Category Archives: FINANCE AND MORTGAGE INFORMATION

Finance and Mortgage Information

The Money Dilemma: RRSP vs. TFSA

TFSA vs RRSP debate

TFSA vs RRSP debate

The Money Dilemma: TFSA vs RRSP

Being only a few months away from the RRSP season, I ask myself where I should be putting my money. I recently sat down with Ron Halabi, who is my Certified Financial Planning professional, Ron explained to me that this question tends to pop up every year during this season. There is still a great deal of confusion as to the benefits of each product and how each one can be used to maximize savings. So, here’s the dilemma: Where should my money go?

As a rule of thumb, if you believe your income in retirement will be higher than it is today, then you should consider a Tax-Free Savings Account (TFSA) as your primary source for savings. If you anticipate that your income will be the same or less than it is today, then a Registered Retirement Savings Plan (RRSP) may be your best option. Why? Allow me to explain. When you contribute money into an RRSP, you reduce your current year’s earned income by the amount deposited. The result is a reduction in your income tax due, and can result in a refund. The benefit at retirement is that if your income is less than your income today, the amount you receive from your RRSP/RRIF will be taxed at a lower rate and therefore you keep more of your money!!! If your income is greater than it is today, then you lose the tax savings benefits because you will be taxed at a higher rate in the future and will therefore pay more in taxes and have less money than you would today. Who wants to pay more taxes in retirement, right?

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Larger Down Payment – What are the Benefits?

To obtain a conventional mortgage, buyers are required to put down at least 20% of mortgage price. Larger down payments save you money.

To obtain a conventional mortgage, buyers are required to put down at least 20% of mortgage price. Larger down payments save you money.

The size of a down payment can vary. Depending on the type of mortgage, down payments generally range from 5% to 20% of the purchase price.

To obtain a conventional mortgage, home buyers are required to put down at least 20% of the purchase price or appraised value (whichever is less) as a down payment. If you don’t have the necessary time or resources to save a full 20% down payment, you can choose a high-ratio mortgage and buy a home with a down payment of as little as 5%. This option is called a high-ratio mortgage and it requires you to purchase default insurance.

Whether you choose a conventional or a high-ratio mortgage, one thing is almost always certain: larger down payments saves you more money in the long run.

Keep in mind that a larger down payment:

1. Reduces the amount of your monthly principal and interest payment
2. Reduces the total amount of interest you pay over the life of your mortgage

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Can I start looking for a home if i’m Pre-Qualified?

Pre-Approved or Pre-Qualified - What's the difference?

Pre-Approved or Pre-Qualified – What’s the difference?

Without good preparation, many buyers get sucked into the mistaken notion that if a lender pre-qualifies them for a mortgage this means that they have been pre-approved for a home loan. Unfortunately, there’s a world of difference between pre-Approved or pre-qualified. If you’ve ever been confused by the two, I will bring you up to speed on how these terms differ.

Getting pre-qualified is the initial step in the mortgage process, and it’s fairly simple. You supply a bank or lender with your overall financial picture, including your debt, income and assets. After evaluating this information, a lender can give you an idea of the mortgage amount for which you qualify. Pre-qualification can be done over the phone or on the internet, and there is usually no cost involved. Loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home.

The initial pre-qualification step allows you to discuss any goals or needs you may have regarding your mortgage with your lender. At this point, a lender can explain your various mortgage options and recommend the type that might be best suited to your situation. Because it’s a quick procedure, and based only on the information you provide to the lender, your pre-qualified amount is not a sure thing; it’s just the amount for which you might expect to be approved. For this reason, a pre-qualified buyer doesn’t carry the same weight as a pre-approved buyer who has been more thoroughly investigated.

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Do you prefer a 5 or 10 Year Mortgage Term?

How to choose the best mortgage term and rate for your financial future

How to choose the best mortgage term and rate for your financial future

For the past 20 years mortgage rates have been falling and as a consequence, it has always been more advantageous to go with a variable rate mortgage. However, with rates at historic lows and expected to rise in the future the ground rules have changed. Mortgage debates are no longer focusing on whether to consider a fixed or variable mortgage but how long to lock in for. Five year rates are offered for as low as 2.79% versus the 10 year which are offered as low as 3.79%.

Unless you are planning on being mortgage free within the next 10 years it’s pretty much a no-brainer. With rates set to head substantially higher within the next 5 years, locking in the best fixed rate mortgage for 10 years may be a prudent thing to do as long as the mortgage is transferable and assumable.

Transferrable means if you move to another property you can transfer that same 10 year mortgage to the new property. Assumable means the mortgage can be assumed by the new buyer of your house if you no longer need the mortgage. Therefore if rates are higher at the time of sale of your house, you can offer it to the buyer to assume which would give you a huge marketing advantage over other houses on the market.

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Mortgage Options for a Second Home Such as a Cottage

Financing options are different for second homes shrinking the pool of options you can afford

Financing options are different for second homes shrinking the pool of options you can afford

Here is an interesting article that was written by Susan Smith of the National Post. It outlines the pitfalls when it comes to mortgage financing for cottages. A very interesting read for those interested in the acquisition of cottage properties.

No furnace? No foundation? When it comes to buying a cottage, that could mean no financing.

City dwellers are beginning to think of ducks and docks as a respite from concrete and congestion. But unless you have the cash on hand, it’s important to understand mortgage options before you start looking for your slice of paradise.

“We like to make sure clients are fully educated so they’re not wasting their time,” says Jeremy Ridley, a Barrie, Ont.-based senior residential mortgage specialist at RBC Royal Bank. “Also that they don’t fall in love with a property that can’t be mortgaged within their means.” Preapproval is especially important, he adds, because of huge variances in location and the types of properties that are available.

RBC divides the cottage world into two categories that define financing options. “Vacation A” properties are those with permanent foundations (installed below the frost line), year-round access, a permanent heat source and potable water, whether it be from municipal services, a well or treated lake water. These properties are zoned residential and are for personal use.

“Basically, what insurers and banks want to know is that that house can sustain itself if no one is around for weeks or months at a time,” Mr. Ridley says. “In the winter, you can leave the water on and set the heat at 15 degrees. Also, because it has a permanent foundation, you’re not going to have every animal and the dog going to live under the house.” Maintained roads are also important so the property can be accessed year-round.

Qualifying for a Vacation A is similar to qualifying for a principle residence, he says. This is true even though CMHC, which provides mortgage default insurance for home buyers who put down less than 20%, no longer insures second homes. Buyers won’t notice the difference for Vacation A properties because the two big private mortgage insurers — Genworth Canada and Canada Guaranty — continue to provide the insurance.
Instead of using CMHC for approvals, Mr. Ridley says, “we’ll toggle over to the other two, so I think it’s going to be business as usual.”

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Top Strategies for Paying Off Your Mortgage Early

For a lot of people, their mortgage is their biggest monthly expense. How's how pay it off faster.

For a lot of people, their mortgage is their biggest monthly expense. How’s how pay it off faster.

A mortgage is one of the largest expenses a consumer will ever take on in their lives. That monthly payment eats a very large part of most people’s monthly budget. Imagine the options that would open up to you if that payment disappeared. You can use strategies to accelerate your mortgage payments for paying off your mortgage early. Most financially successful people have figured this out and do everything they can to destroy this expense. This is non-deductible debt, the type of debt we all need to reduce and eliminate if we want long-term financial success.

Below is a list of mortgage reduction strategies tips you can use to help remove that mortgage at a reasonable pace.

1). Never get an open mortgage at a fixed rate unless you plan on paying it off within its term.
Today’s closed mortgages generally offer 10-20% prepayment privileges, and can be obtained at a much lower rate. Open mortgages at fixed rates carry higher interest. Why pay higher interest unless you are going to exceed this 10-20% prepayment? You can always make bigger lump sum payments at renewal time with no penalty.

2). Use accelerated weekly, or bi-weekly payments.
Accelerated weekly payments are equivalent to ¼ of your monthly payment. Accelerated bi-weekly payments are equivalent to ½ your monthly payment. Both of these methods enable you to make one extra monthly payment a year – the effect of this alone reduces your amortization from 25 to less than 21 years.

3). Give your mortgage the same raise as you get each year.
If your income goes up 10%, so should your mortgage payment. This extra increase in payment will go directly towards principal repayment.

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Do Reverse Mortgages Benefit Retirees?

Seeking a lump sum loan after retirement? Is a reverse mortgage right for you?

Seeking a lump sum loan after retirement? Is a reverse mortgage right for you?

A reverse mortgage is a loan that is designed for homeowners 55 years of age and older. A reverse mortgage is secured by the equity in the home, which is the portion of the home’s value that is debt-free. It allows homeowners to obtain cash, without having to sell their home. Not all lenders offer reverse mortgages.

Unlike an ordinary mortgage, you don’t have to make any regular or lump sum payments on a reverse mortgage. Instead, the interest on your reverse mortgage accumulates, and the equity that you have in your home decreases with time. If you sell your house or your home is no longer your principal residence, you must repay the loan and any interest that has accumulated.

The loan amount can be up to 50 percent of the current value of your house. However, you must pay off any outstanding loans that are secured by your home with the funds you receive from your reverse mortgage. A breakdown of whether reverse mortgages benefit retirees:

Advantages

• You don’t have to make any regular payments on the loan.
• You can turn some of the value of your home into cash, without having to sell it.
• The money you borrow is a tax-free source of income.
• This income does not affect the Old-Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits you may be receiving.
• You maintain ownership of your home.
• You can decide how you want to receive the money. You can choose to receive:
– a lump-sum payment
– a loan to set up planned advances that provide you with a regular income, or
– a combination of these options.

Disadvantages

• Reverse mortgages are subject to higher interest rates than most other types of mortgages.
• The equity you hold in your home will decrease as the interest on your reverse mortgage accumulates over the years.
• At your death, your estate will have to repay the loan and interest in full within a limited time. The time required to settle an estate can often exceed the time allowed to repay a reverse mortgage. For full details, check with the reverse mortgage lender.
• Since the principal and interest will be repaid to the lender at your death, there will be less money in your estate to leave to your children or other heirs.
• The costs associated with a reverse mortgage are usually quite high. They can include:
– a higher interest rate than for a traditional mortgage or line of credit
– a home appraisal fee, application fee or closing fee
– a repayment penalty for selling your house or moving out within three years of obtaining a
reverse mortgage
-fees for independent legal advice.

The Canadian Home Income Plan (CHIP), which is offered by HomEquity Bank, is the main source of most reverse mortgage products that are available in Canada. You can also speak to your financial institution about other options that may meet your needs.

To determine whether you qualify for a reverse mortgage, a lender will look at the equity you have in your home. Lenders also take into account your age, the appraised value of your home, current interest rates and where you live. Usually, the older you are, the larger the loan you will be able to get.

How much do you need for a downpayment on a home?

Learn what percentage of the purchase price you need to pay in a down payment in both a conventional and high ratio mortgage

Learn what percentage of the purchase price you need to pay in a down payment in both a conventional and high ratio mortgage

How much do you need for a downpayment on a home? The is perhaps the most frequently asked question by many prospective buyers. It is possible to buy a home with 5% down, the amount of your down payment will determine whether you’ll have a conventional mortgage or an insured, high-ratio mortgage. What’s the difference? A Conventional mortgage means that your down payment is at least 20% of the purchase price. A High-ratio mortgage means your down payment is less than 20% of the purchase price.

I have been approached by a lot of buyers that ask me this question all the time. While this is not a difficult question to answer, the most direct and honest answer is “it all depends on you.” You have a few options with respect to the amount of money you put down.

High ratio mortgages must be insured by a third party such as the Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada or Canada Guaranty and require you to pay an insurance premium.

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How to Improve Your Credit Score

Your credit score is a measure of your ability to borrow money and pay it back on time - here is how to improve it to qualify for better interest rates and financial opportunities.

Your credit score is a measure of your ability to borrow money and pay it back on time – here is how to improve it to qualify for better interest rates and financial opportunities.

Renting a house and credit checks. How does this topic pertain to you? Did you know that when you borrow money and pay it back you are building credit history? That’s exactly what happens. A credit report will outline information about how you use your credit card and when you make payments. It will also include information on where you live and work as well. Credit bureaus such as Trans Union and Equifax maintain your file and track all of your credit history. When you need a credit report for yourself, these two companies will provide it to you at a cost.

Up until this point, all of my blog posts have dealt mostly with the sale and purchase of homes. I have not written any articles on rentals, especially on how they relate to credit checks of prospective tenants. With that being said, the city of Mississauga is home to a lot of renters. From time to time, I get approached by a lot of renters that are struggling with finding rental units because their credit scores are very low. And for this reason, I would like to shed some light on some reasons as to why credit scores are low and how to better improve those scores.

So then what is a credit score. Simply put, it’s a number that creditors use to assess your credit worthiness. Each time you show good credit use, you get positive points. If you show poor credit use then points are taken off. Therefore, your credit score is the total of both the positive and negative points.

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Buying a Home – How Much Can You Afford?

Can you afford to balance the financial demands of home ownership with living expenses and retirement planning?

Can you afford to balance the financial demands of home ownership with living expenses and retirement planning?

Can you afford a home? I can bet you that a lot of people ask themselves this question over and over again. There are only two answers to this is question. It’s either a “yes” or a “no.” Let’s examine this question a bit more closer.

Throughout life we all have to make decisions. Whether its personal or professional, we find ourselves making decisions on a daily basis. For example, deciding what to make for dinner is something that is very simple. It’s a decision that is usually made on the spot and requires little to no thought. On the other hand, the decision to purchase a home can become a complicated decision and requires a significant amount of thought and planning. You have to carefully assess where you want to move and how much you are willing to spend. You have to consult with a mortgage broker and determine how much you can afford while factoring in all of your monthly and yearly expenditures. That requires a lot of work…doesn’t it?

Recently, I came across an article written by Rob Carrick of the Toronto Star. The article is titled “Can this young Toronto family really afford a house?” This is perhaps one of the most interesting articles I’ve read in some time. Carrick uses a Toronto couple as an example and carefully utilizes the information that they have given to him so as to make an informed decision as to whether or not they can afford to purchase a home.

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