Stay Safe.  Stay Home. Save lives.

This is currently the motto for Canadians who are working hard across the country COVID-19 by staying home – including your mortgage brokers!  While social distancing of this magnitude has never occurred previously, it is important to understand that we are all in the same boat.  To help you get through this period, I have put together some tips for social distancing and staying safe (and proactive) at home:

Follow Best Practices:

Ideally, to make social distancing most effective, individuals are on only interacting with their household during this time and until the pandemic is under control.  Some other best practices include:

• If you have to go and restock your pantry or get supplies, try to only go out once per week.
• Be mindful of other consumers; do not overstock.
• If you are out in public, be sure to stay at least 6ft sway from other individuals.
• On walks, do not let your dogs say “hi”.  They will forgive you, we promise.

Maintain Your Routine:

When the world feels like it is going crazy, one of the best things you can do to keep your sanity is to maintain your routine.  Whether you’re out of work or working from home, making sure that you continue to get up at your normally scheduled time and go through your morning process is a great way  to maintain stability.  Taking your regularly scheduled breaks, such as lunch hour, while working from home are also important to maintain your schedule( and keep sane).  Br sure to continue to maintain social distancing procedures during this time.

Get Up and Move:

It can be hard to feel motivated, but it is important to make sure to get up and get moving when you are able.  From a home workout to a walk, everything works towards keeping your body and brain health; especially during times of extra stress.  Carve out 15-60 minutes per day for some light physical activity and you will be amazed at how much better you feel!

Connect With Others:

In today’s world, we have a plethora of technology at our disposal.  Even if you feel alone, there are ways to reach out to friends and family through Skype, Houseparty, Zoom Meetings, email, text and an old fashioned phone call.  While it is vital to maintain physical distance, we as humans require connections so be sure to utilize the tools around you and don’t be afraid to share your feelings – your friends are all in the same boat and will understand.

Stay Informed:

Information is power and the more information you have at your disposal as this situation develops, the better prepare you will be to mange your household and finances.  Donminion Lending Centres dedicated COVID-19 website is a great resource for staying up to date:  https://dominionlending.ca/covid-19/

It was a great honor for me when on September 25th,  Dominion Lending Centers, Chad Gregory, Vice President of National Sales stopped by my office and presented me with the Hall of Fame Champion lifetime achievement award.
This award is given to the top 25 highest sales achievers in Canada.
A big thank you goes out to all my loyal clients for your business and continued support.

Five-year fixed mortgage rates continued their upward march last week as the five-year Government of Canada (GoC) bond yield they are priced on hit its highest level in seven years. Meanwhile, five-year variable-rate discounts deepened, further widening the gap between five-year fixed and variable rates.

Years ago variable rate mortgages saved you more money than fixed rate mortgages 95 out of the past 100 years. First time home buyers were worried about what their home costs would be and avoided variable rate mortgages (VRM’s) because of the risk of rates going up higher than the fixed rate, but experienced home owners often took a VRM at mortgage renewal time.

However, in the past 5 years, most people have gravitated towards fixed rates because the gap between fixed and variable rates was small enough that the cost of uncertainty outweighed the potential reward for most borrowers.

Once again , the gap is widening. While fixed rate mortgages are going up due to the bond yield, variable rate mortgages have moved in the other direction.  Two years ago a VRM would be offered at Prime rate + .20%,  but later it reverted to Prime – .30% . In recent months, rates have dropped even further with some lenders offering Prime -1.0% !  You now have a choice between a 5-year fixed rate of 3.44-3.59% depending on the lender and a variable rate with a discount that calculates out to 2.45% . With a gap this large, it’s worth considering if you are risk tolerant enough to have a VRM. Remember once in a VRM, if rates start to so above a certain percentage you can always switch to a fixed rate.

The purchase of a home is likely the largest financial expenditure you’ll ever make. And getting your home inspected is an essential step in the home-buying process. No one wants to buy a money pit – and once you have signed on the dotted line, there is no turning back.

The best way to ensure you use a professional home inspector is to seek referrals from your mortgage professional, real estate agent or friends. Since you want to be able to trust your home inspector’s judgement, you have to ensure they’re not part-time home inspectors just trying to make some extra cash on the side, or they aren’t only home inspecting so they can also offer to complete any work for you that you need done on the home. To ensure the job’s done right, after all, the home inspection must not be biased.

The purpose of a home inspection is for the inspector to be able to tell you everything you need to know about the home you’re going to purchase so that you can make an informed decision.

Following are 10 key questions you can ask your home inspector before they’re hired to ensure the inspection will be completed professionally and thoroughly:

1. -Can I see your licence/professional credentials and proof of insurance?
2. -How many years’ experience do you have as a home inspector? (Make sure they’re talking specifically about home inspection and not just how much experience they have in a single trade.)
3. -How many inspections have you personally completed?
4. -What qualifications and training do you have? Are you a member of a professional organization? –What’s your background – construction, engineering, plumbing, etc?
5. -Can I see some references? (Make sure you also check the references.)
6. -What kind of report do you provide? Do you take pictures of the house and add them to your report?
7. -What kind of tools do you use during your inspection?
8. -Can you give me an idea of what kind of repairs the house may need? (Be wary if they offer to fix the issues themselves or can recommend someone else to complete the job cheap.)
9. -When do you do the inspection? (Let’s hope they don’t have a day job, and can only do them at night when it’s too dark to see the roof. It’s best to stay away from part-time inspectors.)
10. -How long do your inspections usually take?

Making Your Mortgage Interest Tax Deductible

For US homeowners, mortgage interest is automatically tax deductible. But for Canadians, the write-off is not so straightforward. In order to make your mortgage interest tax deductible, homeowners must be able to prove that the money is being reinvested and is not being used for personal expenses.

A properly structured mortgage-centric tax strategy has several key elements – the most important of which is a multi-component, readvanceable mortgage or line of credit.

It’s best to have a single collateral charge with at least two components – usually a fixed-term mortgage and an open line of credit – that can track and report interest independently. This is absolutely essential under Canada Revenue Agency (CRA) rules and guidelines.

Second, the strategy must employ conservative leverage-investment techniques – which is why a financial advisor must be involved in order to comply with federal regulations. The financial advisor should be a Certified Financial Planner (CFP) who is experienced in leveraged investing, and able to actively monitor a homeowner’s portfolio on an ongoing basis.

Homeowners who opt for a tax-deductible mortgage interest plan make their monthly or bimonthly mortgage payments the same way they would when making any type of mortgage payment. The payments go towards reducing the principal amount of the mortgage and are then moved over to the line of credit as the mortgage is paid down. But in order to be tax-deductible, the funds must then be transferred to an investment bank account, which can be done automatically by your CFP.

Once the money is in an investment bank account, it can be reinvested and the money becomes tax deductible. Essentially, the homeowner is borrowing from the paid portion of the mortgage for reinvestment purposes.

On average, a typical 25-year mortgage can become fully tax deductible in 22.5 years.

If you have a rental property, you can also use this tax-reduction strategy even further. When you receive your rent, you can then use the funds to help pay down your personal mortgage. Once paid, the rental funds move to the line of credit and are then transferred to the investment bank account. They are then used to pay down the mortgage on the rental property. Using this method, it is possible to have your mortgage interest become fully tax deductible in only 3.5 years.

The ideal client

Ideal borrowers for an advanced mortgage and tax strategy are typically professionals or other high-income earners who have a conventional mortgage (have at least 20% of the cost of the home to put towards a down payment) and have built up substantial equity.

As high-income earners, their total debt-servicing ratio will be quite low and they will have excellent credit (700+ Beacon scores). These borrowers are financially sophisticated homeowners that are keenly interested in establishing a secure financial future and comfortable retirement. They also have good investment knowledge. 

The risks

The financial benefits of tax-deductible mortgage interest are indisputable and justify the risks to the right borrower. That said, a problem can arise if a homeowner spends the funds as opposed to reinvesting them. As well, any tax refunds have to flow through the investment cycle in order to realize the benefits of paying down the mortgage as quickly as possible – and making as much of the interest payment as possible tax deductible.

Short-term financial risk is liquidity risk (sometimes referred to as cash flow risk). Cash flow risk addresses the possibility that interest rates will sharply drive up the cost of borrowing at the same time as markets falter, resulting in a negative client monthly cash flow for a brief period of time.

This short-term risk is typically only prevalent in the first two to four years because, after this period of time, the homeowner has stockpiled enough equity through annual tax refunds that other liquidity options exist and the risk is fully mitigated.

Liquidity risk varies widely based on the balance sheet strength of the homeowner. Highly qualified homeowners are easy to manage as these borrowers have no difficulty meeting the short-term cash flow demand should the need arise.