Increased Amortization with Leverage

Hidden Money!

Increased Amortization with Leverage

 

Another strategy I employ with clients, involves increasing their mortgage amortization (which decreases payments) then taking out an investment loan and investing, with the plan of using it to pay down the mortgage in future.   It effectively lowers your monthly payment, creates a tax deduction annually, and pays off a mortgage quicker.

This looks really good, & has great potential, however it is important that you are aware of any risks associated with this particular strategy. This is the more risky of the 3 strategies (and although I have attached a sample of what this might look like – using a real client) this is really something we would want to go over before you make any decisions.

SAMPLE – for illustration purposes only

Original Principal: $248,000.00
Mortgage Loan Date: January 1, 2008
Original Proposed
Payment Frequency: Monthly Monthly
Mortgage Type: Fixed Rate Fixed Rate
Interest Rate: 5.000% 5.000%
Term (years): 10.00 10.00
Amortization (yrs/periods): 15.00 / 180 35.00 / 420
Payment Amount: $1,955 $1,244
Total Payments in First Year: $23,455 $14,922
Total Interest Cost For Term: $90,248 $115,032
Total Interest Cost For Amortization Period: $103,818 $274,280
Mortgage Balance at 10 years: $103,702 $213,809
Take out 100,000 Investment loan over 10 years with an 8% rate of growth (see
projections) = $110,226 net.
If used to pay down mortgage, outstanding balance after 10 years = 103,583 left owing on
the mortgage.
Your monthly payments are reduced by $344 per month & because your borrowing to
invest on the $100,000 investment loan. You will get a tax refund of $1764 annually.
Net result
$1764 in new tax savings
$119 less left owing on your mortgage
$344 less in monthly payments
• original cost – proposed + cost of Investment loan (367/month)
These projections are based on certain assumptions that are believed to be reasonable, but there is no assurance that the actual results
will be consistent with this projection. The actual results may vary, perhaps to a material degree, from these projections.

Municipal Tax Rates-The Gammer Report 01-09

Had a great lunch today with Fraser Valley Commercial Real Estate expert Stephen Gammer, along with the very best of the TD Commercial Banking Team Steve Ponte and Craig Hinton.

Stephen had some really intersing things to say about the new Federal budget anouncements and the state of the market in the Fraser Valley. Clearly this is a matter close to his heart and is extremly well versed on the subject, having attended numorious conferinces and taking a major role in the UBCM

Stephen also writes for the Businnes Journal, take a look at the Gammer Report on his website at www.gammer.ca Here is the January issue regarding Municipal Tax Rates.

 

 

 

The Unchecked Municipal Tax Explosion

Municipal Tax Rates across the province are rising far faster than the rate of population growth and inflation combined. With a shaky economy being the number one issue on everyone’s mind as we face another election (Municipal Elections are November 15), we need to be looking in our individual back yards and asking our local politicians about the sustainability of rocketing tax rates and how much more property owners can bear.

The Canadian Federation of Independent Business released a report this summer stating that between 2000 – 2006, our combined rate of population growth and inflation has risen by 20%. During that same time municipal spending has grown by 35.7% and property taxes grew by 33.3%. Having come back from the Union of British Columbia Municipalities annual meeting in Penticton in late September I was able to get a first hand look into how our local politicians and bureaucrats go about solving local government issues. Controlling their level of taxation wasn’t even on the radar screen; in fact it was the opposite.

 

The #1 policy paper presented at the convention was entitled “Financing Local Government: Achieving Fiscal Balance.” The ways to achieving this fiscal balance include some of the following recommendations, “Removing Restrictions on Existing Revenue Instruments: broaden the allowable uses of Development Cost Charges revenue, use of parcel taxes and flat taxes, taxation of telecommunications companies, and use of hotel tax revenue.” Future sources of revenue the municipalities are looking for are: fuel tax, liquor tax and real property transfer tax.

 

The prospect of the introduction of a local government property transfer tax should be frightening to most home and business owners. The provincial Property Transfer Tax is one of the most hated taxes in BC and pulls in close to a billion dollars government’s coffers (depending on how much the economy grows). Putting an additional local based tax burden on property sales will only hurt home buyers and erode our standard of living and business viability. While at the UBCM I sat in on problem solving sessions where counselors and city staffers talked about the issues confronting their communities. All of their solutions were about obtaining grants from the provincial government or non-profit foundations, performing endless studies, holding community in-put sessions, and lamenting their under funding from the senior levels of government.

As printed in The Business Journal

By Stephen Gammer

www.gammer.ca

Rates on TD Canada Trust HELOC Changes

Good News!

 

TDDave Vancouver David Hudson

TD Canada Trust has announced that HELOC account changes for the benefit of those with existing TD Canada Trust HELOC accounts who would like to have access to additional equity!

 

For the last few weeks the target HELOC float pricing for the major banking institutions has been set at prime + 1% or 100bps, this has presented a problem for clients who have their float portion priced at prime and wanted to increase the limit. After all why should you be ‘penalized’ for being a loyal customer and wanting to borrow additional funds—the banks should be hungry for your business!

 

 

TD Canada Trust has taken steps to further position itself as the market leader in the Home Equity Line of Credit market. It was announced that all new HELOC accounts for existing customers would be at prime + 0.5% or 50bps (depending on a first or second position) here is a breakdown;

IF –

1st position      

      -          Retain existing HELOC account at current rate, no limit increase

-          Process a new HELOC account in 2nd position at target rate for the required increase amount

-          New registration charge require

            II

-          Close existing HELOC and open a new HELOC in 2^nd position

-          Rate on increased HELOC limit is the greater of the existing rate or Prime + 0.50% and applies to the total (original AND additional) HELOC limit

#### 

Because I treat your money like its mine, when it’s time to save you money or make you money, I am like a ‘Warrior!’ Money is an emotional issue and to represent yourself is like performing surgery on yourself. You would never do that, would you?

 If being healthy is important to you, then you delegate that to a person you trust and respect. Like me, you probably believe it’s in your best interest to have a skilled, experienced and focused negotiator on your team! TDdave

 

 

 

TD Canada Trust Decreases effective 5 Year Fixed Rate

Good News!

Yesterday TD Canada Trust lowered the effective rate of its 5 year closed term product, effective November 13, 2008 the lowest 5 year closed rate is 5.79%

Vancouver Home and Interior Design Show

This weekend was the Vancouver Home and Interior Design Show, on the recommendation of an excellent Realtor ( Morgan Browne www.morganbrowne.caI decided to take the plunge and visit the show!

The show really was an amazing event, there was lots for all to see, touch and eat! Benjamin Moore http://www.benjaminmoore.com/ Design Stage presented Designing with the Stars, where some of HGTV’s http://www.hgtv.ca/ hottest upcoming talent like Kelly Deck and Wendy Russel, made sure that your pad will be looking tight for the Winter!

Another really cool theme was the Small Space Living presented by WesThurn Designs http://www.westhurndesign.com/ and Canadian Homestead Magazine http://www.canadianhomestead.ca/Formany that live in the Concrete Jungle of Downtown know the pain of having to properly stuff your 500 Sq ft show homes, it was really neat to see the concepts and how you can make things appear larger than they are (note to self)

Moving to the large floor level it was interesting to see the breadth and variety of vendors that the show attracted. Western Living Magazine http://www.westernlivingmagazine.com/ presented the West Xpressd along with BC Hydro http://www.bchydro.com/ a showcase of sustainable design from some of the West Costs local design talent http://www.fatcrowdesign.com/  , from art to architecture. It was definitely one of the highlights of the show and I really learned a great deal from it. some of the Designers featured where:

Alex Suvajec,Brent Comber,Contexture,Fat Crow Design,Greg Ball, Skookum Brand, Pulse Furniture, Keep it Cartesian, Joel Tobman,

Food Stage! Probably my favorite, well I was pretty hungry and the not-to-be-missed cooking demonstrations did not help my grumbling tummy! Forget the food the Kitchen was very sweet, ultra modern and hip to creative concoctions.

Right next door to the food stage was the Lounge, now this is something that I just was not feeling, it was just bizarre to try and make a trade show floor a hip urbaine wine bar, there was no way that it could lose the stigma of that cheesy blue carpet to bad because it looked like Peller Estates http://www.peller.com/okanagan/homepage.php and the Vancouver Sun http://www.canada.com/vancouversun/index.html put a lot of effort into the event

Future Shop http://www.futureshop.ca/marketing/_midnight_publish/splashpage.asp?test%5Fcookie=1 was there promoting Connect Pro, it was need to look at all the automated accessories that are available, kind of like a real life Cribs episode! A ultra-modern exhibit put together by Erik Lauzon of Konstruk Design http://www.konstrukdesign.com/Konstruk_Design_Vancouver_BC.html it showcased the most extreme gadgets that we would all love to have it was pretty cool!

What really excited me was the launching of a new upscale magazine for Fine British Columbia Properties, its called BEST-HOME Canada’s West www.besthomemagazine.com and is in a class of its own, think Robb Report meets DuPont Registry, the magazine is to be published three times a year and is based in Calgary.

I did see a booth from ING Direct but nothing from TD Canada Trust, which I found a little odd as TD Canada Trust is the lead sponsor on a major campaign on the HGTV network, The TD Canada Trust First Timer Mondays $25,000 Giveaway!

I hope that next year I can take a more active role in the show and represent TD Canada Trust!

Lynchism Gem: Ignore the headlines

Famed Money Manager Peter Lynch is perhaps best known for his timeless wisdom that you can beat the pros by focusing on stocks of companies where you either work or shop or have some other edge. But a more relevant Lynchism today is this gem: Ignore the headlines.

It’s not that easy thing to do, every water cooler and dinner table has endless chatter on recession, housing, subprime woes, the credit crunch, Overpaid CEO’s and soaring energy costs.

Makes you want to sit on your thumbs and wait it all out before making any big moves. But what exactly are you waiting for???

Rarely has there been a moment in time that you couldn’t scare yourself into doing nothing. And yet, as Lynch observed nearly 20 years ago, “in spite of all the great and minor calamities that have occurred…all the thousands of reasons that the world might be coming to and end-owning stocks has continued to be twice as rewarding as owing bonds” The top reason not to buy stocks, in Lynch’s view, is if you don’t already own a home-in which case, that should be your first investment. An owner occupied home is nearly always profitable.

Warren Buffet the Oracle of Omaha has recently been quoted to be actively perusing US Stock and companies with his personal account. “Be Fearful when others are Greedy, and be greedy when others are fearful.”

The Fundamentals of the economy especially in British Columbia are very strong. If you are needing to retire and have lived your whole like in Winnipeg and have enough to live well in BC would you not leave the winter behind, if you want to use your RRSP’s and the Canadian Medicare then your California of Canada is right here in the Lower Mainland!

 

Here is a great article in the Vancouver Sun echoing these ideals

#####

B.C. in better position than most to weather financial storm

Derrick Penner

Vancouver Sun

Monday, October 20, 2008

 

VANCOUVER — On the bright side, British Columbia is heading into a period of economic uncertainty with a provincial budget that is in good shape and an economy that is performing well, according to the  Institute of Chartered Accountants in B.C. (ICABC).

However, the B.C. economy is not doing so well when it comes to the competitiveness and productivity of its workforce, the ICABC said in its annual Check Up B.C. report, an assessment of provincial economic performance. B.C.’s labour-force productivity increased by 1.3 per cent between 2002 and 2007, the report said, which lagged the national average of 4.5 per cent.

“At this time of uncertainty, it is imperative that government continues to be conservative in their economic forecasts and considers all policy tools at its disposal to stimulate investment, boost productivity and maintain sound fiscal management,” Richard Rees, CEO of the ICABC.

Rees added that the no one knows what the impact of the current financial crisis will be, and while “many British Columbians stand to lose a great deal,” the province’s economy is “in a better position than many of our competitors to weather some of the challenges.”

The Check Up report measures factors in three general areas: quality of life, work and investment, mostly how these factors performed over 2007.

On the work side, the ICABC noted that B.C. reported a record low unemployment rate of 4.2 per cent in 2007, a year that saw 70,800 new jobs created.

However, in 2008 the job market has softened, the ICABC added, with only 500 net new jobs created in August and an unemployment rate that has risen to 4.6 per cent.

“Already many resource-dependent communities are feeling the effects of reduced consumer demand and lagging commodities markets, and our forest industry continues to stagnate,” Rees said.

“But we are fortunate in B.C. that the provincial government has done a good job creating a sound economic environment.”

© Vancouver Sun 2008

Giving Your Home a Makeover

Renovation, TD Canada Trust Mortage, BC Mortgage Information, HELOC, Self Directed mortgage, Home Equity Line Of Credit

You would probably be hard pressed to find a single person that loves every feature of their home. Most of us have a laundry list of things that we would like to be done to make the house perfect. But is it important to implement those plans?

Our homes are one of our most important investments. And the design and function of our home affects our lives every day. But in terms of investment potential, are we more likely to make money on our property if we remodel or move to a home that’s a better fit?

Sometimes remodeling pays off and sometimes it doesn’t. Almost always, the remodel represents a significant investment of money. No one wants to invest in something that won’t pay off, but it can be hard to determine if your plans offer true potential profits. Click here and learn which improvements add value to your home

You can use some points to help you evaluate whether the remodel is worth it or not, or whether it will affect your home’s resale ability. Here are a few points to consider.

Does it affect the curb appeal of the home?

Is your remodel going to make your house more attractive? If you were trying to sell your property, would it make people more inclined to stop and take a tour? Sometimes minor investments, like a fresh coat of paint on the front door, a few new flowering shrubs and a groomed front lawn are all you need to make the house presentable from the curb.

Will the remodel make your home competitive with your neighbors?

Is there something about your home that is lacking, that other homes have already? Maybe you need to add an extra bath. If you only have one bathroom when all the homes surrounding you have two or three, the remodel will definitely make your home more competitive with the those surrounding it.

Will the remodel make your home stand out?

Is there something about the remodel that will make your home distinctive from other homes? Emotions guide most buyers, and if they see features that are attractive, even upgrades from other homes, you property is more likely to resonate with them as being attractive.

Is your remodel going to add something people like or demand in houses?

Just like with clothing, there are parts of a home that become fashionable and parts that aren’t. For instance, stainless steel appliances are far more appealing than old generic white ones. Think about trends and the length that it will be in place before you make final decisions about what to add to your home and how buyers may view it.

Renovating is something you do for yourself and your family to make your home more enjoyable, but it’s also something you have to think of in terms of attraction to others. Depending on how long you intend to be in a home, unless the remodel makes the home more “sellable”, it may just not be worth it. On the other hand, some changes add great value to your personal enjoyment of the home.

Remodeling your home can help you fall in love with your home all over again, and it can be a great long-term investment strategy. A good remodel can add years and dollars to your home.

Contemplating a Renovation? If so, you’re probably trying to figure out the best way to pay for everything. A TD Canada Trust Home Eqity Line of Credit can be used as a mortgage and a personal line of credit all in one. With the ultimate in convenience and flexibility, TD’s Home Equity Line Of Credit (Self Directed Mortgage) might very well be the low-cost financing choice you need to get your profect underway sooner than later! Set up your appointment today TDdave

Canadian Mortgage Changes

“Mortgage changes followed concerns about housing crunch in Canada

by Julian Beltrame, The Canadian Press”

“OTTAWA – Concerns that cracks were beginning to appear in the foundations of Canada’s housing market were behind the government’s surprise decision to crack down on loose mortgage conditions ushered in less than two years earlier, officials and experts say.

Starting Oct. 15, Canadians will no longer be able to purchase a home with a government-backed mortgage with a 40-year amortization and no down payment.  

Instead, mortgages will be limited to 35 years and the government will only insure 95 per cent of the value of the home, meaning buyers will need to come up with at least a five per cent down payment. As well, borrowers must demonstrate that debt servicing costs are no more than 45 per cent of gross income and have a good credit rating.

But while most in the housing sector welcomed the announcement, they also questioned the timing. The Canadian housing sector is cooling after six torrid years of growth.

Bank of Montreal deputy chief economist Douglas Porter said the decision should have been made a year ago, when Canada’s housing market was likely exhibiting signs of a bubble as both prices and starts increased by double-digits over the previous year.

“It’s better a little late than never and better than ridiculously late,” Porter said.

“I think in hindsight, we can attributed a lot of the very strong conditions we saw right across the country in 2007 to the loosening up of rules in the prior year,” he explained. “At the time, I was a little concerned that the Canadian housing market just continued to thunder along last year when the fundamentals were starting to move against it.”

Liberal MP Garth Turner, who recently authored a book warning about a Canadian housing bust, suggested Canadians could expect to see the value of their homes fall about 15 per cent nationally, and 30 per cent in some hot markets such as Vancouver.

While praising Finance Minister Jim Flaherty for acting, Turner said the minister has also set up the conditions under which some Canadians will try to beat the Oct. 15 deadline.

“This pulls the plug right out of the bubble, but it does it in a way that inflates the bubble another few months,” he said.

“If you’ve been shopping around for a home and you don’t have any money for a down payment, you will want to buy now with zero down and a 40-year mortgage. If you’re a lender, you’ve got three months to load up people with debt regardless of what the debt-service ratio is.”

Ottawa said the changes were a precautionary measure designed to head off a U.S.-style subprime mortgage crisis, not an indication of underlying problems in the Canadian system.

But officials said concerns had been mounting for months as the government tracked the explosion in the issuing of mortgages longer than 25 years, for years the standard in Canada.

The government had been consulting with lenders, insurers and brokers for the past few months over generous mortgage products, said Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals (CAAMP).

“I think they were worried about what was coming out of the U.S. in increases in defaults and foreclosures, and I think they were concerned over their 100 per cent guarantee, wondering, ‘What is our risk here in a calamity?’ ” Murphy said.”

Julian Beltrame, The Canadian Press

http://www.canadianbusiness.com/markets/headline_news/article.jsp?content=b0710133A&page=2

I think that many folk’s are reading the headlines and forgetting to do a little more research, one of the biggest differences that can be plainly seen from the American counterparts is that the US was using 100 year Amortizations, yes you read that correctly 100 years. In the Vancouver market it is almost impossible for anyone to break into unless they have a substantial source of income, I don’t know of that many young people who have the kind of income to even consider home ownership in the Greater Vancouver Area.

I don’t foresee many being able to buy out there baby boomer parents either, and the parents need to pull the equity out of there homes in order to retire. “Nearly 3 out of 5 middle-class retirees will probably run out of money if they maintain their pre-retirement lifestyles, a new study from Ernst & Young www.ey.com has concluded.

The study, set to be released Monday, finds that Americans will have to drastically reduce their standard of living before retirement to live comfortably, or even avoid destitution, later in life. Middle-income Americans entering retirement now will have to reduce their standard of living by an average of 24 percent to minimize their chances of outliving their financial assets, the study found. Workers seven years from retirement will have to cut their spending by even more – 37 percent.” http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/07/13/MN9511OD8S.DTL

More Canadians will continue to be increasingly dependent upon their nest egg that has been built by the equity of homeownership, how will the new generation afford to take over the burden of what have become million dollar mortgages?

Just as an example the amount of income required for a 850,000 home with 5% down over a 35 year term would be 185,535 per year, I don’t know of many people under 40 that are legitimately earning that kind of income—even combined income—a great deal of the Vancouver bubble has been created from offshore money and as of right now the amount of offshore influx is still over 50k people from oversees moving here every year!

What do you think, is the younger generation going to be able to sustain these prices??

Listing quality or luck?

Over the weekend I had the privilege of assisting in a open house for a truly unbelievable Edwardian period character home in East Vancouver, the open was conducted on both Saturday and Sunday from 2-4 pm, as well as a ’sneak peak’ Thursday evening from 5:30-6:30. This home was one of those that you are truly proud to help show, all original un butchered mahogany woodwork, leaded and stained glass windows, pocket doors, a butler room and a basement suite with wine seller to boot! The house was partially staged and landscaping was in show home condition.

Thursday brought a few interested parties, mostly neighbors who new the homes pedigree, but a few interested parties, Saturday on the other hand turned into remnants of last year, we went through over 55 feature sheets and had to start limiting them to one per group! The open was heavily marketed using a variety of tactics from old fashioned legwork to the ‘ugly yellow signs’ but the turnout was one of the best I have seen all year. Sunday was much the same story; in fact the home had an accepted offer that was finished at 12am last night! A truly amazing feat as the purchase price was near the one million dollar mark, I should also point out that the home was on a smaller lot as the coach house had been build & sold off, property was stratified with a common backyard area, but one garage space owned by this house in the coach house.

Being that I have helped and held quite a few opens in my day and I keep hearing that ‘the market is slow, the pending Olympic meltdown, oil is at $136 US a barrel, the sub prime will happen up here or my favorite I am waiting till prices crashJ. It sure felt good be involved in something that positively proves all of this doom and gloom is wasted energy that becomes a self fulfilling prophecy.

Does anyone else have a positive story in this market they would care to share? Do you think it was simply the quality of the listing that made all of this happen or just luck?

Happy Selling

David Hudson

www.tddave.com