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Thursday, July 25, 2013

Letting your savings work for you...




Let’s face it. You’ve worked hard and saved when and where you could. To most Canadians, this is a part of everyday life. Well now finally, let some of the money you have worked for do some work for you.

In 1992, the Canadian Customs and Revenue Agency (CCRA) introduced the Home Buyers’ Plan (HBP). The HBP plan allows for Canadian consumers to withdraw up to $20,000 from their RRSP, to use in assistance of purchasing their first home. In the case of a couple if they are both eligible, the number is doubled up to a total of $40,000.

Most people use this RRSP withdrawal to add to any down payment they have already amassed to put down against the purchase price of their home, to either lower the amount of mortgage they will require, or increase the amount of the mortgage they can carry.

Sound too good to be true? Not exactly.

Any amount that you may have deducted must be repaid back into your RRSP account in annual payments. You have 15 years to repay this amount, or if you don’t it will be added to your taxable income for the year and you will be taxed accordingly.

By using these funds, if you have them invested in RRSPs, you get the money working for you in a tax free and efficient way. What happens if you don’t have any RRSPs? The following strategy may be right for you. If you have the room under your RRSP cap, you can borrow funds from your bank and purchase RRSPs to later contribute to your down payment. Not only are you helping yourself today, but building a nest egg for your future.

To find out if you have room under your RRSP cap to contribute look in your Notice Of Assessment (NOA). The government will give you a figure, which is usually a percentage of your reported income annually. If you haven’t used the RRSP for that year, either partially or in full, the balance gets carried forward and added to the next year’s total. If you don’t keep your NOA’s, you can get your latest one by calling the CCRA at 1-800-959-8281.

A couple of words of caution: plan early. If you think that this may make sense for you and your financial position, take the steps you need to commence and start today. In an interest rate environment such as the one we face today, where rates are on the rise, make your decisions early. It could save you hundreds if not thousands of dollars.

Keep in mind, an RRSP is an investment into your future, so in case you can’t afford to pay your mortgage or have no income for a while and are forced to sell your home, you may lose your down payment, along with it your future savings.


For more information contact your Toronto Mortgage Broker at 416-920-9931

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Thursday, July 18, 2013

Skipped Payments - Not a Solution



Unless it’s absolutely necessary or you have no other choice, don’t skip a mortgage payment, because it’s just too expensive.  Most lending institutions allow customers to skip a payment if a certain amount has been pre-paid, either through an off-on agreement or on a match-one-miss-one basis. 

But is it worth it?

Don’t be fooled, missing a payment doesn’t mean paying the same amount next time.  Be aware that the unpaid interest is capitalized (added to the outstanding principal).  The longer it takes you, the more you owe.  Furthermore, mortgage interest is a non-deductible expense paid with after tax dollars.  A skipped payment may be paid at anytime and at no cost, but it may be difficult to do if the original reason for skipping was out of economic necessity.  Try and work out some other arrangement before considering skipping a payment. 

Keep in mind that your interest cost will increase for every day you don’t pay.  Therefore, it’s advisable to first consult your banker to work out the interest costs, and see if alternatives exist, such as reestablishing normal monthly payments if you are currently making accelerated weekly or biweekly payments.

In a perfect world, the best mortgage is no mortgage.  Nonetheless, your goal should be to pay your mortgage as quickly and painlessly as possible.  Two such solutions are to switch from monthly to more frequent payments, and to shorten your amortization.  Setting an objective to be mortgage free will allow you to see how long the amortization should be, and if you can handle the payments. 


Taking a vacation from mortgage payments is definitely not the way to go, even if it sounds good.  Keep in mind that always in life if something sounds too good to be true, then it probably is.

For more information contact your Toronto Mortgage Broker at 416-920-9931

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Thursday, July 11, 2013

Why get a pre-approval?



For most Canadians, mortgages are a fact of everyday life – if you are in the home buying stage you’ll most likely require a mortgage.

Making the decision to buy a home is a big life event, probably the most significant in your life. Buying a home is as much an emotional investment as a financial one – having a place of your own may evoke feelings of self-esteem, security, and excitement, also bringing new responsibilities.

I understand that, as exciting as this journey may be, it can also be a little frustrating and intimidating for you.

A big part of buying a home is finding the right mortgage product that you can truly live with. This is why it pays to talk to a mortgage professional: they can provide innovative mortgage products that can be tailored to your own financial situation, giving you the flexibility to enjoy your new life and your new home.


Pre-qualifying

Before you begin your search for that dream home, GET PRE-QUALIFIED for a mortgage.

Supported by your current financial situation and a satisfactory credit review, a pre-qualified mortgage will tell you the amount you can borrow, the interest rate and how much your monthly payments will be.

Having this information available to you along with your down payment enables you to shop more effectively within your comfort zone and knowing that financing may be available (usually subject to a property appraisal).

Knowing your financial limits, you are ready to purchase your home right now and it can also assist you in negotiating a better price for your home.

When you have been pre-qualified for your mortgage, the interest rate and payments are guaranteed for up to 120 days from the date you receive the pre-qualification.


Should mortgage rates go up during that time, the lower guaranteed rate will apply and if rates go down during that time, than the lowest rate up to the date of funds are received apply. This feature of pre-qualifying you gives the protection from interest rate fluctuations. 

For more information contact your Toronto Mortgage Broker at 416-920-9931

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Thursday, July 4, 2013

What every home owner should know about Refinancing…




What every home owner should know about Refinancing…

Surrounded by a sea of Refinancing confusion!



There are probably many “lifesaving” tips people have thrown you to help determine the right time to refinance your home. You may have heard that the interest rate on the new loan must be at least two percent less than the old loan, or it is not a good decision. Another frequently quoted, but just as frequently incorrect statement, is that if your loan is less than two years old, your shouldn’t refinance it now.

Neither one of these statements is entirely correct, and it can be extremely difficult to receive unbiased and accurate information about the refinancing decision and process. It is our desire to offer you a clear, concise guide to help you get rescued from that sea of refinancing confusion.

When should I refinance my home mortgage?

Put very simply, the decision to refinance a home should be based on whether you will own the property long enough to recapture the expense connected with the new loan and the overall effect lower payments will have on your household budget. The way to figure this can be as easy as subtracting the proposed new overall payments from the existing overall payments to find out what the monthly saving will be. Then, divide the monthly saving into the cost of refinancing to determine how many months it will take to recapture that cost.

There are some situations in which a refinancing decision should invariably be made. If you are able to negotiate a “no-cost” mortgage (you pay no penalty or closing costs), and if the new mortgage rate is lower than your existing rate, than refinancing your loan would certainly be of financial benefit to you.

If the remaining mortgage balance, including penalty and closing costs, can be refinanced at a reduced monthly payment, and still be paid off within your existing mortgage payment term, then refinancing would be highly advisable. If you need extra cash for a home equity or auto loan, and the mortgage rate is lower than alternative loan rates, then refinancing is probably the best choice.

Lastly, you can generally count on it being time to refinance when your new mortgage rate is at least one to two points lower than your existing rate, and you plan on staying in your home for at least three to five years.


What Refinancing Myths Do I Need to Watch Out For?

1.  Blending your existing rate with your current lender!

This is the most common technique all lenders will try on you. They hope you do not know how to compare what this means and that you will not shop around. HUGE MISTAKE! Sometimes blending is in your favor, and if it is, we will tell you that. However, more often than not, it is not in your favor, and a new mortgage rate will save you thousands of dollars in interest costs!

2.  One widespread myth that needs to be dispelled is the idea that lowered monthly payments are the financial yardsticks that wise financing is measured by. Monthly payments are only comparable if they are based on the same loan duration! In fact, lowered monthly payments are can be achieved even at a higher mortgage rate, if the new mortgage has a longer term than the remaining years of the old mortgage.

3.  Another common misconception about refinancing is that if the new rate is not at least two points lower than your existing mortgage rate, then refinancing is not worth the time and trouble. In many cases, especially if you are planning to stay in your home at least three to five years, even a one-point reduction can make an enormous difference in your overall home mortgage cost. In addition, with the constant technological advances in the mortgage industry, obtaining a mortgage loan r refinance is now faster and easier than ever before.

What Exactly Do I Need To Consider About Refinancing My Home?

To accurately sum up your refinancing decision, you need to thoroughly consider the following six factors:
  1. The amount of reduction in the mortgage interest rate.
  2. The amount of reduction in the monthly payment.
  3. Any prepayment penalties on the old mortgage.
  4. The amount of closing costs, including any appraisal of CMHC costs, legal fees, etc.
  5. The number of years you plan on retaining your home.
  6. The effect on your cash flow overall lower payments could make.


What Will Actually Be Involved When I Refinance My Home Mortgage?

When you refinance, the proceeds from your new mortgage loan are used to pay off your old mortgage, bank loans, credit cards or new money for renovations or any other worthwhile purpose. Even if you use the same lender this is true. You are not simply re-negotiating the terms of the old mortgage, such as reducing the interest rate.

You need to expect that your home will have to be appraised again, and possibly inspected. Your credit history and overall financial picture will be reviewed again to make sure you qualify.

Of course money doesn’t grow on trees, but if it is truly the right time for you to refinance, then with they money you will be saving after twelve to eighteen months, you should begin to feel like your money trees are in full bloom!

For more information contact your Toronto Mortgage Broker at 416-920-9931

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