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Importance of a Home Inspection

Tue, 27 Sep 2011 09:50 PST

Short video on the importance of a home inspection including things you should look for while viewing the home.

Tax Deductible Mortgages

Thu, 09 Jun 2011 10:47 PST

Here's a great way to pay your mortgage off faster and create more capital for yourself. You might have heard of a tax deductible mortgage or the Smith Manoeuvre. This concept is being advertised more recently although it’s been around for a while.

As we all know, a good chunk of monthly mortgage payment goes towards interest. On a $500,000 mortgage at a rate of 5%, when you make your first payment of $2900, only $900 goes towards equity and $2000 towards interest. That’s money down drain and unless you can use that interest to your benefit.

How is this done? The revenue agency does allow you to deduct interest expenses as long as the borrowed money is used for an investment such as starting a business, buying stocks, bonds, mutual funds, etc.

The first step is to get a secured line of credit against your home. What will happen here is that every time you make a mortgage payment and that $900 goes towards equity, your line of credit will increase by $900 and you in turn invest that. The interest on that $900 is tax deductible. Over the life of a 25 year mortgage it works out to an average of $15,000 a year in interest with our example. If your income tax rate is 40%, that means you will pay $7000 less in taxes each year on average.

Now I know, your total debt will always be $500,000 because as you pay off your mortgage you’re creating that same amount of debt. But what you’re doing is turning bad debt into good debt. Every payment you make you are increasing your good debt while decreasing your bad debt and creating more tax benefits for yourself. At the end of the 25 years, what you’ll end up with will be a line of credit for $500,000, a capital investment of $500,000 PLUS interest earned on your investment minus the interest paid on the LOC, PLUS you’ve gotten a higher tax return every year. To simplify it, pay off your line of credit with your capital investment and what you’re left with is some interest earned on your investment and you’ve reaped the tax benefits.

Without the tax deductible mortgage setup, at the end of the 25 years all you have your mortgage paid off.
To give you a short history on this, this method has been tried in the Supreme Court and is completely legal. This is a highly underused way to create capital and no reason why you shouldn’t talk to your broker/bank and see if you qualify for this. You have got nothing to lose by asking, but may have a lot to gain.

Down Payment Options for Real Estate in Vancouver

Tue, 04 Jan 2011 12:02 PST

Explaining different options regarding down payment and how it affects your mortgage rate and payments you’ll end up making. There are 3 different levels.

Putting 20% down or more - You get the best available mortgage rate as well as not having to buy mortgage insurance from a company like CMHC.
Putting between 5 to 20% down - You get the benefit of the best available rate except you need to buy mortgage insurance.
0 to less than 5 % down - Many lenders still have this option available. If you’re doing 0 down, or anything less than 5% for that matter, the bank considers you higher risk and will charge you a higher interest rate. For example, today’s fixed rate is 3.5% with 5 or more % down, and with 0 down it’s 5.5%. To put that in perspective on a mortgage of $500,000, you’re looking at difference of over $500 a month.

The mortgage insurance rate for options 2 and 3 is between half a percent to 7% of the amount you’re borrowing and it varies depending on how much you put down and if you’re self employed or on salary. This is insurance the bank makes you buy and it’s in place in case you can’t make your payments. Now this insurance fee is worked into the mortgage and not paid up front which is nice.

So do the math and make sure you know the true cost of buying when you get into it. If you have questions don’t be shy to call or email.

Buying Investment Properties

Wed, 13 Oct 2010 06:39 PST

A guide to the tax implications of buying, holding and selling an investment property. The blog answers questions such as what are the costs, how does it affect my income tax for the year and how much tax do I pay when I sell my investment property?

HST on Real Estate - Amounts and Rebates

Thu, 02 Sep 2010 14:08 PST

A tutorial on who pays HST, how much do you pay and what are the rebates you're entitled to.

The federal government will give you up to 1.8% of the purchase price back for any home up to $400,000. For homes over $400,000, the feds won't give you any rebate. The province of BC will give back a straight 5%. This 5% caps out at homes worth $525,000 and more.
- So if you buy a home that's up to $400,000 you will get 1.8% or less from the feds and 5% back from BC.
- If it's between $400,000-$525,000, you get nothing back from the feds and 5% from BC.
- If it's more than $525,000 you get a flat $26,250 back from BC. Even if your home is a few million dollars.

Click here for more info on HST