4 May

Is Your Mortgage Pre-Approval Really a Pre-Approval?

Mortgage Tips

Posted by: Garth Chapman

It is important to understand the difference between a fully underwritten ‘Pre-approval’ and one that is truly only a ‘Rate Hold’.

  • A basic Pre-approval that is not underwritten, and that often does not even include a requirement for all the documents that will be needed to underwrite an actual purchase.
    • What you have is a piece of paper that does nothing much more than hold a rate for you, which is only of any value to the borrower if that borrower actually does end up meeting the qualification criteria for a mortgage on an accepted offer to purchase.
    • If you don’t qualify, you will have wasted much time and effort, and also that of your Realtor and the Sellers Realtor, and…well you get my point.
  • A proper fully underwritten Pre-approval where the borrower submits all the documents that will be later required, and the file is then underwritten by a mortgage lender (not many will do that because such a low percentage (around 15%) of Pre-approvals actually become a purchase.
    • Properly done, this gives the borrower a clear path to making a purchase knowing there will be no surprises on the financing element of the purchase.

At Jencor, we will:

  • Collect from you all the documents that will ultimately be required so there will be no surprises later on.
  • Our  professional Underwriting Team will fully review and underwrite your complete file.
  • We will also submit your file to at least one Mortgage Lender that will also underwrite your file and will issue a Pre-approval.
  • That Pre-approval will also include a rate hold that will protect you from any potential rate increases during the 90 or 120 days that the Pre-approval runs for.
  • All of which means that your Pre-approval will be worth well more than the piece of paper it is written on.

So now when your Banker or Mortgage Broker says you are Pre-approved, you now know what to ask them about to know what you truly have.  And you also will know what to tell your Realtor what you have.

4 May

WONDERING WHAT YOU SHOULD BE DOING WITH YOUR MORTGAGE IN TODAY’S MARKET?

Mortgage Help

Posted by: Garth Chapman

EXISTING VARIABLE RATE BORROWERS

  • Sit tight – your rate likely includes a large discount to the Prime rate.
  • Banks & Mortgage Lenders have dropped their Prime Rate to 2.45%.
  • If you are considering converting to a fixed rate (aka ‘locking in’), enjoy your newfound savings for a while fixed rates settle down, which they have been doing.
  • Contact me to learn how to create some simple rules so you will lock in at the right time.

NEW/RENEWING BORROWERS

  • Ensure flexibility when selecting your mortgage product.
  • Variable rates can be converted (locked in) to Fixed at any time, and the Variable product comes with the smallest penalties for early payout, being 3-months interest as mandated by federal regulations.
  • Conversion rates (from Variable to Fixed are not always the best rates in the market, so expect to pay a bit of a premium when you convert (lock in).
  • Do the Math with your Mortgage Broker: compare costs of shorter-term fixed rates to 5-year fixed rates with penalties included (the results may surprise you).

EXISTING FIXED-RATE BORROWERS

  • The 5-year Government of Canada Bond yield is at an all-time low, currently just under 0.40%. This bond yield is a major factor normally in pricing 5-year mortgage loans for Canadians.
  • Fixed rates moved higher in early April as liquidity tightened up for the banks and began slowly dropping by mid-April.
  • We are now in early May they are still dropping and may have a bit of room to go lower yet, although we are very close now to the very low rates of early March before the world was turned upside down.
  • Rate competition typically intensifies during the spring real estate market, which may well be delayed into summer this year.

STRETCHED BORROWERS

  • Cash-flow may be your most important imperative to get you through this.
  • Refinance if it improves your cash-flow or if it reduces your risks.
  • Don’t wait until it’s really raining hard to reach for your umbrella – it will be harder to borrower as we get further into this economic down-turn than it is now.
27 Mar

The Fixed vs Variable Interest Rate Decision

Buying & Refinancing a Home

Posted by: Garth Chapman

Fixed Vs Variable – How to decide…which way to go?

The choice between Fixed and Variable interest rate is one that many borrowers ask about.

This is a very common question and you are not alone. First, let’s help you to understand the differences between the two types of mortgages.   A Variable Rate Mortgage is where the interest rate charged and your monthly payment will normally change when there is any change to prime rate.  The prime rate can change up to 8 times per year.  A Fixed Rate Mortgage is where neither your payment or the interest rate will change at all during the term of your mortgage.

Both fixed and variable mortgages have their own advantages and disadvantages.

Advantages of a Variable Rate Mortgage:

  • When rates go down you benefit from that immediately and will see your payment drop – this means more towards the principal and less interest so your mortgage is paid off faster!
  • Historically variable mortgages have been significantly lower in rate than fixed mortgages
  • Variable rates offer you the freedom to convert at any time to a fixed rate mortgages especially when you see rates rising.

Advantages of a Fixed Rate Mortgage:

  • The fixed rate offers the security of locking in your rate
  • You may prefer peace of mind – the same mortgage payment every month with a guarantee not to change for the term
  • You will know exactly how much principle and interest you are paying with each payment.

There are at least three key elements to be considered when making this decision.

1) The fixed rate premium is the cost of taking the security of a (higher) fixed rate over a (currently lower) Variable rate. The fixed rate is always somewhat higher than the Variable rate.  Think of that rate premium as you would an insurance premium.  You pay the higher rate for the security of that rate not changing during the current term of the mortgage.

The spread does move around, and when it is less than 0.80% it is generally considered to be a ‘good buy’.  In May of 2012 we saw that spread drop to an all-time low, so low that we converted four existing mortgages from Variable to Fixed.  At that time Variable rates were at about Prime – 0.30% which translated to 2.70% and the lowest fixed rates for a 5-year term was 2.79% making the spread under 0.10%.  The spread between Fixed and Variable have remained below the norm from mid-2012 through to mid-2017, when it began increasing along with both Fixed and Variable mortgage rates.  In April of 2017 we converted 4 more mortgages to 5-year fixed rates because we believed fixed rate increases were upon us, and that the Prime Rate would also be increasing.

So on the financial side of this choice you can determine the cost of the rate premium in dollars per month or year, or during the term.  Then decide if the cost of that premium is worth paying.

2) Increased payment risk tolerance is about how well you are able to handle an increase in mortgage payments, which would be created by an interest rate hike following a Prime Rate increase).  I break this risk tolerance down into two components.

Financial risk tolerance is about your financial capacity to absorb an increase in mortgage payments.  This is something you can assess by reviewing your monthly budget. Less tolerance may point you to a Fixed rate mortgage.

Emotional risk tolerance is about how you sleep at night, and by that I mean do you worry about interest rates and your payment going up, and does your level of worry create any stress in your life?  If it does, then you may be more emotionally suited to a Fixed rate mortgage.

3) Qualifying Rate vs Actual rate of the mortgage contemplated.

You must qualify at the much higher Bank of Canada Benchmark rate when taking a Variable Rate mortgage, so that is something to confirm early on that will fit your qualifying criteria.

Understanding what drives Variable rates and Fixed rates

Your Variable Mortgage Rates are driven by your bank’s Prime Rate which is set individually by each Bank.  They normally (but not always) move in sync with changes in the Overnight Rate, which is set by the Bank of Canada (BoC) and is used as a basis for one-day (or “overnight”) borrowing between the major lenders and financial institutions.  The BoC is responsible for monetary policy, the goal of which is to keep inflation near the mid-point of a 1 to 3 per cent target range, ideally 2%.  The BoC is equally concerned with significant movements in the inflation rate, both above the 2% mid-point and below it.  When demand is strong, it can push the economy against the limits of its capacity to produce.  This tends to raise inflation above the midpoint, so the BoC will raise interest rates to cool off the economy.  When demand is weak, inflationary pressures are likely to ease.  The BoC will then lower interest rates to stimulate the economy and absorb economic slack.

So when the economy heats up and there is a threat that inflation could get beyond the 1 to 3 per cent target the BoC may increase the overnight rate, which drives the Prime Rate. The schedule of dates when the BoC reviews and sets the Overnight Rate is found here http://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/

Fixed Mortgage Rates are driven by the Bond markets

Typically, when bond rates (also known as the bond yield) go up, interest rates go up as well. And vice versa. Don’t confuse this with bond prices, which have an inverse relationship with interest rates.

Investors turn to bonds as a safe investment when the economic outlook is poor. When purchases of bonds increase, the associated yield falls, and so do mortgage rates. But when the economy is expected to do well, investors jump into stocks, forcing bond prices lower and pushing the yield (and mortgage rates) higher.

The spread between 5-year Government of Canada Bonds and 5-year mortgage rates varies within a range that has fluctuated in recent years.  You can follow the 5-year Bond Yield in Canada on the BoC website and you will notice that a period of Bond yield increases or drops will almost always be followed by a corresponding change in fixed rates for mortgages.

If I choose a Variable rate and I want to be able to convert that to a Fixed rate, how will I know when it is time to convert to a fixed rate?

Bond Yields and the Prime Rate don’t move in lock-step, so if you choose a Variable rate then you will need a mechanism or methodology to decide when it is time to convert that Variable rate to a Fixed rate. Without one you will more than likely end up making the switch long after you would like to have done so, and you will pay more. that is because we tend to make such financial decisions when laden with emotions such as fear, and we either panic and move too soon or we freeze and don’t act soon enough or at all.

So to manage that decision I strongly recommend that (to use a stock trading term) you set two ‘stop-loss’ orders to act as your trigger points to make the change to Fixed rate. One is your Variable trigger, that being when the Prime Rate reaches ‘x’%. The other is your Fixed trigger, that being when the 5-year (or any other term) reaches ‘y’%. Using those two management mechanisms will ensure you don’t miss the boat.

If you want to be even more sophisticated about this, you could review the Stop-loss rates annually, remembering that as time goes by without significant change in the Prime Rate you will have built up a nice buffer against the cost of an increase during the term of the mortgage.

You can follow what the best market rates are here http://garthchapman.ca/

The schedule of dates when the BoC reviews and sets the Overnight Rate is found here http://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/

For more on the subject read the Fixed or Variable Rate Mortgage? The Decision Checklist post by RateSpy.com

I hope this gives you some clarity on this complex subject, and on how to make and then manage your own interest rate decision.

2 Jul

What Rate Will I Get with Today’s Mortgage Categories?

Buying & Refinancing a Home

Posted by: Garth Chapman

Once upon a time it was fairly easy to answer the question “what rate will I qualify for?”  Back then higher down-payments resulted in lower interest rates on your mortgage.  Now neither of those are the case.

Once upon a time you either had a high ratio or a conventional mortgage.

Now you will have an insured, or insurable or uninsurable mortgage.  The reference to insurance is what most people understand as a high ratio mortgage insured by CMHC, Genworth or Canada Guaranty.

Once Upon a Time:

  • High ratio mortgage – down payment less than 20%, with insurance (aka CMHC fees) paid by the borrower.
  • Conventional mortgage – down payment of 20% or more, and the lender had a choice whether to insure the mortgage or not at their own expense.

Now it is more complicated:

  • Insured – Most often a down-payment or refinance equity below 20%. A mortgage transaction where the insurance premium is or has been paid by the borrower, which often means a high ratio mortgage.
    • Interest rates are the lowest in the range.
  • Insurable – Fits all the same guidelines as an insured mortgage but the borrower has more than 20% for a down payment.  A mortgage transaction that is often portfolio-insured at the lender’s expense.  Property must be valued at less than $1MM that fits insurer rules and is qualified at the Bank of Canada benchmark rate over 25 years with a down payment of at least 20%.  Property cannot be a Rental.  The loan-to-value and your FICO (credit) score will determine what rate you qualify for.
    • Interest rates are slightly lightly higher than insured rates.
  • Uninsurable – All mortgages that can’t be insured.  Examples include refinances, single unit rentals (rentals between 2-4 units are insurable), purchases and transfers for properties with valued at over $1MM, equity take-out’s greater than $200,000, amortizations greater than 25 years.
    • Interest rates are at the higher end of the range, and are determined based on loan-to-value (LTV) %.

What does this mean when it comes to shopping for best rates and terms when your mortgage matures and you have the opportunity to move it to another lender?

  • If your mortgage was originally insured (borrower paid insurance), we can get insured rates.
  • If your mortgage was originally back-end insured (basically the same as being conventional) we can get insurable rates.
  • If your mortgage was placed before October 2016, we can grandfather the insurable rates even if it was a $1 million+ value house or 30 year amortization. It then depends if it was insured (client paid insurance) or conventional as to whether we get insured or uninsurable rates now.
  • If your mortgage was placed after October 2016 and the property value was over a $1 million or the mortgage had a 30 year amortization, we are restricted to uninsured rates.
25 Jun

Ultra Low Rate websites – What’s The Story?

About Mortgage Brokers

Posted by: Garth Chapman

Ultra low mortgage rates, offered through various internet sites, are often restricted mortgages.  You may have higher prepayment penalties than generally available in the marketplace, as high as 3% of your mortgage balance.  Low rate mortgages often do not allow an in-term transfer, which is generally referred to as porting the mortgage with you to a new home.  Many do not allow blend and increases (refinances), you must pay the penalty to do a refinance (get equity out of your home).

Low rate sites are looking for no hassle, no muss, no fuss mortgage applications.  So if you happen to be an hourly worker, does your 2 year average and your YTD income substantiate the required income to qualify?  Does your source of down payment meet new government requirements?  When will you be told if they do or do not?  Self-employed, contract worker, income from a couple of sources, you can spend a week thinking you have sent in the correct paperwork only to find out you have not been approved.  Unfortunately, it may mean your file is just a little too time consuming for the low rate site.

Low rate sites use salaried staff who need to meet production quotas.  They do not have time for problems or complex scenarios.  They are looking for the 20% to 30% of the market who have the perfectly simple scenario.

Low rate sites are not able to work through other issues, a unique property size or type, square footage issues, condo by-laws or financial statement problems, post tension cable or special assessment requirement.  Will the low rate site take the time to find the most suitable lender or insurer?  Lenders will have sliding scales, can you get an exception, can you find a new lender before condition day?

Low rate sites often entice you with the initial promise of an attractive rate and then after you have completed the application and have sent them all your documents will tell you that you don’t qualify for that rate, but that you do qualify for some other higher rate.

Low rate sites do not have the staff to help ensure the rest of the home buyer process gets completed on time.  For example, meet the financing condition date, ensure the lender instructs money to lawyer on time, and insure you get possession on time to avoid late interest charges.

Low rates sites will ask you to sign a non-compete agreement that if they present you with a commitment, you will not obtain your mortgage from another bank, lender, or broker, and if you choose to do so, you will be charged a fee.

Your Mortgage Broker has access to many of these low-rate restricted mortgage products.  So call and ask your Broker what you qualify for, and if a low-rate mortgage is a good fit for you.

25 Jun

First-Time Buyer Incentive – What do we have so far? Mostly Gossip

Buying & Refinancing a Home

Posted by: Garth Chapman

The rumor mills are buzzing.  Global News and other media outlets are reporting some new details on the new First-Time Buyer Incentive, also referred to as an Equity Participation Mortgage.  What is being discussed by the media is mostly the same information as was disclosed in the budget.

CMHC has just released some details found here.  The program is expected to be ready to receive Incentive applications starting September 2, 2019. If approved for the Incentive, the purchase transaction must close on or after November 1, 2019.

The First-Time Buyer Incentive (what we know so far)

  • The government will provide an equity participating mortgage of up to 5 % for an existing house and up to 10 % for a new construction home.
  • No interest or principal reduction payments required on the participating mortgage portion.
  • Can be repaid early, no details on the mechanics.
  • Must be repaid within 25 years.
  • When the house is sold the government will participate in the increase in value, or decrease,  proportionately with the initial participating mortgage granted.
  • Maximum purchase price is $480,000.
  • Maximum family income is $120,000.

The Good

  • First time buyers will have slightly lower mortgage payments, with likely interest savings of up to $60 to $120 per month ( depends upon the amount, new or used house, and interest rates.)

The Bad

  • The Home Buyer will have the Federal Government as a partner in the ownership of their property through a participating mortgage.  Read that twice.
  • The total home purchase price the borrower qualifies for under this program is less than if the borrower does not use it, because there are different qualifying guidelines.
  • The Government will, if the home eventually goes up in value, recoup an equity dividend, the repayment could turn out to be more than what mortgage interest would work out to be, especially if we eventually see a strong rebound in our depressed Alberta markets.

The Unknown (Possible Risks to the Borrower)

  • The program has been announced and promoted without any details on how it will be managed whenever life offers changing circumstances for the homeowners.
  • Perhaps the participating mortgage will have no rights except passive acceptance of whatever 5 % is paid to the government.
  • What about a private deal with a family member or friend or investor over a “gifted or provided down payment”?  Is that allowed, what documentation will be accepted.
  • Who will determine what are allowable capital expenses? What documentation does the homeowner have to provide for maintenance and upgrades and renovations? What bureaucracy is going to administer any dispute over costs? What costs are legitimate?
  • Does the government want 5% of the gross lift or will maintenance, operating or capital expenses factor?  What about real estate fees, legal fees, closing costs? What if the homeowner operates an illegal suite? What if the homeowner has an encroachment argument with a neighbor or with the city?  Will the government as mortgage holder have for a voice in any dispute before a court?

The Editorial 

  • Since the government became convinced that the bureaucrats know how to underwrite mortgages, hundreds of thousands of deserving Canadians are being denied access to mortgage liquidity.
  • Let bankers be bankers, and let the government bureaucrats provide high level oversight.  Mortgage underwriting should be an industry derived process, not a government dictated and controlled approval.
  • Every month at Jencor we see hundreds of people denied access to a mortgage.  Most of whom would have qualified for that requested mortgage before the Stress Test was implemented.
  • If the government wants to incentivize first time home purchase activity, they could simply make mortgage access reasonable.  Instead we get an intrusive program costing taxpayers $1.3 Billion dollars over the next 3 years.

Watch for our updates on this when the government announces program details.

12 Mar

Are you Stressed by the Mortgage Stress Test? Here are a Few Solutions

Buying & Refinancing a Home

Posted by: Garth Chapman

Alberta’s real estate markets are stressed. Prices are flat or down.  So this is a Buyer’s Market, and yet so many Buyers are finding it difficult to qualify for the mortgage they need, largely due to the new mortgage Stress Test.  Here are a few smart ways that you can use to achieve the mortgage you need to buy the property that suits your family’s needs.

Use the flex down or borrowed down payment programs offered though one of our mortgage lenders.

You must qualify, the payment for the loan must fit in your total debt service ratio.

You must have good credit, meeting minimum beacon score requirements.

The CMHC default insurance premium is higher, but by using this option you can borrow the down-payment.

First time home buyers can obtain a new RRSP loan and 90 days later use the First Time Home Buyers Plan and withdraw up to $25,000 for a home down-payment.  Pro Tip– you are considered a First Time Home Buyer if you have not owned a home in the previous 4 years.

Call your favourite Jencor Mortgage Broker, and we will arrange an RRSP loan and a mortgage pre-approval as per your financial qualifications. Couples can both do this.

90 days later, you withdraw up to $25,000 (per person) from your RRSP plan(s) for down payment.

Then you can get to work with your favourite Realtor to buy a home.

IMPORTANT – The key element of this is that our best mortgage lender for this program does not require the loan to be repaid when funds are withdrawn for the down-payment, whereas most lenders do.

Is a Large Vehicle Loan Payment Reducing the Mortgage You Qualify for?

Whether you are refinancing, buying a new home, or just wanting to improve your cash flow, is a large vehicle loan payment reducing your options!

We have a vehicle finance company that will aggressively extend out an amortization, reducing the vehicle payment. The result, all other things being equal, a bigger mortgage. We had one couple rewrite their vehicle loans, and they got a $70,000 bigger mortgage. Their realtor was able to write an offer in the neighborhood they have always wanted to live in. Got a great deal on the house as well.

Call me today if a lower vehicle loan payment could help you.

Special Programs for Self Employed Buyers

  • The federal government continues to impose restrictive guidelines on all mortgage applicants. One group particularly hard hit are business for self borrowers (aka BFS). Many BFS clients hire good Tax Accountants. Good Tax Accountants are great for a lower tax bill, but low taxable earnings are not so good for obtaining a mortgage.  Most lenders require two years of personal tax returns, notice of assessment, and corporate financial statements.  If your clients are being declined after providing all of that information perhaps one of the special programs that still exist could help.
  • We have lenders who will consider:
    • Using an insured stated proof of income mortgage to 90 % loan to value. We do need to provide information to confirm the reasonableness of the application.
    • Using an insured stated proof of income mortgage to 65% loan to value. Again we need to confirm reasonableness but no insurance premium applicable.
    • Using a series of bank statements to confirm business cash flow to support a mortgage. Maximum 80% loan to value.
    • Using a cash flow analysis of the corporate financial statements to support the income requirements 80% loan to value.
    • We have some other esoteric programs too hard to describe in one line.
    • Your Jencor Agent can often help a BFS client who has been frustrated by their own Bank or by an inexperienced Mortgage Broker.

Some combination of these ideas may just help you, your friends or relatives get the mortgage you need for the home you want.

22 Jul

Do you have a HELOC on your home, vacation or rental property?

Buying & Refinancing a Home

Posted by: Garth Chapman

If you have a Line of Credit (HELOC or LOC) on your property you are paying a much higher rate of interest to the bank.  Why not put some of that money in your own pocket instead of in the bank’s? Your savings will likely be in the range of 1% or more of the outstanding balance.  That would amount to $3,000 per year or more on a $300,000 HELOC.

So let’s take a look at the details and at my philosophy around this.  I have split my thinking into two types of debt for purposes of this post.

YOUR LONG-TERM DEBT:

You want to have your long-term debt in a mortgage, which means it would be at a lower interest rate than you will pay on a LOC.  This is true for both Variable and Fixed rate mortgages. The mortgage should be/have:

  • Should be portable if there is any chance of you wanting to move during the 5-year term.
  • Can be registered at full appraised value if you want to later be able to increase the LOC or the mortgage without having to incur the costs of refinancing.  This option precludes putting a LOC or 2nd mortgage on the property with a different lender.
  • Should be transferable at time of maturity. When a mortgage matures (the term ends) you become essentially a ‘free agent’. By this I mean that you then can shop around for the best deal and move to another financial institution without cost. This works to ensure your existing mortgage lender offers you a competitive rate.
  • Lenders will normally allow the mortgage to be split into 2, 3 or more separate mortgages within the All-In-One product.  This allows borrowers to easily track amounts borrowed for various purposes.  This is especially helpful when some debt is tax deductible and some is not.
  • Collateral mortgages are generally not portable, and are not transferable at maturity.
  • Should have good pre-payment and payment increase privileges.

YOUR SHORT-TERM DEBT:

Your short term debt should be in a secured LOC at the higher rate.

  • Your LOC rate should be in the range of Prime + 0.50% (at the time of writing).
  • Your LOC should ideally be connected to your mortgage – referred to as an All-In-One (AIO) mortgage product. Each bank has their own name for this product.
  • Ideally the LOC should increase automatically as you pay down the mortgage. Only some banks do this. This gives you more flexibility over time especially when you decide to buy something.

We have several of these AIO mortgages, and over time they have allowed us to buy several more properties over the years by easily tapping the equity in our existing properties via those LOCs.

Some Lenders will allow the LOC to be split into 2, 3 or more (up to 9) separate accounts within the All-In-One product. This allows borrowers to easily track amounts borrowed for various purposes.  This is especially helpful when some debt is tax deductible and some is not.

A quick thought on mortgage pre-payment penalties:

If you don’t want/need a LOC that is connected to your mortgage, and if you are on a fixed rate mortgage, then you should consider having your mortgage with a lender that is not one of the big-6 banks. The reason is that their pre-payment penalties are 2-3 times higher than the non-bank (known as Monoline) lenders.  I have personal experience with this issue and would be happy to explain further, and even provide examples.

12 Feb

First Time Home Buyer Tax Incentives and Credits

Building a New Home

Posted by: Garth Chapman

The good news begins with a generous definition of who is a first time home buyer: to qualify as a first-time home buyer, which generally means you and/or your spouse (whoever will be on the Title and Mortgage for the home) must not have owned a home in Canada for 4 years. And now, to the two plans currently available to Canadians.

 

First-Time Home Buyer’s Tax Credit (HBTC)

The First-time Home Buyers’ Tax Credit was introduced to assist Canadians in purchasing their first home. It is designed to help recover closing costs, such as legal expenses, inspections, and land transfer taxes, so you can save more for money for a down payment.

The Home Buyers’ Tax Credit, at current taxation rates, works out to a rebate of $750 for all first-time buyers. After you buy your first home, the credit must be claimed within the year of purchase and it is non-refundable. In addition, the home you purchase must be a ‘qualified’ home, described in more detail below. If you are purchasing a home with a spouse, partner or friend, the combined claim cannot exceed $750.

You will qualify for the HBTC if:

  • you or your spouse or common-law partner acquired a qualifying home; and
  • you did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years.

Program in overview http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns360-390/369/menu-eng.html

Fact Sheet http://www.cra-arc.gc.ca/nwsrm/fctshts/2010/m01/fs100121-eng.html

 

The RRSP Home Buyers’ Plan – for first-time home buyers (HBP)

The Home Buyers’ Plan (HBP) is a program that allows you to withdraw funds from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. You can withdraw up to $25,000 in a calendar year. You must qualify as a first-time home buyer, which generally means you and/or your spouse must not have owned a home in Canada for 4 years.

Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year – see here http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-e.html#P233_15310

Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You will have to repay an amount to your RRSPs each year until your HBP balance is zero. If you do not repay the amount due for a year, it will have to be included in your income for that year.

All the info here http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html

And here’s some more info on how long the money must be in your RRSP before you withdraw it for the HBP.  Let’s say a qualified first-time home-buyer contributed to his RRSP near the end of February.  The buyer then finds a home with a willing seller, but is unable to get a possession date late enough to meet the following requirement: “Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year.”

It turns out that the client actually has 30 days after possession to still take out his money from his/her RRSP and use it for the Home Buyer’s Plan.

Moreover CRA does not care if the buyer uses that money to buy a car, go on vacation or spend it on anything else, as long as he/she buys a qualified home and is a first time buyer.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/cndtns/wn-eng.html

19 Jun

On Buying and Financing a Vacation Home

Buying & Refinancing a Home

Posted by: Garth Chapman

Questions to ask before buying a vacation home………

Buying a home is a big step in life that requires financial planning, saving and lots of upkeep. And yet, many people find that they like being a homeowner so much that they want to purchase a second home as a recreational or vacation spot. For those who are financially secure enough to do so, a vacation home can be a great investment for the entire family and increase wealth as property values continue to climb. Before jumping in with both feet, here are a few questions to ask yourself before applying for a loan or making an offer on a second home:
What will I use it for?

If you’re looking to purchase a property that you will only visit a few weeks out of the year, then it might not make financial sense to buy. Instead, you could consider renting during the time that you want to spend away from home. For the person who will be able to spend at least two months or more at their second property, it can be a good investment.

Beyond your personal or family use, you can consider buying a home that will be rented out as a vacation property. Instead of leaving the house vacant all year round, you can lease it to make some money or help pay off the mortgage. However, this may require additional insurance or coverage options to ensure that you are protected when someone else is staying in your second house.

Are you preapproved?
Before shopping for a home, the best way to see if you are financially able to purchase is by getting preapproved for a home loan by a lender. Taking on a second mortgage is a big responsibility, but you may have options to consolidate your debt. If you are financially secure enough for a second mortgage, you may keep them separate. Furthermore, you need to be confident that you can make a down payment. For a second mortgage, you may not have the same types of options for a home loan, which means you may need to make a down payment up to 20 percent. Other costs need to be accounted for as well, including maintenance, homeowners insurance and mortgage insurance (if required).

Are you sharing ownership?
It’s not uncommon for family, friends, or even business partners to go in together on a property for shared ownership. This can help cover all the additional costs if you can’t afford a second recreational house on your own. In theory, splitting up the expenses and sharing property sounds like a great idea. However, in practice, it can be complicated and stressful. For instance, if there are upgrades or repairs that need to be completed on the home, all owners might not agree on what should be done, while others might be unwilling to pay. In these instances, it may be unclear who will cover the cost, which can strain relationships and finances. Carefully consider these situations before agreeing to a joint ownership.