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Explaining the FTHB Tax Credit and the Home Buyers Plan – Ask Bruce Coleman, Vancouver Mortgage Broker

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Explaining the FTHB Tax Credit and the Home Buyers Plan

If you are a first time home buyer in Vancouver then you need to know about the FTHB (First Time Home Buyers) Tax credit and the HBP (Home Buyers Plan).

Saving the down payment for your first home is challenging enough. However, what many first time home buyers often forget about is the extra cash they need to have on hand for their closing costs.

When you buy a home there are additional fees you need to have on hand such as legal cost, taxes that have to be paid out for transferring the land, and other applicable disbursements. Closing costs can range from between 0.5% to as much as 2% of the purchase price of the home you are buying.

This can take out a big chunk of the savings you have on hand.

How the FTHB Tax Credit Helps First Time Home Buyers

The First Time Home Buyers Tax Credit was implemented by the Canadian Government in 2009. The purpose of the tax credit was to help first time home buyers with these added costs.

A qualified applicant can claim up to $5,000 non-refundable tax credit on any home purchased after January 27, 2009 and can receive as much as $750.00 in tax relief.

Qualifying for the HBTC

You can qualify for the tax credit along with your spouse or a common-law partner so long as neither you, your spouse or common-law partner have not resided in another home owned by any of these applicable parties in either the year the new home was purchased or in any of the 4 years proceeding.

A person with a disability, or if you are buying a home for a person with a disability, may be exempted from having to be a “first time home buyer” to qualify for the tax credit.

The house you purchase must also be considered as a “qualifying home” as well. Most types of home that can be bought qualify for this tax credit. This includes the following:

• Single family homes
• Semi-detached homes
• Townhouses
• Mobile Homes
• Condominium Units
• Duplex apartments
• Fourplexes
• Apartment buildings
• A share in a co-operative housing corporation

Another requirement is that you must occupy the home being purchased as a principal residence for either yourself or for the person who has a disability no later than one year when the home was purchased.

Who Can Claim the Tax Credit?

You, your spouse or common law partner can claim the tax credit. You can also share the credit jointly so long as the combined claim is not in excess of $750.00 in total.

Where Can you Claim the Tax Credit?

You can claim the tax credit on the specified portion of your personal income tax form that you complete for Revenue Canada for the year in which you purchased your first home. You will not have to include any specific documents, but should have the information available as it could be requested by the CRA (Canada Revenue Agency).

Home Buyers’ Plan (HBP)

Additionally, the Federal Government allows all Canadians to use their RRSP monies towards a down payment when buying or building a home. This money can withdrawn tax free from your RRSP so long as it is used towards the down payment of a new home.

You currently withdraw as much as $25,000 tax free from your RRSP providing the funds withdrawn have been in an RRSP for at least 90 days before being withdrawn.

Additionally, any RRSP monies which are being used towards your down payment must be re-paid in 15 years until the HBP money balance is fully reimbursed. If you do not repay the money that is due in any particular calendar year, then that amount will have to be declared as income for that year on your tax form.

This Change Will Have a Direct Impact on Rates – Ask Bruce Coleman, Vancouver Mortgage Broker

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Robert McLister is the editor of CanadianMortgageTrends.com and a mortgage planner at Verico IntelliMortgage, a mortgage brokerage.

You can also follow him on twitter at @CdnMortgageNews

101 Home Series: Adding a Secondary Suite to Your Vancouver Home

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Adding a Secondary Suite to Your Vancouver Home

Buying a home in Vancouver is a fairly expensive proposition these days. But, there is one strategy you might consider to offset the amount you pay on your pricey mortgage. You might consider adding a secondary suite to your Vancouver home.

A secondary suite which is also sometimes known as an “in-law suite” or “accessory apartment” is essentially a self-contained living unit that offers both kitchen and bathroom facilities. You can convert a portion or your home such as the basement area and rent it out for additional income.

However, before you jump on the band wagon and start renovating, there are number of things to consider beforehand.

Know What Regulations Apply

If you do plan to renovate your home or an already existing secondary unit you must ensure that you are in full compliance with any and all applicable zoning, by-laws, and any municipal/provincial building code and fire codes that must be satisfied.

Check Out Your Vancouver Zoning By-Laws First

Fortunately, Vancouver has one of the more liberal zoning by-laws when it comes to adding a secondary suite to your home. In Vancouver, you can add a secondary suite to any detached home in the city located in the RS, RM and RT zones.

The City of Vancouver has also relaxed requirements for the following:

• Reduced ceiling height requirements
• Reduced requirements for sprinkler systems
• Allowing full basements to include basement suites which are both liveable and functional

The City of Vancouver also provides a detailed guide which explains how you can legally conform to all their requirements for either an existing suite or what you need to do to create a new suite.

The best way to get started to find out what you need to know to meet the health and safety requirements you should contact the city and arrange for an inspector to come out and examine the space which you plan to renovate.

Make Sure You Comply with Building and Safety Codes

Your secondary suite must also comply with any applicable municipal and provincial building and safety codes. Their purpose is to protect the health and safety of your secondary unit occupants.

British Columbia has construction and design requirements that specifically address the renovation and alterations that apply to secondary units and which differ from new construction.

Some municipalities within the Vancouver also have additional specific requirements that must be followed so you should ensure that you are in full compliance in the area where you live.

Other Consideration for a Secondary Unit

You should also be aware of some other aspects of constructing a secondary suite you will encounter. You will likely be increasing the value to your residence by adding a secondary unit which will most probably result in increased property taxes.

You will also have to contact your insurance agent as you will have to make changes to your policy and you will need to make any appropriate changes to your policy in case of an accident. A claim could be denied if the insurance company was not notified about the addition of a secondary suite.

You will also have to declare any income you receive from a secondary unit with Revenue Canada when you file your tax return.

Canadian Mortgage Insurer Basics- Consult with a Vancouver Mortgage Broker

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Canadian Mortgage Insurer Basics

Whether you are first time home buyer or buying your fifth home then you may be required to get mortgage insurance.

Mortgage insurance is required for any home buyer in Vancouver if they have less than 20% of the value of the purchase price of the home which they are using towards a down payment. If you have an amount equivalent to 20% or greater as a down payment, then you don’t have to worry about having to apply for mortgage insurance.

Many people in Vancouver can only afford between 5% (which is the very minimal amount you will be required to have for a down payment) or have less than 20% to use towards their down payment. If that includes you then you will have to get mortgage insurance.

What is Mortgage Insurance?

Mortgage insurance is used to protect lenders from a person defaulting on their mortgage loan. A lender has to buy mortgage insurance for any mortgage where the down payment being placed by the purchaser is less than 20% of the purchase price. The cost of this insurance premium is inevitably passed back to the purchaser.

Mortgage insurance should not be confused with mortgage life insurance because mortgage insurance is not a life insurance policy. They are two completely different things. A mortgage life insurance policy is generally bought to insure the amount of the outstanding mortgage balance so it will not be a burden to the survivors.

How Much Does Mortgage Insurance Cost?

The amount of premium you will have to pay will be in addition to the amount you will be required to pay for your mortgage payment. The premium varies and is dependent on the amount of both the purchase price and the amount of the down payment you are putting down towards the home. It is reflected as a percentage amount that the mortgage insurer will calculate.

The more money that you borrow, and the smaller the down payment – the higher the percentage in the premium you will be accessed.

You may also qualify for a percentage premium refund as high as 10% or a longer amortization period if the home being purchased qualifies as an energy efficient home.

Do You Have to Get Mortgage Insurance?

No, you do not necessarily have to get mortgage insurance but there is a significant disadvantage in not having mortgage insurance. In the first place, many lenders will not consider you if you do have it. Secondly, you will have to may have to pay significantly more in interest rates and administrative fees because you are a higher risk to lend money. Although mortgage insurance costs you more, you are most likely going to save significantly more by having it than not having it.

How Is Mortgage Insurance Payable?

You have the option of paying the mortgage insurance amount as either a lump sum up front or it could be included into your monthly mortgage payments.

How Many Mortgage Insurers Are There?

In Canada there are 3 primary mortgage insurers. The 2 best known mortgage insurers are CMHC (Canada Mortgage and Housing Corporation) and Genworth Financial Mortgage Insurance. A third new player was added to this list in 2010 and they are called Canada Guarantee Mortgage Insurance.

You will have to discuss which insurer is used or suggested by your lender or mortgage broker as one may be slightly more suitable over another depending on your individual circumstances.

Tips to Make your Home Renovations Profitable – Consult with a Vancouver Mortgage Broker

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Tips to Make your Home Renovations Profitable

There are many older homes in the City of Vancouver. If you’re either buying an older home or planning to put yours on the market then you should know you can add some significant value to your house by incorporating some remodelling or renovation work.

Some home renovation projects are well worth the return on your investment. You can not only increase the value of the house but earn back the money you invested by selecting the right kinds of home renovation projects so you aren’t left out of pocket.

Here are some suggestions for you to consider making your home not only more marketable but to also sell it more quickly when you do put it up for sale.

Home Project Repairs

You might be surprised to know that even minor repairs can make your property more appealing to buyers.

Some of the better repair projects are relatively simple. You can have you windows re-caulked and fix the gutters if they are warped or not functioning. You can replace an exterior door if it looks too weathered and sun beaten.

The interior of the home can always use some repairs such as applying new grouting to your tiles, or replacing dated plumbing fixtures such as faucets which might be tarnished or stained. Even something simple as replacing a toilet seat and adding some new towel racks can quickly spruce up the bathroom

Take a look at your walls and start by taking down a painting that’s been hanging on the wall for a few years and look at the difference. Plasterboard and drywall takes a beating not only from wear and tear but can crack or buckle slightly as the house settles. This might be the perfect time to fix those dings and cracks and apply a new paint job.

Simple jobs like this can make all the difference when it comes to enhancing the appeal of an older home.

Major renovations

There are other major renovation projects which can increase the value of the home. One of the primary areas which have an excellent return on your investment includes a new roof replacement if yours is excessively old and showing significant signs of deterioration.

Two other areas which also could use a significant makeover especially if they have been untouched for awhile include the kitchen and the bathroom. Both of these projects can be costly and should be planned well before you undertake them.

However, these are two of the prime areas that prospective buyers look at when they view a home and base their decision to buy or leave alone. A renovation project to upgrade your kitchen or bathroom can also include more eco-friendly aspects which also have added appeal.

If you have areas such as your basement which are unfinished or in poor shape then this can also be a profitable home renovation project especially if it enhances the additional living space.

Some projects which have a very poor return on your investment include adding on additional room to increase square footage. Other projects which can be costly and don’t provide a good return include adding a pool or performing major landscaping renovations unless you plan to live in the house for a number of years.

Home renovations are popular these days and for good reasons. Upgrading your home with more technologically advanced and environmentally friendly technology can also help you save money over time.

Pick the right term, pay off mortgage faster – Ask Bruce Coleman, Vancouver Mortgage Broker

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Robert McLister is the editor of CanadianMortgageTrends.com and a mortgage planner at Verico IntelliMortgage, a mortgage brokerage.

You can also follow him on twitter at @CdnMortgageNews

The trick to making a mortgage disappear faster is to minimize your total borrowing cost. And nothing dictates total borrowing cost more than the term you chose.

Picking the right term is even more important than selecting the best lender, choosing the appropriate mortgage features and finding the lowest rate. Choosing the wrong term can lock you into a punitive rate for years to come or, conversely, expose you to rising rates because you haven’t locked in for long enough.

“Term” refers to the length of a mortgage contract. The most common option is the five-year fixed term, chosen by well over half of Canadian borrowers.

But popularity doesn’t make a mortgage right for you. The ideal term will vary as interest rates and your financial circumstances change.

In the last two months, longer-term fixed rates have jumped by up to half a percentage point. That’s made certain terms less appetizing than others. These are some of the best and worst terms du jour – the stars and the dogs of today’s mortgage market.

THE STARS

Four-year fixed

Four-year fixed rates are still less than 3 per cent, and will save you about one-third of a percentage point versus the interest rate on a five-year fixed term. Multiply that by four years and you’re talking about potential savings of more than a couple thousand dollars of interest on a $200,000 mortgage.

To be sure, a five-year fixed term may shield you from rate hikes for one extra year, but it also boosts your chances of paying a penalty if you break or renegotiate your mortgage early.

If you instead take a four-year term and renew into a one-year term, you’ve covered the same five-year timespan and given yourself more flexibility in the process. Bump up the payment on your four-year mortgage to match a higher five-year payment and you’ll whittle down your mortgage even quicker.

One-year fixed

One-year fixed mortgages are low-margin products that most lenders don’t push, but they can be an attractive product for the right borrower. For starters, one-year fixed mortgages come with rock-bottom interest rates, roughly 2.39 per cent as we speak.

That’s a good solution for well-qualified borrowers with less than 15 years remaining on their mortgage – who don’t mind taking a gamble that interest rates will stay low for longer.

One-year terms are also an ideal substitute for a variable rate. The rates on a one-year term are lower up front and you can renew into a variable rate mortgage in 2014, a time when many expect variable-rate discounts to improve. If you would rather lock into a fixed rate at renewal, you can secure that rate ahead of time – typically six to nine months after starting your one-year mortgage.

THE DOGS

Five-year variable

You’ll save 0.40 percentage points by choosing a variable rate mortgage instead of a four-year fixed term. But you give up all rate protection, which could come in handy by 2015. Moreover, the 0.5 percentage point discounts on the prime rate (that today’s variable mortgages offer) could improve by next year with a drop in lenders’ cost of funding these mortgages.

Three-year fixed

Unless there’s a good chance you’ll break your mortgage in three years, look elsewhere. The 0.10 percentage points you’ll save off a four-year fixed term could easily be offset by higher rates when you renew.

Seven-year fixed

Mathematically, seven-year terms are a bad idea and almost always have been.

The few extra years of certainty simply don’t justify the rate premium you’ll pay over a four- or five-year fixed rate.

If you’re that worried about inflation driving up interest rates, shell out another tenth of a percentage point and get a 10-year term.

THE IDEAL MORTGAGE

Calling one mortgage term the “best” is like declaring the best flavour of ice cream. The ideal mortgage is different things to different people.

Picking the right term rests on your individual circumstances and will depend upon the risks that you may face. If there’s a significant possibility that your cash flow may dip in a few years, or that you won’t be able to prove your income or credit worthiness at renewal, then a one– or four-year mortgage may not be worth it.

Instead, the extra up-front cost of a 10-year fixed might actually be justified.

Moreover, if your debt levels are above-average, you might not even qualify for a variable-rate or a one- to four-year fixed term. (Lenders’ affordability standards are stricter on those terms.) If that’s the case, you may be forced into a five- or 10-year fixed term. There’s no question that more folks will wind up in this boat as rates climb and qualifying becomes tougher.

All that said, spend as much time on picking a term as you do on picking a rate. Your investment in time will pay dividends through lower borrowing costs.

Robert McLister is the editor of CanadianMortgageTrends.com and a mortgage planner at Verico IntelliMortgage, a mortgage brokerage.

You can also follow him on twitter at @CdnMortgageNews

Get a mortgage without a salary – Consult with a Vancouver Mortgage Broker for help

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There are things that you can do to help you qualify for a mortgage.

Landing a mortgage is trickier for the self-employed than their salaried counterparts. Not only do self-employed people face higher interest rates and CMHC mortgage insurance premiums, they are also more likely to have their loan applications rejected outright. If you’re self-employed, you’re best off seeing a mortgage broker a few years prior to your purchase so you can make a plan.

It sounds counterintuitive, but you may want to keep tax deductions to a minimum for at least two years before applying for a mortgage. You’ll show more income on your tax return, which will make it easier to qualify. “It’s about foregoing some short-term tax savings in order to qualify for a future mortgage,” says Scott Plaskett, CEO at Ironshield Financial Planning. You want to show income stability, he says.

Keep in mind that the larger the down payment, the better your chances of getting a low-rate mortgage, as greater equity means less risk to your lender. While banks are fairly strict on their lending criteria, a mortgage broker can help you access other types of lenders that are more likely to approve your loan.

-Vanessa Santilli

By Special to MoneySense | From MoneySense Magazine, Summer 2013

101 Series – Preparing your Landscaping for Home Viewing Re-Sale

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One of the first things that a prospective buyer notices when they approach your home is your front yard. This is known as “curb appeal” and makes a vital first impression when you are trying to sell your home.

How important is the quality of yard? Well, you might be surprised to learn that a well-groomed front yard actually helps sell a home five times quicker than an unkempt yard. It’s the psychological effect that can create a positive or a negative mindset of a prospective buyer before they even step inside your home.

Although you might have taken the time and spent some money on prepping the inside of your home, take some time and groom the exterior as well.

Here are a few ideas to get you started in the right direction.

Planning

You want to draw u some kind of plan before you make any landscaping improvements. Most landscaping experts suggest you take a two-fold approach. The reason is that most properties consist of both the front and the back yard.

You should draw a scaled diagram and for both yards and consider that each has a different function. The front yard is a reflection of the people who own the home and what you want to focus on here is “eye-appeal.”  This is the area that should concentrate on a bit of artistic endeavour.

The back yard is where people like to relax and enjoy their down-time. Here, you might want to consider both privacy and the deck area along with an aesthetic or functional approach.

Basic Maintenance

If you don’t have the cash or a lot of time to spend on your yards, you still have to do the basic maintenance when you are showing your house. Sweeping the walkway or hosing down the driveway will make it look cleaner.

Don’t forget your exterior windows and make sure they look nice and clean. Sweep away any cobwebs and maybe consider adding some fresh caulking if it’s looking old, weathered or cracked.

You also might want to consider pressure washing the siding or the back yard deck. If your deck is showing a bit of wear and tear then you it might be time for some fresh staining.

If you have a wooden door or shutters, then a bit of prep work and some fresh paint can make all the difference.

You want to weed any flower beds, and trim away all the dead branches. It is also a good idea to neatly trim the edges of flower or shrub beds. And, nothing makes a yard look more appealing when the lawn is freshly mowed and raked.

Also, clear away any clutter such as toys, bikes and tools because the neater the look the greater the appeal it has for a prospective buyer.

Increase Eye Appeal by Adding Some Colour

If your front yard is plain or bland looking than you might want to add some colour to give your property some extra visual impact. If you’re are lacking some ideas then take a walk around the neighbourhood to see what catches your eye or visit the local garden center as they have the expertise on how to get some very appealing colour contrast that will add some visual appeal.

You can get perennials or shrubs that flower at different times of the growing season so your yards always have some stunning colour that stands out.

It’s the little things that catches a person’s eye and says a lot about the people who own the house.

Rent-to-own works, but beware the pitfalls – Ask Bruce Coleman, Vancouver Mortgage Broker

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Renting to own a house can be a very effective way for a buyer without enough of a down payment to buy a home. But do your homework.

By: Mark Weisleder Real Estate

Can you handle higher interest rates? – Consult with a Vancouver Mortgage Broker

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Garry Marr  | @DustyWallet

It may be stressful to think about it but higher mortgage rates are on the horizon.

The questions for homeowners is whether they can handle a hike in interest rates.

Bank of Montreal says consumers should stress test their mortgages a couple of ways, considering higher interest rates and a shorter amortization period.

Canadians new to the home market can be particularly vulnerable to changes in the mortgage market.

“First-time buyers should stress-test their mortgage to ensure they are well financially prepared for home ownership and a potential upswing in interest rates, not only to manage costs but also to pay off their mortgage as soon as possible,” said Frances Hinojosa, a mortgage expert with Bank of Montreal.

While new governor Stephen Poloz did not raise the overnight lending rate, the Bank of Canada did indicate this past week the long-term goal is still a “gradual normalization” of rates. The overnight lending rate, which prime tracks, has an immediate impact on variable rate mortgage.

Consumers with long-term loans may already be feeling the squeeze. If you are coming up for renewal, it may be time to work in higher rates into your budget.

The fixed-rate five-year closed mortgage, which was once as low as 2.99%, has risen steadily in the past few weeks and is closer to 3.5% at most banks. It’s only a different of 50 basis points but it means a larger payment.

On a $500,000 mortgage with a 25-year amortization, at 3% your monthly payment would be $2,366.23 and you would pay $69,346.66 in interest over a five-year term. Take that same mortgage and raise the rate to 3.5% and the monthly payment jumps to $2,496.36 and the interest over the term reaches $81,180.96.

The real question might be what are you going to do if rates rise to 5%. That $500,000 mortgage with a 25-year amortization would now cost you $2,908.03 and the total interest cost over the five-year term would jump to $117,018.99.

“It remains vital for Canadians, particularly homeowners, to be prepared for for the inevitable rise in interest rates,” said Ms. Hinojosa, adding Canadians should also consider shorter amortization periods.

It’s been just over a year since federal government cracked on the maximum length allowed for amortization for insured mortgages backed by taxpayers. The maximum length is now 25 years, down from a peak of 40 years. A longer amortization period lowers monthly payments and allows consumers to qualify for a larger loan.

That $500,000 mortgage with a 5% rate would become even more burdensome if the amortization length was cut to say 20 years — not something Ottawa is currently considering though.

With a 20 year amortization, the monthly payment would jump to $3,285.63. The good news is the interest over the five-year term would drop to $114,029.48

gmarr@nationalpost.com
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