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Mortgage Articles
Making Your Mortgage Tax Deductible
In Canada there is an important difference between deductible interest and non-deductible interest. If you borrow to invest with the intent of earning income, the interest expense on that loan is deductible from your income. Other loans for personal use, for consumption and for your personal mortgage do not yield deductible interest. The problem most people have is that they already have a huge nondeductible debt in the form of their mortgage, and have it in their mind that they should get rid of the mortgage first, and then they can start thinking about building an unregistered investment portfolio. And that is what will doom thousands of Canadians to reaching retirement age without sufficient assets to see them through their retirement. You need to build the investment portfolio as you go to retire comfortable in the future.
To get tax-deductible interest happening we can convert a bad-interest mortgage to a good-interest investment loan. Bad interest is non-deductible (car loans and house loans), and good interest is deductible. Any financial planner will tell you that reducing income tax is one of the most efficient ways that exist in order to improve your personal net worth. That’s because you have to earn $1,000 in order to have $600 to spend if you are at the 40% tax bracket. The interest in the first year on a $200,000 mortgage at 5% (current discounted 5 yr. mortgage rate) is about $10,000, non-deductible. If you made your mortgage tax deductible, you would have a $10,000 tax deduction to claim.
The solution is to change the character of that interest expense from the bad kind to the good kind by converting interest expenses to tax deductions. You do not need to increase your debt to do this. You are already spending the money on your mortgage payment. Get rid of your bad mortgage, build an investment portfolio and get free tax refund cheques, all at the same time. To do this you make 75% of the equity in your home work for you now. An appraisal to establish lending value, a good financial planner and a mortgage lender with a readvanceable mortgage program can be arranged very quickly, and the strategy will immediately be in play. When the free money comes from the tax department in the form of tax refund cheques, apply this found money against the first mortgage to drive it down even faster.
As you re-borrow, you are able to buy more investments. Not only does this process generate the tax refunds, it also builds an investment portfolio that compounds in value over the years, and it is this portfolio that becomes your personal un-registered pension plan.
Consult your financial planner who has the education and the experience to ensure that you implement this strategy properly. He/she will have banking alternatives for you, mortgage and loan advice, investment alternatives for you to consider and tax analysis to apply. You can do it on your own, but will you optimize your opportunity?
Courtesy of,
Charlie Dooley
Mortgage Specialist
Email: ctomdooley@telus.net
www.mortgagecentrebc.ca
Pay Your Mortgage Off Faster & Save Thousands of Dollars
Financial institutions vary in their prepayment privileges, which let you pay down your mortgage faster. By utilizing the power of “compounding in reverse” you can reduce the term of your loan by 3 to 5 years or more, save possible tens of thousands of dollars in interest over the term of your home loan and lower the equivalent interest rate (the real interest expense of the loan).
One way of saving thousands of dollars on your mortgage is by switching your payments from monthly to weekly or bi-weekly payments, often called accelerated payments.
Accelerated mortgage payments have been growing in favor with home owners across Canada and many institutions now offer these prepayment options. The great benefit of more frequent payments is that, if they are done correctly, you can take several years off your mortgage amortization and thus own your home free and clear years ahead of paying on a monthly basis.
How does this work? The key is in how the weekly or biweekly payments are calculated. To accelerate your mortgage payments, you would take the monthly payment amount and divide it by four (weekly payment) or by two (bi-weekly payment). By doing this, you end up reducing your mortgage principal each year by the amount of the monthly payment. For example, if our monthly mortgage payment was $400.00 you would make a total yearly payment of $4,800 ($400 x 12 months). By dividing the $400 by 4 you would have a weekly payment of $100 and thus pay a total yearly amount of $5,200 ($100 x 52 weeks). Similarly, by dividing the $400 by 2, you would have a bi-weekly payment of $200 and again pay a total yearly amount of $5,200 ($200 x 26 bi-weekly pay periods).
You can see from this example that both alternate payment methods result in an additional $400 being applied to your mortgage each year, which comes directly off the principal. These accelerated payments can reduce a 25 year mortgage amortization down to 21 years. That's four years of mortgages saved! Since you pay your mortgage with after tax dollars, think of what youwould have to earn before taxes to see the true impact of the savings.
Another way to shorten your amortizationperiod and save money is bymaking lump sum payments towardsyour mortgage when permitted. This could be by using adouble up feature allowed on your regular payments at certaintimes of the year, mortgage increases, or lump sum reductionson the anniversary date or other permitted datesbased on a percentage of your original mortgage amount. Whatever method you choose you will have the effect of reducing your mortgage amortization and potentially saving yourself thousands of dollars.
As with all financial matters, calculations differ. Be sure to confirm with your mortgage company what options are available to you.
Courtesy of,
Charlie Dooley
Mortgage Specialist
Email: ctomdooley@telus.net
www.mortgagecentrebc.ca
Mortgage for the Self-Employed
A large and growing segment of Canadians are taking advantage of flexible or unconventional employment opportunities. In fact, the self-employed now represent close to 16% of the country’s workforce. Today’s generation of contractors, freelancers, consultants, commission sales professionals and small business owners have come to value independence in their day-to- day work. Now, that entrepreneurship is no longer penalized when it comes to mortgage financing.
For many it was an embarrassingly familiar story. They enjoyed a successful professional life, but when they applied for a mortgage, they found themselves on the defensive – trying to prove to a lender that they actually earned enough income to service the mortgage they wanted, with many turned down because their income just didn’t measure up. Hard to believe, but true. If you work independently or own a business yourself, then you know that it pays to keep your taxable income as low as possible. That makes you a smart business person. But the story can change when you try to get a mortgage. Your income – at least on paper – may not support the mortgage payments, and you could be penalized for smart income management.
For Canadian homebuyers stuck on the income obstacle, the latest mortgage news on the street will come as a delightful shock. The newest mortgage does the unthinkable: it doesn’t require you to show your income records. In fact, there is no income declaration, no Notice of Assessment, and no confirmation of business ownership. It doesn’t even include your income as a factor in qualifying you for your mortgage.
“It can’t be true”, you’re thinking, or there must be some hitch. In fact, it’s both good sense and good business. Innovative lenders had already begun to recognize that your T4 may not tell the whole story, as a myriad of statedincome mortgages have been launched over the last few years. But this concept of not including any income figure at all is an idea that’s long overdue.
So how does the lender assess whether you’re a good credit risk? They look at your credit history. If you have consistently paid your bills and your loans then you’ve demonstrated the kind of financial responsibility that suggests you can manage your mortgage. You’ve taken on debt that you said you could manage, and you’ve kept your word with your lenders. That’s the record your mortgage lender will rely on, although they will also verify your employment and assess the loan amount based on your field of work. The new mortgage option may be the best news for entrepreneurs this year. Now, they can get a quick and easy mortgage.
As A mortgage professional, I’m pleased to see that lenders have noticed that the traditional lending criteria was leaving many Canadians out in the cold. And I’m absolutely delighted that the most innovative lenders have begun to address some of these gaps with some great new options.
With this latest mortgage option, entrepreneurship and prudent income management are no longer a liability when it’s time to buy a home. It’s an exciting time to be buying a home – with more options than ever before. Start enjoying your new home today!
Courtesy of,
Mark Fidgett
Your Mortgage Consultant For Life
Mortgage Intelligence
604.273.2002