Archive for December 2008

With Christmas Season here and consumers waving their plastic cards around frivolously, we at MBN Mortgage want to remind you how your spending habits this holiday can affect your credit and investment potential.

Firstly, when you come across the “Do Not Pay For One Full Year Event” – it IS too good to be true.  Most consumers think that they will save over the upcoming year and pay off that couch or mattress in one lump sum.  However, statistics show that the majority of consumers do not change their spending habits and consequently, are unable to make that one lump sum payment on the final due date, one year later.

What does this mean? 

The 28% interest rate that is written in small numbers at the bottom of the contract you signed kicks in, and you begin having to make extraordinarily high monthly payments on that item you purchased.  These payments report on your Credit Bureau and are taken into consideration when applying for credit and factor into your Debt Servicing ability – in one short summation; it decreases the amount of credit you can qualify for.

Also, should you miss a payment or make a late payment, this too reports on your Credit Bureau and negatively affects your credit score, which in turn negatively affects your borrowing ability.

Secondly, for those who believe that maxing out your credit card to earn rewards points is a great idea – think again.  Unless you plan on going home that same day and making a payment onto your credit card for the amount you spent, you are worsening your credit situation. 

How is this possible?

When your credit cards exceed a 70% balance as compared with borrowing allowance, your Credit Score drops.  It is imperative that you maintain a credit card balance under this 70% capacity and absolutely do not exceed your maximum limit.

Thirdly, have you ever had the “Mall Experience”?  The one where you enter the mall around Christmas and are bombarded with individuals advertising “apply for your credit card now and receive a free bonus gift”?  If you are, you’re not alone.  The key here is to say “NO”.  Each time you apply for credit, the financial institution you are applying with pulls your Credit Bureau, and each time an inquiry is made on your Credit Bureau, it affects your beacon score.  Too many credit inquiries means a drop in your Beacon Score, which affects your borrowing capability.  If you want to apply for credit, do so the correct way – contact your MBN Mortgage Specialist and we will guide you through your credit application and provide you with helpful tips when applying.

Lastly, for those of you who believe that you can defer your last mortgage payment of the year to the end of your mortgage term, we are sorry to say, that is a myth.  Financial Institutions do not reward you for spending at Christmas by deferring payments.  Your mortgage payments are due on the same day as normal and processed in the timeframe as per usual.  So, enjoy the Christmas Season and the gift of giving but ensure you do not spend yourself into debt.

Contact your MBN Mortgage Specialist at 1.800.955.9662 for more helpful hints and how to avoid the credit crunch during the holidays.

MBN Mortgage

With winter on its way, it may seem too early to be thinking and planning for spring, but December is a critical month when it comes to smart financial planning. With year-end just around the corner, there are many opportunities to take advantage of now that will pay off next spring at tax time.

If you are interested in exploring this topic further, give us a call and we’ll help you manage your personal and business financial affairs.

Determining Which Tax Tips Apply To You:

Begin by reviewing your income, expenses and potential deductions.  Before you can make any adjustments you will need to look closely at how much you are earning, spending, and saving, and what you can deduct.

Next, review your portfolio; if capital gains are high, consider taking a loss to offset some of the capital gains income. 

You may also want to look at deferring some of your income.  Unless you have reason to believe the next year will bring you a higher income and move you into a higher personal income tax bracket, you may want to defer income until after the first of the year.  If you are self-employed, for example, send the last invoices out late in December so you will more likely receive payment in January.

Ten Tax Tips To Help You Save:

1.       Tax Loss Selling:  If you have taxable capital gains for 2008 in your non-registered account, you may want to sell some of you losing stocks.  Why?  The realized losses will offset your gains, thus reducing your taxable amount.

Capital Losses can be carried back against Capital Gains accrued in the previous 3 years and carried forward indefinitely.  Make sure you do this prior to December 24^th though as it takes approximately three days to sell your trade. 

The last day for settling trades on Canadian stock exchanges is December 24 and for U.S. exchanges it is December 26. Conversely, consider holding off selling any securities with accrued capital gains until after the New Year.

2.       Be Patient When Taking Stock Profits:  If you want to take profits in a stock, wait until the New Year – this way you will have a year of tax deferral.

3.       Charitable Donations:  You have until December 31, to make your charitable donations in order for it to count under the 2008 tax year.  Also, when you file your taxes next year, make sure you file all the donations under one person.

4.       Donate Stock Instead Of Cash To Charities:  It may be a bit late for this now because of processing time, but if you donate stock to a charity instead of cash you’ll get tax bonuses.  The tax regulations now state that stock donated to a charity will not face any capital gains taxes AND the contributor will receive a tax receipt for the amount donated. 

5.      Pay your January 1st Mortgage Payment on or Before December 31st: This allows you to take an additional deduction for interest paid.

6.       Be careful about buying an actively managed mutual fund: The later it gets in the year, the more likely you will pick up the capital gains distributions on a mutual fund you hardly own. Check the distribution schedule and if it’s late in the year, wait before buying the fund.

7.      If you’re self-employed, stock up: This is the time to buy all of the business equipment and supplies you haven’t yet purchased. Make sure to mark and save your receipts.

8.     RESP Contributions:  If you plan to make any Registered Education Savings Plan contributions, do so by December 31. The annual contribution limit is $4,000 per child. Likewise, pay all child-care expenses by year-end. The annual deduction limits are $7,000 for children under age seven and $4,000 for ages 7-16.

9.     RIFs:  If you or your parents are turning age 69 this year, you have until December 31 to convert your RRSP to a RRIF. If you planned to make one last contribution, do it by December 31 rather than the usual March 1 deadline. Your tax bracket may increase, so make sure you talk to a qualified financial professional about how you can structure your retirement finances to preserve wealth and minimize taxes.

10.  RRSP Contributions:  Don’t wait until the March 1 RRSP deadline to review your annual investments. Do this in December so you have time to take advantage of tax-smart investing strategies before the year-end deadline for income tax purposes.

Contact Your MBN Mortgage Specialist and we can help point in you in the right direction to get the correct and best advice on how to save when it comes to tax time.  Reach us at 1.866.955.9662 or www.mbnmortgage.com.

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Million Dollar Journey

In an unprecedented move, the Bank of Canada cut its key interest lending rate by ¾ of a percent today; this is the lowest rate since 1958 when it was 1.12%.

The National Post called the cut “radical” and many economists had predicted that at most, the Bank of Canada would decrease rates by a ½ percent, however in a surprise, with the ¾ percent decrease the lending rate has been lowered to 1.50%.

TD Canada Trust was the first Bank to lower its Prime Rate in response to the rate change, and have dropped their Prime Rate by ½ a percent, with CIBC following suit shortly thereafter. 

Why they didn’t match the ¾ percent Bank of Canada drop has not yet been explained; however, speculation says that because the margin of profit on variable rates is currently so low, most other banks will follow TD’s ½ percent drop.

What is the Overnight Lending Rate? 

The overnight rate is the interest rate at which major financial institutions borrow and lend one-day, or overnight funds among themselves; the Bank sets a target level for that rate, which is often referred to as the Bank’s Key Interest Rate.

In November 2000, the Bank introduced a system of eight “fixed” dates each year on which it announces whether or not it will change the key rate policy.

Changes in the overnight rate influence other rates, such as those for consumer loans and mortgages, and can also affect the exchange rate of the Canadian Dollar.

So, what does this Lending Rate Cut mean for you as a mortgage holder?

As a variable rate mortgage holder, your Interest Rate is directly affected by the Bank of Canada Lending Rate.  As this rate decreases and lenders react to the decrease by dropping their Prime Rate, the amount of interest you pay on a monthly basis decreases.  As an example, if your rate through TD is Prime Minus 0.50% and TD just cut its Prime from 4.00% to 3.50%, then your Mortgage Interest Rate just dropped to 3.00% (Prime of 3.50% Minus 0.50%).  This is great news for Variable Rate Mortgage Holders.

A common question that we as Mortgage Specialists encounter is: “should I choose a variable rate or a fixed rate mortgage?”

 For more information on whether a fixed or variable rate mortgage is right for you, reference our Frequently Asked Section at 

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Bank of Canada

Ever wonder what types of mortgages are available to you?  Ever wonder if your mortgage broker or bank has placed you in a mortgage best suited to your needs?  We’ll help you uncover what type of financing you have in place, and we will review this financing with you to determine whether there is a better option for you.

While a mortgage is fundamentally a loan that is secured against real property, there are many variations to the type of mortgage that can be utilized, depending on your specific needs.

Based on your current financial situation, future goals, investment portfolio, and your wants and needs, we can unearth what type of financing you require.  Below is an introduction to the different types of mortgages available to you and once you have read your options it will be easier to understand what type of financing you have, and need.

A conventional mortgage is a loan that does not exceed 80% of the value of the property.  By putting down 20% of the property value,  you avoid Insurance Fees (CMHC, Genworth, and AIG).  If avoiding an insurance premium is important to you, then this may a great option for you.

On the other hand, a high-ratio mortgage exceeds the 80% loan to value mark and enables home buyers to put down a nominal 5% down payment.  If preserving your cash is important, and if leverage is important as an investor, then a high-ratio mortgage may be ideal for you.  While there may be an insurance premium added to your total mortgage amount, it enables those individuals that do not have the funds for a large down payment, to purchase a property.

Extended Amortization Mortgages are another option available to home buyers and provide a unique way of decreasing your monthly mortgage payment amount by extending the length of your mortgage.  For investment buyers this is ideal because it increases your monthly rental cash flow.  Often times buyers who are on a strict monthly budget will utilize this type of mortgage as it enables them to purchase more home for a lower payment.

Open Mortgages allow you the flexibility to repay the mortgage at anytime with no, or little, penalty.   Open mortgages are usually available in a variety of term, beginning at 6 months to 5 years.  For persons who are commission based and know they may receive large sums of money at anytime, this mortgage option may be ideal for you as you can pay off your mortgage at a faster rate by making additional lump sum payments directly toward your principal balance.  An open mortgage is also ideal for someone who may be looking for short term financing because again, it can be paid off at anytime with little or no penalty.

Most Canadians have a closed mortgage as they tend to offer the lower rates and also allow for a pre-payment option of usually up to 20%.   A closed mortgage offers variable or fixed payments and usually ranges from a 1 year to 10 year term.   If you want to pay off your mortgage balance prior to its maturity date then you will incur a penalty and this is determined by the interest rate and term left in your mortgage.

Fixed Term Mortgages offer a homeowner the security of fixed monthly payments as the interest rate is set for the entire term of the mortgage.  Regardless of whether rates move up or down your payment amount will not change.  For some homeowners this is an important budgeting tool.

Variable Rate Mortgages tend to offer lower rates than fixed mortgages do, but your monthly payments will vary depending on the Prime Interest Rate.  The amount being allocated toward your principal will increase or decrease reflective of current interest rates.

Adjustable Rate Mortgages also tend to offer lower rates but your monthly payment amounts typically remain the same and the amount allocated to principal and interest adjusts accordingly.  This tends to offer the best of both worlds; the lower rate with flexibility, combined with the budgeting tool of knowing what your monthly mortgage payment is.

Home Equity Secured Lines of Credit are another great option for homebuyers looking for flexibility.  There is not pre-payment penalty if you wish to pay off your mortgage prior to the end of its term.  It also provides you with the variable rate and they are interest only which means you only make interest payments, and you only make these payments on the dollar amount that has been used on your line of credit.  You do not have to draw funds until you need them and again, only once you use them do you begin to make payments.

Bridge Financing is another type of financing and homebuyers are often not aware that this type of financing exists.  Bridge financing, or interim financing, is utilized for short periods of time (typically 30-60 days maximum) and is used to cover the time gap when two properties, both firm sales, are involved and the closing dates don’t match.; the property being purchased closes prior to the one being sold.

Now that we have informed of your varying mortgage options (please note some types of financing have not been mentioned but feel free to contact us at www.mbnmortgage.com to learn more), are you able to decipher which type of mortgage suits your specific needs?  Have you determined whether the mortgage you are currently in is the ideal solution for you?

We can help you sort through any confusion and work out payment variations depending on the type of mortgage you choose.  Contact MBN Mortgage, your Calgary and Southern Alberta Mortgage Specialists at www.mbnmortgage.com, or by calling us at 1.866.955.9662 for your free one-on-one consultation. 

MBN Mortgage