The tax benefits of home ownership

Now that February is over, all those tax-related documents have likely started arriving in your mailbox. Whether you’re socking them away to use at a later date, or hoping to put them to work this weekend, there are a number of housing-related deductions and credits you should keep in mind as you go through the tax filing process. Pay particular attention if:

You’re a first-time homebuyer

Anyone who has purchased a home for the first time can claim a non-refundable tax credit of up to $750.

You’ve made your home more accessible

If you have mobility impairments and spent money making your home more accessible in the last year, you’re eligible to claim those renovation expenses under the medical expenses deductions.

You bought a new house

If you bought a new build for under $450,000, you may be eligible to claim the GST/HST new housing rebate—provided it’s your principal residence.

You own a rental property

The downside to owning a rental property is that you have to claim your rental income as, well, income. The upside is that you can claim many expenses that go into maintaining a rental property—such as advertising costs, insurance and mortgage interest.

You work from home

Whether you are self-employed, or a commissioned or professional employee who works from home, you can claim a portion of your home office expenses—such as heating, home insurance, electricity and mortgage insurance.

While your accountant or bookkeeper is likely the best person to ask about other household deductions, I can definitely help with any mortgage-related queries you might have! So whether you’re looking to renew, refinance or simply want to chat, don’t hesitate to drop me a line!

Homebuyers’ Tax Credit 101

If you bought a home in 2015, you may or may not be aware that you’re eligible for a Federal tax refund this upcoming tax season. If you’d like to learn more about the First Time Homebuyers’ Tax Credit—including how to qualify—the Canada Revenue Agency put together this informative video  with all you need to know!

If you have additional questions about the First Time Homebuyers’ Tax Credit—or about your mortgage—please don’t hesitate to reach out to me.

You can call our office at 905 372 7367

Having trouble affording your first home? You're not alone.

If you’re an aspiring first-time buyer getting frustrated by how hot—and expensive—your market is, you’re not alone. Many young people are in your exact position. In fact, this professor at UBC actually did research on the plight first-time buyers face, and determined that they’re by far worse off than their parents were.

That being said, there are ways to land a new home if you really want it. You may just have to employ creative measures, such as:

Buy with friends

You’d obviously have to be very careful which friends you choose—and make sure you employ the help of a good real estate lawyer when devising the contract—but this strategy has worked for some people. In one case I’m familiar with, a group of three roommates decided to just buy the home they were living in. It came up for sale and, after doing the math, they realized today’s low interest rates (coupled with a good down payment) made their mortgage payments cheaper than their rent payments. In another situation, a married couple and their friend bought a home together with a basement apartment. The bachelor lived downstairs and the couple—and eventually their kids—took the upstairs.

Be resilient

In a hot market, it’s easy to get discouraged—but it’s important not to let the endless bidding wars get you down. One buyer I know looked at every house that came up in her price range—regardless of what the photos in the real estate listing looked like. She eventually came across a gem—a recently-renovated home with a basement apartment in a decent neighbourhood. Not a single soul put an offer on the place because the agent hadn’t updated the listing photos—and the ones posted were pre-reno (and quite scary).

When necessary, settle.

Sometimes you just can’t get what you want. Sure, a three-bedroom three-bath detached home would be ideal, but sometimes a smaller townhouse is all you can afford (and find). If you can find a place that will make do for the next five years (that doesn’t overextend you), you may have to settle—and buy your dream home after you’ve built up some equity.

If you or anyone you know is trying to break into the housing market, please don’t hesitate to send them my way. Referrals are always appreciated!

How to quickly find your ideal mortgage payment

When shopping for a new home (and a new mortgage), it's best to work backwards-figure out how much you can afford to spend on your monthly mortgage payment and use that number to determine your ideal housing price point. How do you come up with that monthly number? Well, one way is to go through your last three months' worth of bank statements, figure out what your spending habits are decide how much you could comfortably spend on housing. The other (quicker) option? Try the 40X rule . The 40X rule is simple-and a calculation that's been used by New York City landlords for quite some time. Divide your annual salary by 40, and you'll end up with the approximate monthly payment you should be spending on your mortgage. Fiddling around with a mortgage calculator will help you translate that monthly number into a total mortgage amount-and, combined with your down payment, your housing price point. While this isn't a foolproof method, it will give you a starting point to look for houses in your price range (and avoid disappointment when you find out that the multi-million dollar mansion you had your eye on is actually not in your budget).

The New Mortgage Rules Effective February 15th. 2016

Breaking News:

Today Bill Morneau, Finance Minister, announced some significant changes to mortgages.  Effective Feb 15, 2016 the minimum down payment for house purchases over $500,000 will require a bigger down payment.

Here's how that works:

A purchase price of $800.000 until Feb 15th, 2016 would require a down payment of $40,000.  After Feb 15th the down payment changes to 5% on $500,000 ($25,000) and 10% on the amount over $500,00 (10% x $400,000 = $40,000).  Your new down payment required is $65,000.

This is a dramatic change and deserves to be read between the lines.  The Minister today said he was ensuring  credit worthy borrowers maintained enough equity to protect them. There is also a lot of talk of the US raising borrowing rates next month.   There appears to be a lot of pressure on the government to cool the housing market before it corrects itself.

A market that shuts out first time buyers is not a good thing.  First time buyers are shut out more by the price of housing than down payments.  At this time first time buyers have little hope of getting into the market because of the price and not because of their inability to save money.  They are also affected by the interest rates.

Lets take a look back to the early 1990's.  First time buyers were shut out of the market.  Prices were out of reach and buyers were flocking to the suburbs and small towns in big numbers.  Those lucky people that managed to get into the market soon found they owed more money than their houses were worth.  It would appear the government has not forgotten the lessons of that time.  While they won't out right say there is a correction on the horizons its getting ever more apparent.  The changes today will ensure those buying will have a cushion.


More to come on this for sure.

Is home buying about to become more difficult?

Just when you thought mortgage rules couldn't be tightened any more, the Office of the Superintendent of Financial Institutions Canada (OSFI) said it's "looking into" doing just that, by potentially eliminating amortizations over 25 years.

Thanks to last year's mortgage rule changes, amortizations over 25 years are no longer available to high ratio buyers - or those with less than 20% down. But individuals with larger down payments can still access 30- and 35-year amortizations.

That's what OSFI is looking to potentially stop. It's currently consulting with financial institutions on the matter to see if this solution is something that makes sense, and if it could potentially help stabilize the housing market (and its ever-rising prices), curb consumer debt levels and reduce the risk of exposure to rising rates.

It's a shame that the government is looking to eliminate this mortgage tool as a means of curbing household debt. Individuals already have to qualify for the five-year posted rate at a 25-year amortization - you'd think that would be enough.

That being said, interest rates have been extremely low for quite a while, and the housing market seems to have resisted previous attempts to cool it down. Finance Minister Jim Flaherty - along with the Bank of Canada - have repeatedly expressed concern over the housing market. They'd rather see a soft landing than a bust - and really, who can blame them?

If you're in the market for a new home or refinance, and were hoping for an amortization longer than 25 years, you may want to give us a call sooner rather than later. You never know when the rules are going to change again!

What don't you miss about renting?

In this day of low interest rates, the temptation to buy a home versus renting one is higher than ever. This article in the Globe offers some great insight into the buying versus renting debate, and how to determine what's right for you.  While it's true that homeownership isn't an ideal choice if it's going to leave your house poor, or if you're not ready to settle down in one location, there are definitely a lot of positives involved for those willing to take the plunge. Below are some things our clients appreciate most about home ownership. 

1.      Forced savings

While some people are good at saving their extra income, others are not. For the less-than-savvy savers among us, home ownership can be a great thing, as it's forcing you to sock away money every month. Instead of paying someone else's mortgage, you're paying off your own - and building equity in the process.

2.     The freedom to make the place "yours"

When you own your own home, you're not stuck with someone else's choice of paint colours, flooring or fixtures. How you customize your home is only limited by your imagination - and, maybe, your savings account.

3.       The desire to keep your place nice

Even though you live there, when you rent a place it's never really quite yours. While you may want to keep it nice and presentable, if something major goes wrong - or if you crack a tile here or there - it's not that big of a deal because someone else will pay to get it fixed and, if they don't, you can always move into a nicer place without much of a hassle. When you own, you always have resale in the back of your mind. This motivates you to deal with potential issues before they become major (costly) problems, and upkeep your home so you have less headaches should you eventually decide to move.

4.     Freedom from crazy landlords

If you've rented for a while, you've likely come into contact with a landlord or two who wasn't quite, well, ideal. One of the biggest perks to owning your place is you don't have to answer to anyone - but, on the flip side, you have to handle all of those household issues on your own. Still, it's a small price to pay for freedom. 

How much is your credit score costing you?

It's always important to keep an eye on your credit score, whether you're in the market for a new mortgage or not. Not only does regular monitoring alert you to potential identity theft, but it will also allow you to deal with any potential credit errors before the eleventh hour.

 

According to this infographic by Canadian lender Xceed, the most common credit reporting error is a Tradelines (or Consumer Reports) error. This is a negative item on your report that, while it may be yours, features some sort of mistake - like the incorrect number of days a payment is late, incorrect balance or missing account information. If the information is wrong, you can dispute it - and if the credit bureau is unable to verify the information within 30 days, the entry has to be removed from your credit file.

Other ways mistakes can find their way onto your credit report is if you have a hard-to-spell last name or a name that changed after you were married. This can lead to confusion among creditors -- and increases the possibility that someone else's missed payments will find their way onto your report. Occasionally, collections agencies also fail to report when a collection has been paid in full - and the mark on your credit report continues to bring your score down.

If you spot an error on your credit report, it's important to dispute it in writing to either (or both) of Canada's two credit bureaus - TransUnion and Equifax. A low credit score can cost you thousands when it comes to your mortgage, primarily because the best rates are reserved for those with a good score. Once you fix any outstanding errors - or pay off outstanding debts - you'll be amazed at how quickly your score can improve.

Tales from the Trenches....the Dangers of Co-mingled Assets

Once upon a time there was a middle aged women with many children (5 to be exact) who had a good job, a good marriage and a beautiful home.  One day she came home from work and just as she was wondering what to serve for dinner the sheriff knocked on her door and told her she had to leave he was seizing the house for the mortgage company.  Stunned, but not stupid, she quickly called her lawyer who told her to pack as much stuff as she could get in her car, find an apartment and start divorce proceedings. 

As unusual as this story may seem to you we have seen it more than once.  So what happened?  The Husband had been self employed and the business had hit a bump.  Without discussion he went to see a mortgage broker who arranged to refinance the home.  He went home and told his wife about the resolve and told her she had to go to the lawyer and sign the documents.  Which she did.  Once the new mortgage was in place he never made a payment.  Her credit has always been immaculate but now it was showing 2 judgements against her from the mortgage company.  Once the house was sold (by the mortgage company) the judgements were paid but her credit was ruined for seven years.  She couldn't even get a new car.

So what should have happened?  The lender would have been smart to request ILA (independent legal advice) for both spouses.  BUT..... at the end of the day she signed a legal contract and left it to her husband  to take care of it.  The red flag should have been the refinance.  Since their credit was separate she had no idea how bad his was.  Never co-mingle anything until you have done your due-diligence.  If you're not sure what you should be doing get your own lawyer.  And if, like in this woman's case, it causes a rift between you and your partner then guess what.  The rift was coming anyway. 

Only "insane" people have variable mortgages?

Kevin O'Leary, co-host of CBC's Lang and O'Leary Exchange and the "greedy" dragon on Dragon's Den, turned heads earlier this month when he spoke out against variable rate mortgages.

"If you have a variable rate mortgage right now, you're out of your mind not to lock it in. You'd be insane not to lock it in," he said.

His controversial views on the subject come shortly after announcing his entrance into the mortgage market. While no one yet knows whether O'Leary's coming into the industry as a broker or a lender, it's no secret his anti-variable opinion comes with an ulterior motive.
If he was genuinely looking to educate mortgage holders on the variable-fixed debate, he'd acknowledge that one isn't better than the other. It purely depends on the individual's financial position and what they feel comfortable with - plain and simple.
If, for example, you can weather a slight increase in mortgage payments, you should definitely go for the variable rate. You're never going to see rates lower than this. If you can opt for a variable but set your payments as if you were paying the going fixed rate, you'd not only be protecting yourself from the shock of future increases, but you'd be banking a ton of extra money per month towards your principle.
On the other hand, O'Leary's point of view does make sense for individuals who are not as eager to take on risk. Sometimes a five-year fixed rate is the way to go if you want to set a budget and know exactly what to expect over the next five years. The thing is, sometimes a four-year fixed rate will work just fine too. Most people don't stay in their first home for more than five years, and the four-year terms occasionally come at a lower rate.
The point is that mortgages are not one-size-fits-all and, given O'Leary's prominent position in the media, he should know better than to say that they are.