Variable vs Fixed rate mortgage

Variable vs Fixed rate mortgage

When trying to decide which mortgage type to go with, a variable vs fixed rate mortgage, you have to ask yourself how tolerant you are with risk. A variable rate mortgage traditionally has a better discounted rate than the fixed rate mortgage, but it can change at any time depending on what decision the Bank of Canada makes on its overnight rate. As the Bank of Canada Bank of Canadaincreases or decreases its overnight rate, so too will the chartered banks and other lenders that borrow money from the Bank of Canada increase or decrease their prime lending rates, which in turn affects the variable rate.

If you don’t want to worry about interest rates going up or down during the contractual term that you have agreed upon with your mortgage, then the best bet would be to go with a fixed rate term. This way you know for sure that your mortgage interest rate is locked in and guaranteed not to change within the term. For example, if you go with a 5 year closed fixed term; your mortgage interest rate will not change until the end of the fifth year. For some, the disadvantage to this mortgage product is the fact that your rate will not go down should the Bank of Canada lower its overnight lending rate as would be the case with the variable rate mortgage product.

When contemplating whether to go with variable vs fixed rate mortgage, know that it is ultimately up to the lender to decide if they are going to change their prime rate or not every time the Bank of Canada changes their rate. Sometimes Banks and other lenders of mortgage products will choose not to change their prime rate although the Bank of Canada changes theirs. Historically though, whenever the Bank of Canada changes their overnight rate, shortly after the banks adjust their rates accordingly.

Others might be thinking to break their mortgage in the middle of the term; whether it be for the reason of selling their home to take advantage of increased equity and home value due to favorable market conditions, or because they may not be happy with the current lender or interest rate, and for any other reason. To break a fixed term mortgage is more expensive than to break a variable rate mortgage. The lenders use different formulas to calculate the mortgage penalty to break the mortgage. With the fixed term, the lenders use a formula called Interest Rate Differential, and with the variable rate they only charge the client three months of interest payments. Therefore it can be much cheaper to break a variable vs fixed rate mortgage.

When considering these matters it is always best to consult with a mortgage broker or mortgage agent. These professionals are trained, and licensed to work on your behalf and to give you unbiased and sound advice regarding your mortgage options.

Ontario Land Transfer Tax First-Time Home Buyers

Ontario Land Transfer Tax Refund

Did you know that under the Ontario Land Transfer Tax a first-time home buyer may be eligible for a tax refund for purchasing a home?

The Ontario Government states the following information as to who falls into the Ontario Land Transfer Tax First-Time Home Buyers plan to be for transfers where:

  • the agreement of purchase and sale was entered into after December 13, 2007, the refund applies to all homes, whether newly constructed or resale.
  • the agreement of purchase and sale was entered into before December 14, 2007, the refund only applies on the purchase of a newly constructed home.

ontario land transfer tax refund first time home buyers

How much is the Land Transfer Tax refund?

The maximum amount of the refund is $2,000. If the refund is claimed at time of registration, it may offset the land transfer tax ordinarily payable. If not claimed at registration, the refund may be claimed directly from the Ministry of Finance. No interest is paid on this refund.

For further details about the Ontario Land Transfer Tax for First-Time Home Buyers you can visit the Ontario Ministry of Finance’s web site by clicking ‘LINK’.

Consumer Information about Mortgages

Consumer Information about Mortgages

If you are currently renting an apartment / dwelling, or are a first time home buyer starting to think about moving from a renter to an owner of your own property, it is important to get as much consumer information about mortgages as possible. You may want to visit the Government of Canada’s Consumer Information web site.

www.consumerinformation.ca  consumer information about mortgages in canada

Once there, you can select from the many resources on the left panel, such as the ‘Housing’ one. When on the housing page, you will see a list of options related to the housing industry. The ‘mortgage’ link is a good one to check out, especially if you are considering in buying your first home and want to have access to a variety of Government resources related to mortgages.

First Time Home Buyers Tax Credit

First Time Home Buyers Tax Credit

Did you know that the Government of Canada Revenue Agency has a special plan for first time home buyers? You heard right, the Government of Canada provides a First Time Home Buyers Tax Credit for those who purchased a home in 2012.

How does the first time home buyers tax credit work you ask? Well, the Canada Revenue Agency CRA states that you can claim an amount of $5,000 for the purchase of a qualifying home made in 2012, if both of the following apply:

  • 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 (first-time home buyer)

Qualifying home

A qualifying home must be registered in your and/or your spouse’s or common-law partner’s name in accordance with the applicable land registration system, and must be located in Canada. It includes existing homes and homes under construction.

The following are considered qualifying homes:

  • single-family houses;
  • semi-detached houses;
  • townhouses;
  • mobile homes;
  • condominium units; and
  • apartments in duplexes, triplexes, fourplexes, or apartment buildings.

Note
A share in a co-operative housing corporation that entitles you to own and gives you an equity interest in a housing unit located in Canada also qualifies. However, a share that only gives you the right to tenancy in the housing unit does not qualify.

How to claim the home buyers’ amount

Enter $5,000 on line 369 of your Schedule 1, Federal Tax.

The claim can be split between you and your spouse or common-law partner, but the combined total cannot exceed $5,000.

When more than one individual is entitled to the amount (for example, when two people jointly buy a home), the total of all amounts claimed cannot exceed $5,000.

Further information can be found at the Government of Canada’s web site by clicking ‘HERE‘.

Will the Prime lending rate go Up or Down

Will the Prime lending rate go Up or Down

Will the Prime lending rate go Up or Down

Next week on Wednesday March 6, 2013 the Bank of Canada will be announcing its decision on the target for the overnight rate. This takes place normally at the Bank of Canada’s headquarters in Ottawa Canada. Based on its recent announcements and decisions, many feel that the rate will not change in these uncertain economic times.

What do you think will be the Bank of Canada’s decision next week about whether to touch the rate or not? Share your thoughts in the comments section of this post, and also take our Facebook survey poll at www.facebook.com/trusterramortgage.

Mortgage Professional

Mortgage Professional

In the complexities of an ever advancing Canadian real estate market it has become increasingly important and beneficial for the consumer, such as the first time home buyer, existing home owner looking for a mortgage renewal, or the real estate investor seeking to acquire an investment property to work with a seasoned Canadian mortgage professional – mortgage broker / mortgage agent —  when it comes to getting their mortgage financing in order.

A mortgage professional, or otherwise known as a mortgage broker or agent – we will call them from this point onwards the ‘mortgage professional’ — studies in the field of real estate financing and specializes just in mortgages. A mortgage professional here in Canada works for the benefit of the consumer / client, making sure that the mortgage client receives the correct and unbiased professional advice that best suits the needs and realities of each clients situation, which differs from everyone one else.

Unlike the individual working in a bank, mortgage professionals will not try to up-sell to you proprietary specific bank products in order that they meet their sales quota. Mortgage professionals will not push you towards one lender over another, but rather, they will decide which one of the lenders has the best mortgage product based on your personal and unique circumstances. For most consumers when working with mortgage professionals there is no fee’s or charges that they have to pay. The lending institution that approves your mortgage application will pay a commission to the mortgage professional after the closing of the deal.

Unfortunately it has become normal practice for the consumer to shop around just for the lowest interest rate even if that means sacrificing the quality and trustworthiness of the individual or company that is quoting the low interest rate. There should be more to your investigation and shopping of mortgages than just how low their interest rates are. You should be looking at the overall package of the mortgage professional.

Most provinces in Canada regulate the mortgage brokerage industry. The purpose of the regulation is for the protection of the consumer by making sure that individuals who want to work in the industry meet certain minimal judiciary and educational requirements.

If you are considering to become a mortgage broker or agent in any of the Canadian provinces, or you are thinking about seeking the professional help of a mortgage broker or agent, you can visit the following Government web sites to learn more about the mortgage industry and its professionals in most Canadian provinces.

British Columbia

Financial Institutions Commission – FICOM

The Financial Institutions Commission (FICOM) is an agency of the provincial government, which administers nine statutes providing regulatory rules for the protection of the public in the province of British Columbia.

 

Alberta

Real Estate Council of Alberta – RECA

RECA is an independent, non-government agency, responsible for governing industry professionals in the real estate, mortgage broker, and real estate appraisal industries.

 

Saskatchewan

Financial and Consumer Affairs Authority – FCAA

Financial and Consumer Affairs Authority (FCAA) protects consumer and public interests and supports economic well-being through responsive financial marketplace regulation. FCAA enhances consumer protection through licensing, registration, audit, complaint handling and enforcement activities pursuant to various provincial statutes.

 

Manitoba

The Manitoba Securities Commission

The real estate division is responsible for administering The Real Estate Brokers Act and The Mortgage Brokers Act. This division registers real estate brokers, salespersons, and mortgage brokers, monitors brokers’ trust accounts, and investigates complaints against real estate brokers, salespersons and mortgage brokers.

 

Ontario

Financial Services Commission of Ontario – FSCO

The Financial Services Commission of Ontario is a regulatory agency of the Ministry of Finance that regulates insurance, pension plans, loan and trust companies, credit unions, caisses populaires, mortgage brokering, and co-operative corporations in Ontario.

 

Quebec

Organisme d’autoréglementation du courtage immobilier du Québec – OACIQ

The Organisme d’autoréglementation du courtage immobilier du Québec (OACIQ) is the organization responsible for the application and enforcement of the Real Estate Brokerage Act.

 

New Brunswick

Department of Justice and Consumer Affairs Consumer Affairs Branch

 

Nova Scotia

Service Nova Scotia and Municipal Relations Business Licensing

Canadian Mortgage Rules

New Canadian Mortgage Rules

It has been several years now since the Government of Canada decided to take steps in tightening certain Canadian mortgage rules and guidelines for Chartered Banks and other lending institutions such as Trust companies and Credit Unions so that the new Canadian mortgage rules would help cool the consumers hunger and appetite for debt accumulation, especially buying real estate.

Since back in February of 2010 until now, the Canadian Government has implemented multiple rules and tightening of existing regulations and we wanted to summarize them here for your quick reference. new canadian mortgage rules

– All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.

– Canadians can withdraw equity from their homes in refinancing their mortgages up to 90 per cent of the appraised home value from 95 per cent. This will help ensure home ownership is a more effective way to save.

– When purchasing real estate other than one to live in, Canadians are required to have at least a minimum down payment of 20 per cent. This measure is to reduce the risk involved in investment properties based on market speculation that property values can go up for R.O.I. Return On Investment purposes.

– The maximum amortization for insured mortgages has come down from 30 to 25 years, and many lenders have adopted this policy even for non-insured mortgages.

– Borrowers applying for an insured variable rate mortgage must be approved using the Bank of Canada 5 year bench mark interest rate. This means that the borrower can no longer be approved with the discounted variable rate that they are applying for, but must be risk tested by seeing if they can be approved if the variable interest rate was to go up to the 5 year bench mark rate, which is always higher than the discounted variable rates that the banks promote. If the debt calculation ratios work out and are within aloud parameters, than the borrower will be approved the variable mortgage and will receive the advertised discounted rate.

– Further to the above new rule, the five-year variable rate conventional mortgages or conventional mortgages with terms less than five years now require that the borrower qualify based on the greater of the Bank of Canada five-year benchmark rate or the lenders mortgage contract rate applicable to the term chosen. For terms of five years or more, the qualifying rate is the contract rate.

– As well, the underwriting process and debt calculations in approving a borrower for a mortgage has become more strenuous to insure that the borrower has the strength and credibility to be able to pay back the loan amount.

Home Buyers Plan

Home Buyers’ Plan (HBP)

Source: Canada Revenue Agency (CRA)

The Home Buyers’ Plan (HBP) is a program that allows you to withdraw up to $25,000 from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability.

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.

 

Conditions for participating in the HBP

Only the individual who is entitled to receive payments from the RRSP (the annuitant) can withdraw funds from an RRSP. You can make withdrawals from more than one RRSP as long as you are the annuitant (plan owner) of each RRSP. Your RRSP issuer will not withhold tax on these amounts.

Generally, you will not be allowed to withdraw funds from a locked-in RRSP or a group RRSP.

 

Note: 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.

 

Before applying to withdraw funds under the HBP you must meet the following conditions:

  • You have to enter into a written agreement to buy or build a qualifying home for yourself, for a related person with a disability, or to help a related person with a disability buy or build a qualifying home.
  • You have to intend to occupy the qualifying home as your principal place of residence no later than one year after buying or building it. If you buy or build a qualifying home for a related person with a disability, or help a related person with a disability buy or build a qualifying home, you must intend that that person occupy the qualifying home as his or her principal place of residence.
  • you have to be considered a first-time homebuyer (see below for definition).
  • In all cases, your HBP balance on January 1 of the year of the withdrawal has to be zero.

 

Note: Even if you or your spouse or common-law partner have previously owned a home, you may still be considered a first-time homebuyer.

 

When a withdrawal is made you must meet the following conditions :

  • Neither you nor your spouse or common-law partner or the related person with a disability you help buy or build the qualifying home can own the qualifying home more than 30 days before the withdrawal is made.
  • You have to be a resident of Canada.
  • You have to complete Form T1036 for each eligible withdrawal.
  • You have to receive all withdrawals in the same calendar year.
  • You cannot withdraw more than $25,000.

After all your withdrawals have been made you must meet the following condition :

  • You have to buy or build the qualifying home for yourself, for a related person with a disability, or to help a related person with a disability buy or build a qualifying home before October 1 of the year after the year of the withdrawal.

What happens if you do not meet all the HBP conditions?

You are responsible for making sure that all HBP conditions that apply to your situation are met.

If a condition is not met while you are participating in the plan, your RRSP withdrawal will not be considered eligible. You will have to include the RRSP withdrawal as income on your income tax return for the year you received the funds. If we have already assessed your return for that year, we will reassess it to include the withdrawals.

If you do not meet the conditions to participate in the HBP in the current year, you may be able to participate at a later year.

 

Who is a first time home buyer?

You are not considered a first-time home buyer if you or your spouse or common-law partner owned a home that you occupied as your principal place of residence during the period beginning January 1 of the fourth year before the year of withdrawal and ending 31 days before your withdrawal.

If at the time of the withdrawal you have a spouse or common-law partner, it is possible that only one of you will be considered a first-time home buyer.

Example

In 2007, Paul sold the home that he had occupied as his principal place of residence for five years. He then moved into a rented apartment. In 2007, he met Jane and she decided to move in with him. Jane had been renting her own apartment, and had never owned a home.

Jane and Paul were married in August 2010. They wanted to withdraw funds from their RRSPs to participate in the HBP in September 2010. Since Paul owned and occupied his home during the period beginning January 1 of the fourth year before the year he wants to make the withdrawal, he is not considered a first-time home buyer, so he cannot participate in the HBP in 2010.

However, Jane is considered a first-time home buyer, since she never owned a home and did not live with Paul during the period in which he owned and occupied his home as his principal residence. She can participate in the HBP in 2010, as long as all the other requirements are met.

If Jane does not participate in the HBP in either 2010 or 2011, Paul can participate in the HBP in 2012 as he will not have owned a home that he occupied as his principal place of residence since January 1, 2008. If they want to participate together in the HBP, they both have to wait until 2012 at which time they can withdraw funds under the HBP to buy or build a qualifying home.

 

Exception to the first-time home buyer’s condition

You do not have to meet this condition to participate in the HBP if any of the following situations apply to you at the time you make a withdrawal from your RRSPs under HBP:

  • you are a person with a disability and you withdraw funds under the HBP to acquire a home that is more accessible, or better suited to your needs;
  • you withdraw funds under the HBP to acquire a home for a person with a disability related to you by blood, marriage, common-law partnership or adoption, and the home is more accessible or better suited to the needs of that person; or
  • you withdraw funds under the HBP and give those funds to a person with a disability related to you by blood, marriage, common-law partnership or adoption, to acquire a home that is more accessible, or better suited to the needs of that person.