s real estate market has been starved of housing supply for decades. This means that current housing prices are inflated due to supply constraints.

The good news is this doesn’t mean that investing in real estate is a bad idea. As supply issues are fixed, prices will just increase less quickly and not stop increasing all together.

Taken together, this means property investment tends to be low risk and high reward, with plenty of options for tax write offs.

But there are also opportunities for investing in fixer-upper properties in lower value neighbourhoods for those who don’t have a million dollars laying around.

Your options for loans for investment properties

The flip side of a strong housing market is that the buy-in price is correspondingly higher.

Technically, minimum down payments on a property can vary between 5% and 20%, depending on purchase price. However, if you put less than 20% down, the Canadian Mortgage and Housing Corporation charges a premium for mortgage loan insurance.

For most Canadians, 20% down plus a loan is going to be the way to go if you plan on getting into real estate investment.

The four options for loans for most investment properties are:

1. Traditional bank loans
2. Hard money loans
3. Home equity loans
4. Private money loans

Each type of loan covers a different investment scenario.

Chances are you’re already familiar with traditional bank loans, which are based purely on your credit score and credit history plus income, assets and liabilities. A traditional bank loan means you’ll end up paying either a fixed rate or variable interest mortgage. Check out Money.ca’s mortgage calculator for more information.

Since the other loans tend to favour specific investment scenarios, we’ve broken them out into their own categories below.

Hard money loans

Hard money loans are short-term, high-interest loans designed to help you repair and flip a property in short order.

A hard money loan is determined based on the property’s estimated value after getting fixed up. If a bank thinks the property will sell after repairs, you can get a loan in a matter of days instead of weeks.

Because of the higher risk, hard money loans can also be easier to qualify for, since the property’s resale value is part of the equation. It’s not just about your credit score.

However, you can expect higher interest rates, a short repayment period, plus higher origination and closing costs.

Private money loans

As the name implies, a private money loan is from one private citizen to another.

The most common way to secure a private loan is to ask your family for help. Some parents will loan their children money to help get them into the housing market. These loans are typically backed by a legal contract rather than an agreement with a bank.

If you pursue a private money loan, make sure you trust your investor.

Home equity loans

Home equity loans allow you to borrow money against existing real estate equity (e.g. your home, a cottage, etc.) to invest in a new property.

As you can guess, this is a riskier investment.

Essentially, you’re betting on the investment property working out using existing assets through a home equity line of credit (HELOC) or a cash-out refinance. HELOCs can allow you to put up to 80% of the value of your home towards your investment property. A cash-out refinance extends the mortgage on your home. It can also mean paying more interest.

Again, this is a risky loan investment. If you fail to repay your loan, you could lose your home through foreclosure.

Pro and cons: What to consider before taking out a loan for an investment property

Now that we’re up to speed on the different types of loans available, let’s take a look at real estate investment prospects.

To be clear, real estate is a gamble even if the long term prospects are good. Whenever you invest in anything, you’re making a bet on a given economic marketplace. As we discussed above, some loans are riskier than others.

Even so, there are plenty of benefits to real estate investing.

Pros

• Extra income from renting the property
• Property value appreciation over time
• More tax deductible expenses (e.g. home insurance, property taxes, repairs, etc.)
• Capital gains tax exemptions (e.g. RRSP and TFSA contributions, ownership transfers, capital losses, etc.)

Cons

• Upfront costs
• Real estate is a physical asset and can take time to both sell and close on a deal
• Being a landlord takes time you might not have
• Market volatility can tank your investment and force you to hold for long periods of time until the market rebounds

It also bears mentioning that if you’re planning to be a landlord, you should brush up on landlord and tenant relations.

Conclusion

Finally, we want to touch an old investing adage: Always be prepared to lose on your investment.

When it comes to housing, this is an unlikely prospect. Although you may lose money the chances of your investment being reduced to zero is very low.

For more on real estate, check out Money.ca’s coverage of the most affordable places to live in Canada (which can be idle for those interested in following the 2% rule).

FAQs

Is it hard to get a loan for an investment property?

Getting a loan for an investment property generally requires a deeper financial commitment. Expect high interest rates, stricter credit standards outside of hard money loans and larger down payments.

What is the 2% rule for investment property?

The 2% rule is the idea that you should make 2% of the purchase price of a property back in rent each month to recoup your investment.

Simply put, the 2% rule is unrealistic in most high cost of living real estate markets. This is doubly true in the red hot Canadian real estate landscape.

Say you purchase a single detached home in the Greater Toronto Area for $1,000,000, which is about the average. Using the 2% rule you’d want to be covering $20,000 per month. Finding anyone willing to pay this much for a rental is next to impossible.

But what if you want to try to apply the 2% rule to a down payment instead of the purchase price?

At 20% down that means your initial investment is $200,000. At 2% this turns out to be a monthly minimum of $4,000.

This may sound reasonable at first. However, it doesn’t account for your mortgage situation, the land transfer tax, insurance, property tax and any year-over-year changes or market fluctuations.

As such, the 2% rule is best used, if at all, for an initial assessment informed by a full understanding of the target investment property.

Can I put less than 20% down on an investment property?

There are some situations where you can put less than 20% down on an investment property, but they have limited scope for most investors.

The easiest way to pay less than 20% for a down payment is by moving into the new property yourself. By occupying the property and renting out the extra space you can get a lower rate.

Another option is to make the new property your new primary residence and rent out your previous primary residence.

Sources

1. Cision: More than 1 in 4 Canadians plan to purchase an investment property in the next five years: Royal LePage Report

2. RBC: Proof Point: Canadian renters face higher hurdles to accumulating wealth than homeowners

3. TD Stories: What’s going on with Canada’s housing supply?

4. Government of Canada: How much you need for a down payment

5. CMHC: Mortgage loan insurance and premiums

6. Government of Canada: Landlord and tenant relations

This article [The best types of loans for investment properties in Canada] (https://money.ca/loans/personal-loans/loan-for-investment-property) originally appeared on Money.ca

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Loans aren’t free. You usually pay interest whenever you borrow (unless you get a 0% interest rate credit card), and often there are fees, too.

With a secured loan, you have an additional obligation. To demonstrate to the lender that you’re serious about repaying the money, you have to put up something that you own.

It’s basically a way of saying, "If I don’t pay you back on time, take this thing instead."

How does a secured loan work?

Secured loans include mortgages, auto loans, many personal loans and even some credit cards. The loans all have one thing in common.

The common trait of all secured loans is collateral. It’s the "stuff" that you have to put on the line when you take out these types of loans.

The collateral may be your house or your car. Or, you may have to put up a sum of money to back the loan.

When you secure a loan with property, you’re giving the lender more than just your word that you’ll make good on the debt. By putting an asset at stake, you’re putting more skin in the game and will be seen as a better risk.

This is why you often can get a secured loan even if you’ve got bad credit or are just starting out and don’t have much of a credit history. With a secured loan, the lender is able to reduce the risk they face when giving you a loan.

What is the difference between a secured and unsecured loan?

Many bank loans are unsecured, meaning you don’t have to present any collateral but are given the loan based on your credit scores, your track record with credit and your income.

To land an unsecured loan, you may also need a co-signer: A family member or friend who vouches for you — and agrees to pay the debt if you don’t. (But seriously, it’s best if you don’t ever have to put someone in that position.)

Student loans are unsecured loans. So are most credit cards and personal loans.

Unsecured loans can be harder to get and can come with higher APRs (annual percentage rates) than secured loans.

Another advantage of secured loans is that they often have higher borrowing limits, allowing you to get your hands on more money if you need it.

But unsecured loans don’t carry the risk that you could wind up losing something valuable if you run into financial trouble and are unable to repay the loan.

Common types of secured loans

The most obvious example of a secured loan is a secured personal loan from a bank, a credit union, or an online lender.

Here are a few other types:

• Mortgages. In a mortgage, you borrow money to buy a house. The home then becomes collateral for the loan, and it can go into foreclosure and be taken from you if you default on your mortgage payments.

• Home equity lines of credit (HELOCs). A HELOC is a secondary mortgage that allows you to borrow against the equity you’ve paid into your home. As with mortgages, there’s the risk that you can lose your house if you don’t make your payments.

• Auto loans. When you borrow money to finance the cost of a vehicle, the car is the collateral and can be repossessed if you fail to keep your end of the bargain. Loans for motorcycles, boats and private planes also are secured loans.

• Secured credit cards. People who have poor or nonexistent credit can get one of these cards by putting up a cash deposit as collateral. The card issuer can dip into the deposit if you don’t pay your bill.

• Share Secured Loan. People with weak credit scores can also put up money in their savings account as collateral. These loans are easy to qualify for, though the amount you can borrow against varies from bank to bank.

This article Everything you need to know about secured loans originally appeared on Money.ca

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.