Category Archives: Mortgaging Costs

What it costs to finance a home in BC

May 24

Reverse Mortgages

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Larry Brinkworth AMP, SFC

From time to time I am asked about Reverse Mortgages and how they work. Our main partner in this product is 'CHIP' or Canadian Home Income Plan.

In order to qualify for a CHIP Reverse Mortgage, both you and your spouse must be at least age 60. The typical borrower who benefits from this program either has his home paid for or has substantial equity. With CHIP, the maximum available mortgage is limited to 40% of your home's value and the older you are, the greater the percentage you can borrow.

With a Reverse Mortgage, you make NO PAYMENTS! That's right, the interest portion is added to your balance and you and your spouse can live in the home until you decide toCHIP Logo sell or the surviving spouse passes away. This type of mortgage is generally suited to the borrower who needs cash but either cannot, or would prefer not to make payments in their later years.

Interest Rates are quite affordable with CHIP and are generally speaking, very close to Bank Posted Rates. For updated rates and terms and general information, click here.

A Reverse Mortgage is not for everybody, but your Mortgage Professional at The Mortgage Centre will help if this plan is right for you. We'll give you the valuable advice you need to make a decision about this innovative product and walk you through the process of applying for and completing your CHIP Reverse Mortgage.

Apr 27

A Prime Rate Increase Warning?

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This week a few Mortgage Lenders have announced an increase in Variable Rate Mortgage Rates. The Premium under Prime Rate has been decreased (that means an increase in the rate borrowers pay on new mortgages). For example, what was priced at Prime minus .65% is now being priced at Prime minus .40%–a rate increase of .25%.

Is this a warning of an increase in Prime Rate?

It is an indication that Lenders' costs of "Short Term" funds are increasing along with the recent increases in "longer term" rates.

Many economists have been predicting an increase in Prime Rate for as early as the May Bank of Canada rate set meeting (May 31st, 2011). With the election over and done, will Prime Rate increase after May 31st? We'll have to wait and see.

Apr 19

Are Borrowers Ready For Higher Rates?

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The signs are there. Inflation is trending up. Bond yields are rising. There's still no foolproof way to predict interest rates, when they will rise and by how much.

What every borrower can do is to test at what interest rate "financial discomfort" occurs so that he or she can manage that risk. The best way to understand how to test is by example:

Let's assume that you are easily making a payment on a mortgage balance of $250,000 at $1315 per month. But you know that a mortgage payment of $1525/ month, representing a 1.5% increase in rate, would begin to affect your ability meet your monthly obligations.

The former payment was calculated at 4% interest and the latter at 5.5% interest. So in this example as the market approaches a 5.5% mortgage rate, you can contact your mortgage professional to discuss your options for protecting yourself from further increases.

There are more factors involved in renegotiating or locking in a mortgage rate such as: mortgage breakage costs, refinancing costs, blend-extend options, etc. That's where the skills of a Mortgage Professional provide tremendous value.

Nov 18

What Effect HST On Housing Costs?

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There's been a great deal of confusion about what impact the proposed HST (Harmonized Sales Tax) will have on the cost of purchasing real estate. With that in mind, I have asked Sam Dabner of Fulton & Co to clarify what we know as at this date: (November 18, 2009). Here's a copy of that article from my Newsletter "The Mortgaging Multitudes"…

 

 

 

 

Harmonized Sales Tax and Residential Real Estate in BC

by Sam Dabner, Fulton & Co. LLP

Since the implementation of the HST was announced by the BC Provincial Government on July 23/2009, more and more is being disclosed as to how it will apply to various industries in BC.  In the residential real estate sector, several rebates will be available with respect to the tax payable on purchase of a new home, but effectively the amount of tax payable will still go up.

Current Status of GST and PST
At present, GST (5%) is generally payable when a new home that has never been occupied is purchased from a builder or developer.  A GST new housing rebate is available for homes valued less than $450,000.  The full rebate amounts to 36% of the total GST paid, and is available for houses priced up to $350,000.  There is also a diminishing, pro-rated rebate for houses priced between $350,000 and $450,000. As examples, the GST payable (net after rebate) on new homes are as follows:

Purchase Price Total GST Rebate Net GST Payable
 $350,000 $17,500 $6,300 $11,200
 $420,000 $21,000 $1,890 $19,110

Currently, PST (7%) is not directly applicable to purchase of any residential real estate.  Because the HST combines both GST and PST, the application of HST will effectively increase the tax payable on the purchase of a new home (subject to available rebates). 

 

Application of HST
Once harmonization is implemented, the HST will generally apply to the purchase of a new home at a rate of 12%.  Rebates will be available on new homes for both the former Federal GST component and the new Provincial PST component.

The rebate on the Federal GST portion of the HST will remain the same as it is currently (as described above). The rebate on the Provincial PST portion will amount to 5% of the purchase price up to a maximum rebate of $26,250.

As examples, the HST payable (net after rebates) on new homes based will be as follows:

Purchase Price Total HST Rebates (both PST and GST) Net HST Payable
 $350,000 $42,000 $23,800 $18,200
 $420,000 $50,400 $22,890 $27,510

As can be seen, the net HST on the purchase of a new home will be higher than the existing net GST.  For homes priced at $525,000 or less, the increased tax amounts to an additional 2% of the value of the property.  Above $525,000, the increased tax escalates over 2% and can be as high as an additional 4% or more for higher priced homes.

Some commentators have suggested that there will, in effect, be tax neutrality for new home buyers because there is currently estimated to be 2% PST embedded in the price of a new home. The theory is that new home prices will drop once builders and developers start receiving credits for PST paid, and no longer have to charge embedded PST back to consumers.  The embedded PST will go away, but the consumers will pay additional tax in the form of HST – which theoretically will even out the tax with the available rebate(s).

However, the neutrality will only exist if the benefit of the savings from the lack of embedded PST is actually passed on to consumers by builders and developers lowering new home prices accordingly.  It is difficult to envision prices being lowered this way.

Therefore, it appears that unless the Provincial Government makes the improbable move to increase the rebate amount on the PST portion of the HST above 5%, new home buyers can expect to pay additional tax of 2% or greater when purchasing new homes from builders and developers after July 1, 2010.

Oct 09

The Cost of Paying Posted Rates

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Vic Benard AMP

Vic Benard AMP

Why is there such a big difference between bank posted rates and The Mortgage Centres’ lowest rates?

The simple answer is that many lenders have posted rates which they charge to clients who often do not realize that lower rates are available. They offer the posted rate to their client and if the client accepts that rate they have a very profitable mortgage.

Let’s look at an example of the difference to a mortgage customer between posted rate and the current best discounted rate being offered for the same term.

For our example let’s assume a mortgage of $250,000 for a 5 year term amortized over 25 years. A quick scan of today's (October 9th, 2008) rates shows a typical posted rate for such a mortgage at 5.5%. Based on that rate a mortgage customer would have payments of $1,524.52 for 5 years. At the end of 5 years the remaining balance would be $222,935.77.

For the same mortgage at the current lowest rate of 3.84% the payments would be $1,293.46. This is a savings of $231.06 per month. In 5 years the total savings is $13,863.60. At the end of 5 years the remaining balance on this mortgage would be $217,023.99, which represents a further savings of $5,911.78.

The total savings available at discounted rates is $19,775.38. The financial institutions have a very
important reason to offer posted rates.

Your mortgage broker will save you many thousands of dollars by offering you only the very lowest rates available for your mortgage. Remember your mortgage specialist works for YOU not for the banks.

For more information about this or for any other mortgage topic please call at 374-2222 or e-mail:
benard.v@mortgagecentre.com