• This only affects high ratio deals
• This does not affect you when putting 20% or greater down payment
• If you have a firm deal (subjects removed) on or before March 17th, this does not affect you
• You can even switch lenders or mortgage brokers after March 18th
• Just don’t alter the mortgage and return to the original insurer (CMHC, Genworth, etc)

The goal is to pay off your mortgage faster while enjoying tax deductions and instead of being just mortgage free, finishing your mortgage with a large investment fund for retirement.

In order to access the Smith Manoeuvre, you must have access to a readvanceable mortgage. There are a number of lenders who offer these mortgages but by aware, some are Smith Manoeuvre friendly whereas others make it very difficult to use this strategy. Please consult us or with your favourite mortgage broker who is knowledgeable of the Smith Manoeuvre for a list of lenders.

However, instead of trying to conduct the Smith Manoeuvre on your own, I highly suggest taking a look at TDMP (Tax Deductable Mortgage Plan). For a small monthly fee, TDMP essentially manages everything for you and monitors your progress.

TDMP partners you up with a mortgage broker (me) and a financial advisor. You will be given a breakdown of the potential from the strategy. This does not work for everyone but if we feel you are a good fit, we will proceed. Following this we set up a readvanceable mortgage and sell your non-RRSP assets (stocks, non-registered mutual funds, etc). We use the proceeds to pay down your mortgage. You can readvance the proceeds from a LOC (line of credit) portion of the readvanceable mortgage and repurchase those investments. This has now turned the interest from that portion of the mortgage into a tax deduction.

The next step is to pay your mortgage as you typically would. With each principle payment you readvance that amount into the LOC and invest this money into a higher yielding investment than the interest you would be paying on the LOC. The interest portion of the LOC is a tax deduction that will award you an annual tax return. Use this to pay down your mortgage further and readvance the funds again.

Rinse and repeat until your mortgage is paid off. What is the difference? Your mortgage should theoretically be paid off twice as fast and you should have a very healthy investment portfolio to play with.

This concept is certainly a brilliant idea but of course like most investment strategies, has risks. Always consult an experienced financial advisor and accountant familiar with the Smith Manoeuvre prior to proceeding.

According to economist Benjamin Tal, who recently spoke at a mortgage conference, the ratio of mortgage holders who are 35+ years old and making over $50,000 (adjusted for inflation) has steadily increased in the last 5-10 years and that current rates are probably good until the middle of 2011. The rates are expected to rise slightly then, which is also a good sign that employment is rising.

So, putting off the decision to purchase your first home might not be the best idea – it’s still a good time. And don’t be too concerned if you are a first time buyer and think you don’t have enough down payment.   In Canada, we have mortgage insurance, which allows home buyers to get a mortgage with only a 5% down payment – we call it  high-ratio because it is less than 20% per down, which is needed for a conventional mortgage. It doesn’t mean you pay higher interest rates. There are a number of programs in place for first time buyers.

Here are some of the guidelines to quality for a high-ratio mortgage. The property must be in Canada and your 5% down payment has to come from your own resources or can come from family. The total amount of your principle, interest, taxes, your heating bill and 50% of condo fees, if applicable, cannot exceed 32% of your gross income. This is called Gross Debt Service.  Add on the rest of your household debt, which includes credit cards, loans, etc. and the amount cannot exceed 40% of your gross income, which is called your Total Debt Service. There is also a premium charged for the mortgage insurance, which is tacked on to your closing costs.

For those of you who want to get into a house before the holiday, let’s get you pre –approved. Contact me for more information or if you just want to ask some questions for future reference.

Until next time,

Jessi

Vancouver Mortgage Broker

So you’re thinking about take the leap into home ownership as a first time buyer? It’s a great time to do it — interest rates are low, home prices are stabilizing, and the economy is turning around.  But you’re new to this and are not quite sure if you qualify or even if you have enough money for a down payment. It’s probably less than you think.

All you need to get into your home is 5% of the purchase price of the home as a down payment. Ideally, you’ve saved the down payment in a savings account or have an RRSP which you can withdraw up to $20,000 with no penalty.  But, if neither of those work for you, don’t worry, there are still a few options.

Consider these:

• Your parents or a close family member gifts you the down payment
• You can borrow the down payment – the payment gets factored into your debt service ratio
• You can sell some personal property
• You can sell any assets, such as stocks or bonds
• Find out if there’s any cash value built up in your life insurance policy
• If you have a large credit limit you can get a cash advance on your credit card. Once again the payment will be factored into your monthly debt service.
• You can ask a friend or a family member to guarantee the mortgage
• If you have some funds saved but not enough, you could qualify for a second mortgage.

There’s one more source for the down payment and that’s the vendor take back. Basically the vendor of the home will lend you the down payment in the form of a second mortgage. The idea here is to get you into a home for the short term – one or two years — so the equity builds and at the end of the term you would be able to refinance and pay out the second mortgage.

Whether you’re ready to take the next step or are still in the thinking stage – let’s talk.

Until next time

Jessi