Archive for February, 2010

How to Maximize Your Tax Deductions

Saturday, February 27th, 2010

Spring is a beautiful season. It’s a season where the temperature slowly rises, the snow begins to melt and flowers start to bloom. Summer is fast approaching and for the majority of Canadians, we cannot wait!

Spring also signifies that Tax Season is in full swing. We hear the advertisements on the radio, television, read them in the newspapers and see them on our favourite websites. The advertisements are generated by Accountants and companies producing tax software. Most Canadians do not like paying taxes and hate filing their taxes annually. They procrastinate and put off their tax filing until the very last minute on the annual deadline of April 30.

Most Canadians are employed in a full-time job and are limited to the amount of tax deductions they can take advantage of. With proper planning and a bit of knowledge you will be able to Maximize your Tax Refund.

Here is a list of some tax tips:

-Read and keep your notice of assessment. There may be some tax credits carried forward which are available to you such as tuition, capital losses, medical, etc… The notice of assessment also tells you how much you may contribute to your RRSP.

-Every year the Government of Canada spends millions of dollars in advertising the latest tax credits available to you. Pay attention. Were you aware of the 2009 Home Renovation Tax credit?

-Hire a professional Accountant to prepare your taxes. Accountants keep up to date with the latest tax changes from the current budget. They will ask you about your family situation and financial situation. They do charge fees for their work, but believe me, its money well spent.

For example, when was the last time a Government official called you at home to advise you that if you had contributed an extra $1000 to your RRSP, you could have saved $400 in taxes? Your Accountant will.

Better Tax Services
http://www.bettertax.ca

Tax Deductions FAQ:

Question: I am employed as a visiting nurse in Ontario Canada. What can I claim for tax deductions?

Answer: If you have been employed as an employee then your options for deducting are limited. You would have to get a form from your employer detailing what you were responsible for. This form is called T2200 conditions of employment.

If you created your own business and were providing services on a contract, a number of deductions open up: office expenses, supplies, motor vehicle.

Question: In Canada are private school tuition fees a tax deduction either in part or in whole?
Will I be able to claim some or all of the fees paid for tuition for my kids private school on my tax return?

Answer: Mostly not. If there is a childcare component to the fees, that is potentially a deduction for child care expenses. If it is entirely tuition for school, it isn’t deductible, unless it qualifies as a tuition and education deduction for post-secondary education or trades training.

If it is a special school due to medical needs or disability (for instance, ADHD) then it may qualify as a medical deduction.

Question: Canadian income tax question re: deductions for separated dad’s?
I am getting shafted by Revenue Canada. I pay support, have my 2 boys for 50/50 custody. Claims are disallowed for dependents (even one ), and being told to pay out thousands in taxes, and the interest is usurious! Any advice out there?

Answer: If you are ordered to pay support for a child, you cannot claim that child as a dependent under any circumstances. This applies even if the support is not deductible, which it wouldn’t be if the order is written after April 1997.

It might not seem fair, and I’m not going to get into whether the law is fair, but it is the law. It’s written into the Income Tax Act as section 118.3, and the rules are not negotiable. Also, Revenue Canada is only following rules, not making them. That would be the Department of Finance.

Question: At what income figure you start being taxed in Canada/Quebec?
I have a decent income while my wife has a very small income. This is about my wife’s income, I am wondering how much would she have to earn per year in order to start getting taxed. Example: My wife makes 5k a year from baby-sitting, will that be taxed? Continuing with the example, if we declare 5k for her, will I get an additional 4k of tax deduction from my income? (I understand that it’s 9k per dependent, so 9k – 5k = 4k)

Am I somewhat correct or am I terribly confused?

Answer: $5000 is under the Personal Non-refundable tax credit of $10320 for 2009, so she would not have a balance due on her return. As for your return, you are talking about the Spouse Non-refundable Tax Credit on line 303. It’s not “9k”, it’s $10,320 less the amount of her income on HER line 236. You are terribly confused, what you need is to sit down with your tax preparer and have a long talk.

Question: How to file taxes as independent worker/contractor in Canada?
I worked from October till end of December as what they would call an independent contractor. I wasn’t a contractor but that’s what I’m considered. I have no idea how to file my income tax, or what deductions I can include. Can anyone help me? I can’t afford to go pay an accountant to do all of this. My income is only around $3,000 for the year. Every year I do my taxes online by myself and this year I’m having troubles because I worked as an independent contractor. I am again working as an independent contractor as of last week so I really want to know how I do my taxes and even what I should be saving for deductions for next years taxes.

Answer: If you done your taxes before it is pretty much the same thing except you will be reporting your income on a business statement called a T2125. This form allows you to declare your income than deducted expenses then the net amount is carried over to line 135 of your T1. The form has a list of deductions that you can claim. This year if your total income for the year is $3000 than you wont be taxable and you don’t have to worry about your expenses, but remember if your income goes up another year you will be liable for your taxes and as a self employed individual there’s no deductions at source. You will also be responsible for paying CPP on any income over $3500 which is charged at a rate of 9.9%.

Question: Can I get my Pay-stubs re-printed for an entire year.?
I Just received my T4 slip for the year, and I am almost positive that the amount of deductions has been altered, alot. Is there anyway I can get a reprint of all my paystubs for the last year, and possibly even farther back so I can calculate the actual deductions taken off of my paychecks. I am only seventeen, and live in Canada. I should be getting all my income tax back, and I have been losing a large chunk of my income to deductions.

Answer: You can ask you employer, they may or may not want to share. You should be given a paystub with every cheque. The employer is obliged to give you a pay statement with every cheque, but there is no obligation for them to give you new copies.

If you think the amounts are wrong, you should tell your employer, and they can review the amounts. Most employers are reasonable, and will co-operate.

If your employer is not willing to discuss the matter with you, and you really think the amounts are incorrect, you can call CRA and tell them you think the T4 is wrong. If they think there is something worth looking into they can send an auditor to review the employer’s records. If they find errors in the T4 slips they will make corrections and issue revised T4 slips.

Question: I have a work opportunity in Canada but i keep hearing about their Extreme taxes?
It can be said that the average deductions in the US are about 30%, what is Canada’s average? Would I have to file a tax return for Canada for this year? It is a three month job for about 35k gross.

Answer: If you are an USA resident, and would be working here temporarily, then you would report it on both a US and Canadian return. We have a tax treaty with the USA, and you would get back the Canadian tax that was withheld, and would pay USA tax on the income. If the USA tax is lower than the Canadian tax, I think we might keep the difference. If the income here is exempt from USA tax, you would pay tax here.

Our tax rates seem extreme compared to USA, but low compared to Europe. Our taxes are lower than what most Americans pay for tax plus healthcare. Our taxes include healthcare.

Question: In Canada, is international volunteer work tax deductible like in the US?
I’m looking at volunteering next year in Cambodia or Tanzania and the organization I’m currently reading about claims that all volunteer expenses (including airfare, accommodations, etc) are 100% tax deductible in the US. I’ve tried to find information online about Canada’s volunteer tax deductions but I haven’t been successful. Just wondering if anyone out there knows if/what any options for Canadians wanting to volunteer abroad are!

Answer: The only time expenses are tax deductible by an employee is when your employer completes the form T2200 that stipulates that they are employment expenses. However, if you are a volunteer and not being paid, there is no income to deduct the expenses from. Also, because it is for outside of Canada, it would have to be recognized by the Government of Canada, ie: UN worker.

There is no such thing as a “volunteer work tax deductible”.

5 Tips on Choosing a Mortgage

Friday, February 26th, 2010

The most important investment you will ever make is buying a home. This is because it shelters you, it protects you, and it does take quite the bite out of your wallet. It is quite the incredible investment, but one that will benefit you for the rest of your life. However, you have to choose the right Canada mortgage for you. This means choosing the right bank, choosing the right mortgage package, and looking at the many aspects that can make or break you.

So here are 5 tips to help you choose the right mortgage for you:

- You first have to choose your financial institution. You may already have an institution in mind. If you do, make sure you check with them regarding their closing costs, application fees, inspection fees, and any other charges that they may add. Every institution is different and so are the Canada mortgage rates carried by each institution.

- Always compare interest rates. You have your base Canada mortgage rates, but each financial institution will have different criteria that determine your rate. They do base it off of your credit situation, amount of the loan, income, etc.

- You have to decide whether an adjustable rate mortgage or a fixed rate mortgage is the best for you. In an adjustable rate mortgage, the rate will change over time. This means you will have a lower payment in the beginning, but the payment will be higher in the end. You have to determine if this is something that you can afford to do. Some individuals cannot afford this, so they may lose their home if they default on their mortgage.

- Are you a first time homebuyer? Look into the options that are available to those buying for the very first time. There are certain deals that can be offered regardless of credit rating in many cases.

- If mortgage refinancing is what you need to do, then you should use the above tips when finding the right mortgage. When you refinance, you are usually doing it so that you can take advantage of some of the equity that you have built over time. You refinance for the value of your home, pay off your old mortgage, and you then get the difference in your equity back to do what you wish with. Just make sure that you are making the right decision and keep in mind that Canada mortgage rates can vary from institution to institution, even in mortgage refinancing.

These are all very important things to keep in mind when getting your new Canadian mortgage or in mortgage refinancing. You want to ensure that you are doing everything right from the beginning. That way you can make sure you have your home for many years to come. You don’t want to be one of these individuals taking out the variable rate mortgage for the low payment to find that they can’t pay it in the future. It is a rather disheartening situation. It also takes a toll on credit, on reputation, and leaves you wondering where you are going to live when the bank takes possession of the home.

So make sure you compare, you weigh your options, and that you feel good about your decision. You might be quite surprised how right your gut feeling can be about the mortgage you are looking at. If you don’t feel good about it, then don’t take it. And don’t forget that the Canada mortgage rates are not the same everywhere. This can be a huge determining factor when it comes to your mortgage.

Compare Canada mortgage rates from banks, mortgage brokers and other lenders with one quick search. When looking for a mortgage calculator, consider Rate Supermarket.

Mortgage FAQ:

Question: What is the process of mortgage renewal in Canada ?
Does one have to requalify each time the mortgage is up for renewal?

Answer: What will usually happen is your bank will send you a mortgage renewal about 6 months before the end of your current term. This will usually be at the banks posted rates, which will be about at least 1% higher than what is available.

You will have to re-qualify for a mortgage as basically you are getting a new mortgage, so you have to prove your income once more and maybe an appraisal if it’s not an insured mortgage

Question: Is municipal property tax deductible for tax returns in Canada? What about mortgage payments?

Answer: Municipal tax, no.

Mortgage payments, possibly. If you use your home for business purposes you can write off a portion of the interest paid to the mortgage, but that is under strict guidelines. You can also re-structure your mortgage debt to make it a tax deductible debt, however this depends how much equity you have in your come and it involves leveraging. Can be very rewarding financially, however if you don’t do it right CRA might refuse the deduction. Visit a Financial Advisor or Accountant that is familiar with leveraging to convert your mortgage or who is familiar with business deductions.

Question: Need answers about mortgage disability insurance in Canada?
My husband has been on disability since January 2008. We just found out that we have disability insurance on our mortgage so we put in a claim. Can anyone tell me if the insurance has to pay back all or any of our mortgage payments for the past year or does it just start when you claim or is there a time limit? Any information would be helpful.

Answer: Technically, they should pay everything since the time of the injury, however, if the insurance was bought through the lender or bank, then good luck (bank insurances cover mortgage payments directly meaning you don’t actually physically get any money, it just pays your mortgage). Insurances bought through lenders are very shady and you’ll be luck if they pay out at all.

Go through a liscensed insurance broker for all your insurances. Going to a bank for insurance makes about as much sense as going to a chef to fix your car.

Question: How Long Will It Take For An Immigrant To Build Enough Credit History To Get A Mortgage In Canada?

Answer: You need to show sensible use of credit, regular bill payment and bank account control, regular employment and some saving [use the tax free savings account].

Question: How do I start a mortgage investment corporation in Canada?

Answer: 1) First you need to be in the industry for 2 years.
2) Write and pass the FSU offered by Seneca College in Toronto (if you are inside Ontario )
3) Financial support
4) Office that can provide public service during normal office hours.

Question: In Ontario, Canada how much does a Mortgage broker get on average in fees from the lending institution?
I’m thinking of taking all of the training to become a mortgage broker and am wondering how much of a “salary” I can expect. Also if anyone knows how to get recognized by all of the banking institutions that would be great too.

Answer: If you work as a mortgage broker for an independent company you can make .5% of the loan amount. For a short time this was as high as 1.75% but it has fallen since 2006.
If you work for the big institutional banks, you will begin in their Phone Centers. You will get a salary instead of a commission. That is because the phone calls are all generated by the bank; not by your personal efforts. Most of those callers want to refinance. You get $30,000 a year.
You can’t get recognized unless you become a superstar mortgage originator. Then everyone will bid for your services

Question: Getting approved for a mortgage in Canada?
What do I need to get a mortgage and do I need to have my taxes done and up to date?

Answer: At a minimum, you will need 10% down (in this economic environment) for a first time home owner. As part of your documentation requirements, you will probably be asked to provide your last notice of assessment which would show that you don’t have taxes in arrears. Tax arrears would be considered as a debt owing against your household income when determining your ability to make the mortgage payments.

Question: I am looking for a bad credit mortgage in Canada?
I have outstanding loans that I would like to consolidate into my mortgage. Does anyone have any recommendations?

Answer: Talk to the financial institution that holds your mortgage first. A number of Canadian banks have recently brought out new products to help people who may not have perfect credit due to many different circumstances. If your bank isn’t able or willing to do this then I would start shopping around. Unlike a loan most banks expect you to shop around for a mortgage and you may be surprised at what they are willing to do to get your business.

Foreclosures and Houses With Multiple Mortgages

Friday, February 26th, 2010

Buying a foreclosure is a bargain, right? If you have been looking for a house for a while, you may have thought of this as an option to get more for your money. With Canadian mortgage rates at all time lows, many people are turning away from a Toronto refinance in exchange for selling their existing home and then buying a new one at the new, lower interest rate. With the abundance of foreclosures on the market, many buyers are considering looking at these properties in an attempt to get a bargain. Foreclosures can be bargain-priced, but what many buyers do not know is that they may end up paying more than the property is worth because it has more than one loan on it.

The Distressed Homeowner

Foreclosures come from distressed homeowners. Something, whether it be unexpected medical expenses or the loss of a job, made it impossible for the homeowner to continue paying his bills. As a result, the loan goes into default and the home is foreclosed on.

However, most homeowners will only stop paying their mortgage as a last resort. They usually try to find some other way to deal with their financial crisis. Sometimes, if they view their problems as temporary, they will choose to take out a second mortgage to pay some impending bill. It is not uncommon for a foreclosed property to have two or three mortgages or liens on in, and this can create a problem for buyers.

How Mortgages Are Paid in Foreclosure

Each province has its own laws about how sales of foreclosed properties will occur, but once the money is received from the new buyer, the liens against the property are paid in a similar fashion. First, any back taxes will be paid. Then, the primary mortgage will be paid. If there are any other mortgages, they will be paid third. There is often not enough money from the sale of the property to pay all debts, so some creditors are left with nothing.

What Happens to the Unpaid Debts?

The unpaid debts do not follow the property. Rather, they follow the buyer. However, on these properties, it is important to do a title search to make sure there are not any liens that are not properly cared for after the sale of the home. The buyer is responsible for paying the leftover loans, and the lenders cannot hold the property as security for the loan after the foreclosure sale.

How Multiple Mortgages Affects Foreclosure Buyers

Foreclosing on the first mortgage cancels the other mortgages as far as the new homeowner’s responsibility. However, the price of the property could be inflated to accommodate for the other mortgages, especially if they are with the same bank. If the home goes to auction, the starting price may be inflated, depending on the foreclosure laws in the province. If the property is bought before auction with a traditional purchase, the asking price may be inflated. This can make the property less of a bargain than the buyer might assume.

How can you combat this if you are trying to take advantage of the low Canada mortgage rates and numerous foreclosures on the market? First, do a title search on any property you are considering, and always purchase title insurance when buying a foreclosure. Then, be sure to have an appraisal done on the property to determine whether or not the asking price is, in fact, a bargain. If it is, do not be afraid of the second mortgages, as they will not be your responsibility. Take advantage of the low Toronto mortgage rates, get your Canada mortgage pre-approval, and put your bid in for your new home.

View the latest rates from the top Canadian companies. Use our mortgage rate calculator Canada to compare mortgage rates so you get the best mortgage rates and save money.

Foreclosures FAQ:

Question: How do home foreclosures work in Canada?
I’m interested in buying a home, and I keep hearing that my area (Windsor, Ontario) has a high foreclosure rate. How do I find these homes?

Answer: Call a realtor and ask about power of sale homes. It is the more frequent route in Ontario when people default on their mortgages.

Question: Where can I find foreclosures in Canada without paying a fee?
Specifically in the Hamilton area.

Answer: A google search will offer a few options. However, the paid services are far superior in timeliness of publications.

Question: How can I make money from Canada foreclosure listings?
Is there a good book or program or even training seminar that is reasonably priced, teaching people on how to profit from Canada foreclosure listing?

Answer: Your on the right track. With the current market situation there are many opportunities for savvy investors to take advantage. I’m not aware of a course as such but there are many books and EBooks that provide good, concise and relevant information. There is also a lot that are pure rubbish.

One of the better ones I’ve read is 10 Month Real Estate Millionaire. Don’t be fooled by the title, it’s going to take longer than 10 months but the information is relevant to today’s market place and touches on foreclosure opportunities.

Question: How do you find distressed properties & foreclosure properties in Canada?
I’m a Canadian looking for details on how I can search/find distressed properties or foreclosure properties in Canada.

Answer: Find a good realtor–he/she will find them for you. Otherwise search the MLS (Realtor.ca) and that would help you as well. Not all foreclosures are branded as foreclosures on the site so you would have to check Owner’s name on the listing, which isn’t available to the public. In the US the system is a little different, the public has access to land registry.

Question: How would foreclosure on a home I own in the U.S. affect my credit in Canada?
I was transferred to Michigan a year and a half ago, only to recently lose my job. I returned home to Canada yet I still have a brand new home in Michigan that nobody wants to buy. I’m considering foreclosing on it as I cannot afford to continue making payments, and I’m curious to know if my Canadian credit rating will be affected at all if I go this route.

Answer: From everything I’ve read so far Canadians moving to the US must re-establish their credit history, as do Americans moving to Canada. The two systems appear to be separate, and while in most cases this appears to work against people it might actually work in your favor.

That said I’d get in touch with a lawyer in the US to determine what the long term consequences are, and what the best course of action is. Or perhaps you could talk with the bank and see if you can work out a different payment schedule.

Question: How does an average person get their hands on bank foreclosure on properties?
How do you get information on bank foreclosures on anything from homes to auto,boats, motorcycles etc etc, the USA has them all the time/ what about here in Canada…. specifically Ontario?

Answer: Another option is to contact your local municipality. The township or city you live in should have a listing of the foreclosed properties in their jurisdiction. It is all public information. You will be able to find out which bank owns them with their contact information as well. From there, it is up to you.

Question: Is Canada having the same housing crisis as the US is?
Just wondering about the foreclosure rate and the declining market trends.

Answer: No, we’re not. Our sub-prime lending rules are stricter than those in the US, and as a result, we weren’t hit by the subprime crisis. Our banks are taking a hit though, as many of them invest in US mortgages, and have suffered losses due to the housing crisis in the US.

Question: I am interested in buying a foreclosure property in southern California?
I want to purchase a foreclosure property in California to live in. What should I do first, how do I begin the process? Do I contact banks, real estate agents or what? What are the common mistakes people make in dealing with foreclosure properties and what do I avoid? I am obviously a beginner at this and don’t even know how to start the process, any help would be wonderful! I’m a Canadian citizen and I live in Canada.

Answer: You need a US social security number to get a loan. But if you pay cash you can buy anything you want. You could even borrow the money in Canada as long as you showed up with cash in USA.

You can buy directly from the bank at their foreclosure “auction”. It is not a real auction because no one shows up. It is just a formality. The bank enters a bid for the amount they were owed by the previous owner (their borrower). They often tack on late fees and attorney fees. You have beat their bid to win and it is seldom worth the amount of the loan. But you could try. In the last 2 months, banks have started accepting lower offers. The sales are advertised in one local paper in the city of the foreclosure. You have to read all the papers to find the one. You don’t get to see the inside of the house you are buying and you don’t even get a key.

After that “auction”, the bank hires a realty agent and a For Sale sign goes up. You can find those homes online at sites like realtor.com. Or ask any friendly agent to email a daily list of repo’s. Then you buy one just like buying any other house. Except that the bank will do no repairs for you.

What You Should Know About Canadian Mortgages

Thursday, February 25th, 2010

If you are going to buy a home in Canada, you are going to need a mortgage, unless you have a store of money lying around to use to pay cash for your home. Before you sign on the dotted line for your mortgage, make sure you know what you are agreeing to. After all, your mortgage is a long-term financial agreement, so you should know as much as you can about it at the outset.

Basic Structure of a Mortgage

Since most people do not have the cash stores necessary to pay for a home in full, they will usually borrow money from a lender for the purchase of the home. The property in question is the collateral for the loan, which means that the bank or lender has the right to take the home if you do not pay the loan according to its terms.

A mortgage is considered an amortized loan. This means that you have a set number of years in which you must pay back the loan and the interest on it. In Canada, most loans are amortized for around 25 years, but this can vary based on the loan structure. The amortization period is separate from the term, which is the period that the interest rate is guaranteed. Sometimes the term and the amortization period are not the same, which means you will need to negotiate a new mortgage term when the first one is over.

Finally, a mortgage has an interest rate applied to it. This is the percent of the total loan amount that you will pay to the bank for the privilege of borrowing the money. Your goal should be to find a loan with the lowest possible interest rate.

Getting Approved

Once you have decided that you wish to buy a house, it is time to get approved for a mortgage. Shop around to find a lender with good rates, and then apply. Your approval will be based on the size of the loan, your credit rating, employment history, and current income, among other factors.

Making a Down Payment

Most lenders require you to make a down payment on the property you wish to buy. This shows them that you are responsible with your money and have a good intention of paying what you owe on the loan. It is generally recommended that you put down a 20 percent down payment. You can put down more if you wish. You can also put down less, but if you do you will have to buy mortgage insurance.

What is mortgage insurance? Under the Canadian Bank Act, federally regulated lending institutions, with a few exceptions, cannot provide loans that exceed 80 percent of the value of the home without purchasing mortgage insurance. This insurance protects the lender against the possibility of default, which statistics have shown is more likely when the borrower does not place at least 20 percent down on the home. The premium on the insurance policy is typically determined based on a percentage of the home’s purchase price. You will typically pay this premium as part of your loan payment each month. This allows you to purchase a home with as little as 5 percent down.

Your Monthly Payment

Your monthly mortgage bill is broken down into an interest payment and a principal payment. At the beginning of your loan, more of the payment goes towards interest than principal. This gradually shifts until you are paying mostly principal than interest at the end of the loan. If you wish, you can pay your loan off faster by paying extra towards the principal on the loan. Once you have paid off the entire principal balance on the loan, you will officially own your home.

Canadian mortgage rates comparison site. Listing over 500 rates from Canada’s top lenders and brokers. Visitors can compare mortgage rates with one quick search or compare credit cards.

Mortgage FAQ:

Question: Where can I find the right mortgage Canada?
How to find the right mortgage in Canada that’s right for me? I have my down payment.

Answer: You have to decide what’s right for you, variable or fixed, and what term 6 months or up to 7 years. And you have to decide on the amortization period, now a maximum of 35 years, but shorter is much better.

Talk to a mortgage broker or if you have a realtor see if they have some mortgage people they deal with. I like to have my first time buyers be in a fixed rate for at least 3 years.

Question: Can my sister who lives in the US cosign for my house mortgage in Canada?
I immigrated to Canada a few weeks back and am looking to buy a house but since I do not have a credit history in Canada, I won’t be able to get my mortgage approved. I was wondering if my sister who lives in the US can cosign for my mortgage?

Answer: If you don’t have a credit history in Canada, why would your sister? Credit histories tend to be international. If you can’t get a mortgage there is more than credit history going on.

Question: Gave false income info to obtain mortgage in Canada – will pay on time. Should I worry?
I am a Canadian citizen, buying a house in Canada. My mortgage broker told me he will provide the bank with some letters from an employer to prove my income is high and so the bank approved me for a decent mortgage. I will be making all my payments on time and all that. Shall I worry? Do you think the bank will find out?

Answer: You will probably be OK unless you default on the loan in the first year or two. Should you default during that time an audit would be pretty much automatic. Also a very small percentage of loans are audited just trying just to see if the lenders are following guidelines. I wouldn’t worry unless you end up not making the payments.

However I would be more concerned that you are dealing with a broker that would willingly participate in perpetrating a fraud on a bank. If I were you, I’d run away very fast from your mortgage broker and wait until you make enough money to carry a house.

Question: What is the best kind of mortgage insurance here in Canada?
Can anyone tell the pro’s & con’s of mortgage insurance here in Canada? I had been told there is private & bank insurance, are there better options and what would you recommend?

Answer: Totally depends on what your future needs may be. We have our basic insurance on our mortgage through the bank itself. In case of accident or death it is quicker and more efficient to use the banks policy. If you are adding on huge details and extras, then maybe you should shop around a bit more for a different carrier. There are many out here. Just go visit your local insurance agent and they will give you better ideas.

Question: Does anyone know how the mortgage business works in Canada?
I am in the mortgage business in NY and would like to explore getting into the business in Canada. Anyone have info?

Answer: Our Canadian Mortgage and Housing Corporation (CMHC) is the organization that deals with mortgages here in Canada. Occasionally, there are lending companies who will lend mortgage money to potential homeowners when they are denied by CMHC.

Question: Can you get a mortgage in Canada if I’ve got a mortgage in Ireland & are renting the house out in Ireland?
I’ve currently got a mortgage now in Ireland and are hoping to rent the property and migrate to Canada were my family and I hope to get another mortgage for a home were we can live.

Answer: There is a government program through CMHC that guarantees any mortgage for new immigrants. However, you must arrange 25% down payment. Check out the Canada Mortgage and Housing Corporation website for more details.

Question: I have $100,000 CAD. I want to borrow a further $190k for a property in Canada. Will I get a mortgage?
I am a non Canadian resident (from UK) but my wife is Canadian. We’re planning to move to Canada next year. The property in question is commercial with retail (ground floor) and flat/apt (rented) above. Any ideas which banks I should approach to get a mortgage?

Answer: You generally need a down payment of 25% on a property. If you’ve got $100K of $290 it shouldn’t be a problem. The five main banks are Royal Bank of Canada, TD Bank, Bank of Nova Scotia, Bank of Montreal, and CIBC. Also try ING Direct.

Question: What kind of Interest rates will I get with Bad Credit on a Mortgage in Canada?
I have been Discharged from Bankruptcy in 2005.

Answer: By discharged I am assuming that it was cleared off your credit history? If so, then your major problem in getting a mortgage is a lack of actual credit.

The first thing someone should do when considering to get a mortgage is to find out what is on their credit BEFORE they get to the bank. Go on to the Equifax site and request a copy for a small fee.

Once you have a hard copy of this report you can actually get to the business of seeing what the damage is. Review it to make sure that it is correct as it will list any and all credit “dings” and in some cases these items may be incorrect. From there you may be able to correct any errors by contacting the companies involved.

As for the effect a bad credit has when applying, it may disqualify you from any conventional or may result in special conditions and or increased rates by a few % points. The higher the risk the higher the rate.

Indicators of an Affordable Mortgage

Thursday, February 25th, 2010

For most people, one of their biggest dreams in life is to own a home. With so many mortgage options available, it can often be confusing figuring out what it means to acquire an affordable mortgage. There are a number of indicators that will tell you if a mortgage is affordable. Below is a list of indicators to help you determine if a mortgage is affordable.

1. Because of the current state of the housing market, lenders are now offering great deals on interest rates. Currently there are deals available where you can get a mortgage with an interest rate of around 5%. Many financial experts recommend acquiring a 15 to 30 year mortgage locked in at a low interest rate. The complete mortgage term could save a homeowner thousands of dollars. Locking the interest rate as a fixed-rate will normally have a term of 15 or 30 years. This will ensure your interest rates will not increase over the life of the mortgage. It is important to remember that the longer the mortgage term, the lower your interest rates. As well, the higher the mortgage that you obtain, the higher your monthly mortgage repayments will be. There are variable rates one can secure with their mortgage, but they fluctuate with the market. If the market is doing well, your interest rates will decrease, but if the economy starts to deteriorate your interest rates will increase.

2. Before applying for a mortgage, you first have to assess how much you can afford. You can determine how affordable your mortgage will be by using an online mortgage calculator. You will enter such information your income which will help determine how much you can actually afford to pay each month. Remember this is a base amount that does not include the cost associated with the purchase of the home. You will also have to put down a deposit. The higher the deposit, the lower your monthly payments will be.

3. Paying a monthly mortgage is not the only expense you have to consider. There will be other expenses such as utilities and home maintenance. It is also important to remember that you will have to consider additional expenses such as closing fees, title fees, attorney fees, taxes, registration fees, monthly homeowner insurance payments, etc.

A mortgage is probably the biggest financial commitment you will make in life. It is important to acquire an affordable mortgage to ensure that payments can be met even if your financial situation changes. Financing your mortgage is a serious life investment. The key to getting an affordable mortgage is to compare quotes from several different lenders to get a rate that is low and will not drastically increase if the market takes a down turn. As well, you should always read the fine print of the mortgage contract to avoid any future unexpected surprises that could affect your monthly payments. With the current incentives now being offered for mortgage seekers, this is a great time to find a great deal on a mortgage.

Whether you’re looking for mortgage rates or great GIC rates, with Meridian Credit Union you’ll have a customized financial plan that makes sense for you. Just for you.

Mortgage FAQ:

Question: Has anyone had a bad experience with reverse mortgage in Canada?
I am considering a Reverse Mortgage on my home. I’ve done my research, but I’ve never heard if anyone has had a bad experience.

Answer: If reverse mortgages in Canada are similar to reverse mortgages in the US, then you shouldn’t have a bad experience with it as long as you do your research. The loans can be pricey if they’re used for short term needs. Also, if you blow all of your money on vacations and non-essentials, that’s probably not the best use of your home equity. However, if you carefully plan and incorporate a reverse mortgage into your overall retirement plan, you shouldn’t have any bad experiences. Its a great product for some people, but its not for everyone.

Question: Can someone tell me about the mortgage industry?
What kind of mortgage loans does Canada have? Where is the best place so I can find a job being a mortgage professional?

Answer: Just about anywhere can hire you as a mortgage professional, as they work on commission and usually don’t get a salary. In the US if you work for a mortgage broker and not a bank, you will need a real estate license. A good way to get into the business is to start as a mortgage processor. That person takes care of the files and makes sure all the paperwork is in there before submitting the loan to underwriting. You can learn what you need to know as a processor, then when you know what you are doing, you can go on to originating the loans as a loan consultant. Beware of scam loan brokers, though. If anything looks fishy, get out of there. You could get in trouble along with the bosses if you work for a company that is doing anything illegal.

Question: Mortgage issue! Is it going to be alright?
So like the idiot I am, for the second time in about 8 months, I’ve forgotten to transfer money from one account to another in time for my mortgage payment coming out. and I’ve done it again today! I call the mortgage company and they said just to call them when it bounces next week and they will send the request again for withdrawal. Is it really not as big of a deal as I think? Last time when the same thing happened I called them the following week when I saw the 45 bucks deduction for it bouncing and they took it out that day.

Answer: You’re going to get dinged for the bounced check fee, so make sure you have enough in your account to cover it.

Bounced checks and late payments aren’t good for your credit score, but as long as you aren’t 90 days behind in your mortgage, the lender isn’t going to do much.

Question: Who has to pay the mortgage?
I’m from Canada and my husband and i have a mortgage. I am not on the deed, property or on the mortgage. My question is; In Canada if we were to get divorced would I be stuck with half the mortgage? Also would I be entitled to half of the money from the sale of the house or not? I don’t want anything from the house am just wondering if I get a clean break from the house with the mortgage.

Answer: If you are not a lendee, then you do not have to. But if the loan is in both of your names, you are equally liable for the loan.

Question: What are my rights….?
I lived with a woman for the past three years, and last week she asked me to leave and will not give me any financial assistance. What are my options? Please bare in mind, I contributed a significant amount to living expenses and mortgage payments my entire time there.

Answer: If you paid part of the mortgage you have a right to the money you paid, unless you never signed the contract for the house/apartment which was being bought. If you paid without your name on the contract then it’s your word against hers and you it’s up to you to decide whether you think that you could make a court believe that you made mortgage payments. If so I would claim for repayment.

As for living expenses, when people live together that is normal. Money invested in property (mortgages) are investments and you have a right to your contribution.

Question: Purchased a house & only obtained old survey/title of house under ex-owner name. how can I get 1 under my name?
I purchased a house in Quebec (Canada) and obtained Mortgage papers, the sale papers that I and ex-owners of the house signed on it as well as the old survey/title of the house which is under the ex-owner name. Was I supposed to have received one under my name? If not, where do I go to get it? How much does it cost?

Answer: If you took out a mortgage for the property, your lender will submit the property change to your area registrar of deeds etc. However, the new deed (at least in the U.S.) remains with the lender until the mortgage is paid off.

Question: Down Payment on House?
How much might I expect to pay for a down payment on a house that’s worth about $750,000 in the Vancouver, Canada area? (lower mainland) I’m thinking 10 year mortgage

Answer: I know for 30 year it’s usually around 10% or 12%. For a 10 year, you’re probably looking at 30% or more down. It mostly depends on your income and what sort of mortgage you qualify for.

Question: How easy/hard will it be for me to get a mortgage in Canada?
I am considering emigrating to Canada, and would much rather buy a property than rent. Would my lack of credit history in Canada affect my eligibility for a mortgage? I will have plenty of cash for a house deposit and expect to earn at least $60k per year, but don’t know if this would be enough to persuade lenders.

Answer: It really depends on where you are moving to. Unfortunately, you usually have to be working steadily at a job for 1 year before a bank will look at you. There are other financing options though.

If you have the down payment, they may look at you. Vancouver housing starts at $500,000.00

Different Kinds of Mortgage Rates

Wednesday, February 24th, 2010

Few people have ready cash to pay for a property up front. So if you want to buy a property, you have to find a lender to loan you the money. To get the loan, you will be required to pay interest, and this will add substantially to the cost of your property. It is therefore important to shop around and compare mortgage rates to find the best rate you can.

A fixed rate means that the rate of interest stays the same throughout the period of the mortgage. So if the interest rate is five percent, you will be paying five percent throughout, and so your payments will be the same throughout the term. This offers the advantage of stability, since you know how much you will be paying for your house on a monthly basis, and need not be surprised by sudden increases.

A variable interest rate means that the rate will fluctuate depending on the rates of the central bank. The fact that this varies means that your payments can go up or down for each payment. You might end up paying less than you would for a fixed rate mortgage if the interest rates are low, but if they rise then you have to pay more. This kind of mortgage should not be taken by those who are on a tight budget and cannot tolerate increases.

Having a good credit history is important to get lenders willing to lend to you. If you have paid off all your credit cards reliably, then financial institutions will feel that you will pay them back their money. If you have had problems with your credit, then you will be regarded as a risk and the only people willing to lend you money will charge you exorbitant rates of interest.

Banks have posted interest rates, but those with good credit histories should be able to receive preferred rates. You can try to negotiate as good a rate as you can with the mortgage officer.

Mortgage brokers obtain money from multiple financial institutions at low rates, and re-lend the money to individual parties. Many brokers can offer rates better than those offered by banks, so they are worth a look. But it is better to consider their reputations. It is better to deal with those who are accredited and belong to a professional organization that guarantees certain standards.

When arranging the loan, there are many payment options to choose from. Making more regular payments will allow you to pay less. So making bi-weekly payments to your mortgage is better than making monthly payments, even though the amount you are paying is the same, because you are paying off the interest more quickly. You can also choose from different terms. Five years is the standard, but you can choose to renew it in as little as a year, or for as long as ten years.

Mortgage rates vary a lot between institutions, so you would be wise to shop around before choosing one. Since you are being loaned such a large amount of money, even a fraction of a percentage point could save you thousands of dollars.

Searching for a bank that truly cares about you? Try a bank that is reinventing neighbourhood banking today – they offer a great banking experience and have best mortgage rates and GIC rates.

Mortgage Rates FAQ:

Question: Your predictions about future 5 year fixed mortgage rates in Canada?
I really need to have some idea of what the fixed 5 year mortgage rates will be in 3 or 3.5 years. Right now they seem to be between 3.99% and 5.45%. In the future the rates will surely go up because Bank of Canada will have to slow monetary expansion and raise interest rates. So what do you think the fix. 5 year rates will be in 3-3.5 years? 7-8%? Or can it go up to all the way to 9-10% by 2013?

Answer: In the US, long term rates appear to be on an upward trend. Of course, it is impossible to predict with 100% accuracy. Just look at the US economy and consider whether rates can get any lower. Most economist think they will go up.

Question: How to negotiate best mortgage rate?
I’m a first time home buyer. What is the best way to negotiate mortgage rate? Is it good to get more than one pre approval from banks? If I get more than one pre approval, how badly it affect my credit rating?

Answer: Get one pre-approval from the lender who will offer you the best rate you can find. In order to receive the lowest interest rate, you must have excellent credit, a large down payment and few other liabilities. No negotiation – the rates are set by the lender based on what it costs them and the prevailing prime rate. You have to shop around for the lowest rate.

Question: Can I get a mortgage as a student here in canada?
I am a full time student. I already technically own my own condo (I say technically because my mother paid for it and it was just put under my name to get some tax cuts.) We didn’t take out a mortgage for this condo and paid for it in full. My question is, if I as a full time student, can get a mortgage to purchase another real estate property? I don’t have any student loans and my credit rating is 795. I have a part time job and earning rental income as well from the condo I “own”

Answer: Most likely, yes. If you can meet the lenders standards of 40% or less debt to income and have good credit, I’d bet yes. But depends on what you are buying, price, down payment, etc. Go to a good mainline lender and ask.

Question: I recently got married and am now thinking about investments. I have some ideas. Which do you think is best?
1. Purchase rental / investment properties in Wasaga Beach Canada. 5.25 to 6.95% mortgage rates. Have immediate family to maintain them / find and deal with renters.
2. Use a financial advisor to buy into EU funds. I have a friend who advises on this. Seems to be doing well.

Answer: All these ideas are off-the-wall unless you FIRST have:

1. An emergency fund of 8 months’ living expenses in cash, savings, money markets.

2. Maximized contributions to your 401k.

3. Have enough life insurance to provide for your family if you die prematurely.

4. Have adequate health insurance, homeowners insurance, auto insurance, and liability insurance.

5. Have a written will, living will, health care power of attorney and financial power of attorney.

After that, you can think about investing. Save 10-15% of your income every year. Don’t buy anything you can’t understand. Love the idea about rental properties, esp the ability to hand off day-to-day responsibility to your family and not do any work yourself.

Good luck. With your approach to risk-taking, you’ll need it!

Question: How much will interest rates go up to buy a house in the next 5 years in B.C. canada?
They are at an all time low so everyone is buying. There at roughly 3%. Were currently looking at getting our mortgage at 1100 a month with a fixed variable for 5 years. The house is after 15,000 down would be 335,000 canadian.

So we would like to know if anyone who reads the markets would possibly be able to tell us how much the interest rates could go up in the next 5 years. As most canadians know in the 80s is when people were losing their homes.

Answer: Nobody can answer this question… Too many economic variables. Don’t be surprised if fixed rates are close to 10% in 5 years from now. At that point you would want to switch to a variable rate. Historically variable rates have shown to be a better choice in the long run.

Question: Is it true that mortgage rates in Canada decrease at summer time every year and how much?

Answer: This is false. Mortgage rates are determined by the bond rates which are not seasonal at all.

Question: Are the mortgage rates dropping in ontario canada?
With the market dropping, it makes one wonder why the rate is at 6% for 5 years with banks still.

Answer: Perhaps mortgage rates depend to some extent on how risky it is to lend money. When the economy is not doing well. And there is more risk that some home owners will default on their loans. Then banks are reluctant to lend money. And banks decrease the demand for their loans by keeping mortgage rates high.

When banks begin to feel more confident about the economy and people’s ability to pay for their mortgages. Then they will start to decrease their mortgage rates.

No economic recession lasts forever. And there is a good possibility that mortgage rates may go down in a few years.

But how low the mortgage rates can go down also depend on the inflation rate. And if the inflation rate increases in the future. Then mortgage rates will likely go up from where they are today and not down, even if the economy starts doing better.

Question: If the Bank of Canada raises the prime lending rate, does that effect mortgage rates? ?
I have a fluctuating mortgage – NOT applying for a new one. Also, the U.S. have lowered interest rates by 1/2 points. How does THAT effect our mortgage rates?

Answer: Variable mortgage rates in Canada are usually set to adjust up and down with the bank’s prime rate. If the Bank of Canada rate were to rise, rates on your variable mortgage would certainly rise. Assuming your mortgage rate jumped from 5.25% to 9.8% (1% above prime), your monthly payment on $100,000 would jump from $596 to $881.

On the other hand if rates were to drop by 1%, from 5.25% to 4.25% (1% above prime), your monthly payment on $100,000 would drop from $596 to $540.

As we’ve seen in the news, banks do not have to adjust their rates the same amount as the Bank of Canada.

Offer Your Family Stability by Using RRSP’s

Thursday, February 18th, 2010

Part of planning for the future is making sure you and your family will be financially secure. When watching the down turn in the economic market these past months, it is understandable that many people become concerned about their financial future, especially their investments for their retirement. One way a person can ensure stability for their family is investing in Registered Retirement Savings Plans (RRSP’s).

An RRSP is a Canadian retirement plan that one acquires and they, or their spouse, makes financial contributions. Deductible RRSP contributions can be used to reduce your income taxes. The amount of money you contribute is normally exempt from tax, but one will usually have to pay a tax if they make a withdrawal or receive payments from the plan. It allows people to build a considerable amount of money for retirement or any other financial reason.

A registered retirement savings plan (RRSP) is a flexible savings plan that can be acquired by anyone who is employed, self employed, and under the age of 71. The RRSP is registered with the Canadian federal government which permits a person to save for the future. An RRSP allows you to deduct the amount of money that you paid into the plan from your taxable income. You can even acquire an income tax deferral on your investment income. This means that you do not pay taxes on income earned in an RRSP until you withdraw the funds. The best part of an RRSP is that the amount of money you pay into the plan is protected against any fluctuations in the market. As well, if you have any creditors, they cannot get access to your RRSP.

People will normally acquire their RRSP through a bank or other lending institution such as a Credit Union. In many cases, it generally works by the following: if you contribute $5,000, the amount that is taxed will be reduced by $5, 000. As you can see, you can drastically reduce the amount of taxes you have to pay. You should check with your financial institution to find out how their RRSP plans work as certain conditions may apply.

Depending on the bank, there are usually a number of RRSP options which offer a guarantee of your capital with continuing growth potential. RRSP’s can contain a variety of investments including: RRSP savings deposits, mutual funds, guaranteed investment certificates (GICs), treasury bills, and bonds.

One of the best reasons for enrolling in an RRSP plan is that it will give you another source of retirement income. As your RRSP grows over the years, you will be able to take advantage of the tax benefits. When you retire, you will have an extra income source to ensure that you and your family will maintain a comfortable living.

The recent volatility of the markets should cause those with investments to consider investing in safe and long term investments. Enrolling in an RRSP is a safe investment that will provide financial security for you and your family.

Banking here is different than what you might be used to. Our community-based services provide you with local in-branch service, decision-making and support, offer the best mortgage rates and GIC rates for you. Just for you.

RRSP FAQ:

Question: I got an audited for a “cashed in” rrsp that I didn’t even have!
I received a letter that came from the government saying I owed $600 for an rrsp that I supposedly cashed in during 2008. They say that I owe this money based on the 2009 tax year. I haven’t owned an rrsp for over 5 years nor have I cashed anything in since that time. I don’t own rrsps currently. My old rrsp didn’t get anywhere close to the tune of $2700 as the statement said. Has anyone else had this happen? Is this a scam? I have talked to my bank and they have no record of this. Because it is the government I feel as if there is nothing I can do and I can’t afford to pay this! What can I do?

Answer: First, you file a notice of objection, explain that as far as you know, you did not cash in an RRSP, and any T4RSP issued to you must have been in error.

It sounds like either you cashed in an RRSP and don’t remember it, or a T4RSP was issued with your social insurance number in error, or something else weird happened.

You should also ask (separately) for a copy of the slip. It will say who issued it. You can follow up with the issuer to determine if it was issued in error. If they did pay the money to you, they should be able to show proof of the payment. If they didn’t pay it to you, then they’ll have to deal with that. To ask for a copy of the information slip phone the general inquiries number and tell them what you want.

Question: What line on your income taxes do you enter tfsa’s under?
I have Quicktax (or turbotax) software just the standard edition. I looked it up on there and it gives me info on it but I cannot seem to find where (or how) to enter it. Is it considered an rrsp? I already have one of those so I would need to enter it on a different line. I’ve done my taxes this way for two years this is just the first year I am claiming a tfsa.

Answer: Contributions to a TFSA don’t have to be reported on your tax return. There is no deduction for the contributions (as you would get from an RRSP contribution), but withdrawals aren’t taxed (RRSP withdrawals are taxed).

The income earned in a TFSA just goes back into the account and isn’t taxable.

Question: What happens to the investment for which there is no will?
My wife has separate bank account and RRSP investments. Neither me nor my wife has a will. In case of a death of either of us, who will inherit the property of dead person without will?

Answer: If no will, the investments will go to estate, and the provincial probate court will decide how the funds will be distributed, after all necessary expenses, e.g., funeral, and taxes (deemed disposition of investment properties and gains and taxes) have been paid by the estate. In general, the residual funds will be distributed to the next of kin, in the order of spouse, children, etc. If both dead, and without will, the children will generally be the beneficiary of the estate.

Question: Will taxes be deducted from RRSP withdrawal if I am unemployed?
Lets say Dave has been contributing to his RRSP and has $30,000 on the account. All of a sudden he is unemployed. Will he be paying taxes if he withdraws money from RRSP? How much can he withdraw per year and not be taxed?

Answer: There will be a withholding tax of 10% when he cashes his RRSP. His refund of taxes paid will come when he files his income tax.

Dave will be able to withdraw the minimum of $10,350 for 2009 and not be taxed. If Dave has more tax credits such as dependents, transit passes, etc.. then he will be able withdraw more than $10,350 tax free.

Question: Can a corporation contribute to owner’s RRSP and deduct it as expense?
In Canadian Income Tax act, can a corporate contribute to the owners’ RRSP and deduct it as an expense?

Answer: The easiest way for the corporation to contribute to the shareholder’s RRSP is to pay the owner a salary and have the owner put the amount into the RRSP directly.

If the corporation simply pays the amount into the shareholder’s RRSP, it would be considered a shareholder’s benefit. The problem with this is it is included in the owner’s income, but without a corporate deduction.

One other possible solution is for the corporation to set up an Individual Pension Plan. This is basically a Registered Pension Plan with the only beneficiary being the owner. In this case, the corporation can contribute directly into the RPP and claim the deduction on its return. Also the IPP can be set up to be a defined benefit plan. The drawback of the IPP is that it is expensive to set up and maintain.

Question: Spousal RRSP Dispute?
Recently I came across some paper regarding a spousal RRSP that was opened 17 years ago. My boyfriend and I split 15 years ago and I had completely forgotten about it. I no longer deal with the bank holding the RRSP and would like to transfer the funds into my own Canadian bank account. I spoke with my ex who seems to be hesitant to fill out the paperwork for the transfer, stating he has been using it all this time for his “canadian tax equalization” (he lives in Australia, I’m in the US now). Do I have any recourse with this? I am not at all comfortable having anything in joint name after all this time.

Answer: If it is a spousal RSP in your name (you are the owner) you can withdraw the money. To transfer the money out to another institution you would need to prove that you and your ex are no longer together and a separation agreement would be needed to transfer the money out. If your ex is the owner of the account and you were the contributor then the plan is not yours it would be your ex’s.

Where are the statements sent to? You will need the most current statement of the account when you go talk to the advisor.

The best thing to do is speak with the financial advisor who will advise on what steps to take and how to withdraw the money.

Question: RRSP’s in Ontario Canada?
Can I pull money out of 2 different RRSP accounts for my down payment on a first house. And am I able to pull money out of a work RRSP? I do know they need to be re-paid in 15 years and a max of $20,000.

Answer: Yes as long as you qualify for the home buyers plan the number of accounts the money is drawn from doesn’t matter. As of Jan 27 the maximum was increased to $25,000.

Question: I am thinking of buying a house worth $200K. I also have around $400K savings in my RRSP. (I am semi-retired)?
My question is: 1. Should I withdraw $200K from my RRSP to buy the house instead of getting a mortgage? The RRSP returns on GIC is very low.
2. Or should I get a mortgage for 25 years, and pay-off lump-sum annually?

Answer: In my opinion, I would take $25K out of your RRSP under the Home Buyer’s Plan since there are no tax implications for doing so. If you take more than that out of your RRSP, you will be taxed on the full amount. Take out the mortgage for the remainder of the purchase price. The interest on the mortgage is tiny compared to the tax bill you will have to pay on your RRSP withdrawal.

You should speak with your financial advisor about which option is best for you.

When to Use Fixed Income Investments

Thursday, February 18th, 2010

Whether one is living in difficult or robust economic times, it is always important to have an investment strategy that includes relatively safe investments. One form of investment is known as Fixed Income Investments.

Fixed income investment refers to any type of investment that generates an average return. Investors loan their money to a government body, corporation, or financial institution and receive interest on a regular basis. Although the rate of return may not be high, there is comfort knowing the risk is minimal. If a person is seeking to invest their money where there is not a high risk, fixed income investments are usually the solution.

The term fixed-income investment include such investments as bank notes, mutual funds, mortgage backed securities, retirement investments such as GICs, T-Bills, as well as government and corporate bonds, and other forms of securities. While the principal and return are not fail-safe, these fixed-income funds offer the chance for a higher return. They are popular for those planning on retiring in the near future.

GICs are a popular choice as a fixed income investment. The interest and principal are insured to a certain degree so your money is for the most part protected. Fixed-income mutual funds are a good choice for wary investors as they provide the opportunity to predict income over a set period of time. This is handy for budgeting purposes, so people can plan for retirement.

Many prudent investors acquire bonds as a fixed income investment. They generally pay out twice a year or on a monthly basis. Bonds are a tax-free investment income. Such bonds can be federal, state, or local municipality bonds.

Certificates of Deposit allow people to earn interest on their investment without any real risk of loss. It is much like putting money in an insured bank investment for a fixed period of time. It will earn a preset interest rate for a fixed time period. After the time expires, the certificate matures and the investor can cash in the certificate. They will receive their initial investment plus any interest earned.

Savings Bonds pay a fixed interest rate that is delayed until the bond is redeemed or for 30 years. The rate is based on the interest rate at the time of purchase. The interest paid is adjusted for inflation.

If you are about to retire and are in need of an investment with low risk, fixed income solutions can be the right choice. Investment portfolios will benefit by having a safe and secure stock. By combining investments that are affected differently by economic events, investment risk is reduced. These investments are often chosen during periods of market instability. Fixed investments can fluctuate with market conditions. If you have to sell them prior to maturity, you will usually receive a penalty fee.

Fixed Income Investments are a sound choice for cautious investors and those seeking a safe investment for retirement. Most fixed-income investments also provide a foreseeable flow of income. This can be an advantage for those on a pension or social security.

Whether you’re looking for mortgage rates or great GIC rates, with Meridian Credit Union you’ll have a customized financial plan that makes sense for you. Just for you.

Fixed Income Investments FAQ:

Question: What are the best fixed income investments? What are their yields?

Answer: My favorite fixed income investments are convertible bonds and convertible preferred stock, because these carry an opportunity for something over and above just the income. Of course, you will pay extra for that component, but I still think they are typically more valuable. The only other fixed-income investment I would consider in the current interest-rate outlook is the I-bonds, which are inflation-adjusted. Yields shift constantly. Check with the treasury for I-bond yields. Convertible yields are quoted on finance sites.

Question: High-quality fixed-income investments?
I need some examples of high-quality fixed-income investments.

Answer: Examples would be Government bonds, AAA rated corporate paper.

Question: On fixed income investments are the monthly dividend payouts taxed at the 15% dividend rate or is it income?
Are the monthly dividends considered straight income to be added to your yearly income or are these taxed at 15% rate. I am talking about taxable fixed income investments.

Answer: This depends upon the characterization of the dividends. Basically there are two types: Ordinary dividends and qualified dividends. The firm(s) paying the dividends will send you statements that tell you how much of each type were paid to you.

Ordinary dividends are taxed as ordinary income, they’re just added on to the rest of your income. Qualified dividends represent a payout of capital gains and are taxed as long-term capital gains. The rate for capital gains depends upon your marginal tax rate. If your marginal rate is higher than 15% the rate is 15%. If your marginal rate is 15% or less, the rate is 5%. You won’t know your marginal rate until you complete your tax return although if you’re looking at a lot of qualified dividends paid out this year it may be worth a consultation with a CPA or other tax pro to see where you might stand so that you can be prepared for the tax bill.

Question: Is there any fixed income investment out there that’s paying 8-10 percent?

Answer: None that are reliable…you might find some corporate bonds that pay 8-10%, but with that kind of percentage comes increased risk of default.

There are other bonds that may pay 8-10%, but you will pay a premium for the bonds, which lowers the yield.

Question: What fixed income investment pays best?

Answer: The higher paying in interest is the higher risk, so the answer would be Junk Bonds. Treasury bills, CDs, savings bonds have zero risk, but lower interest rates. Municipal bonds, A-rated company bonds pay a slightly higher interest rate for a lower risk.

Question: I am 13 years old and I would like to make an investment with a fixed income. Help?
I don’t understand most of the investment language so go a little easy on me. I can’t spend more then 75 dollars, and I would like to get the money back within a year. I have no clue what to do. Can someone clue me in?

Answer: The best I can advise to you, as a 13 year old girl, I can only recommend you get a Savings Account. Stocks and other similar entities would be deemed as too risky for someone of your caliber so a Savings Account would do the trick as the return is guaranteed.

You can get a Savings Account by visiting your local Bank. Ask your parents what bank they use and your parents should have the ability to introduce you to the bank.

Question: How can I earn regular safe monthly Income by making some fixed investment?
I can’t afford loss in my investment.

Answer: If you’re not willing to take the risk of losing money then your best bet is either CD’s or a money market account. While those options will not provide you with a great deal of return they are pretty good options for getting some sort of return on your money.

Question: How is money supposed to earn in a fixed income fund like Euro fund? Will you get dividends every month?
Is there a site where I can get more information on investing in fixed income funds and how to manage the investment?

Answer: A fixed income fund doesn’t mean that investors get a fixed amount of dividend each month. It means that the fund itself invests in fixed income securities (i.e., bonds and money-market instruments).

Mutual Funds, Guaranteed Investment Certificate Or Savings Account?

Wednesday, February 17th, 2010

If you are lucky enough to have a bit of disposable income, you are doing the right thing by researching ways of saving or investing your money. By reading about the different options available to you, you’ll be able to make an informed decision and make the best possible choice for you and your money. How you decide to save and/or invest your money will depend on many variables. Some of these include how much money you’ve got to work with, how much time you’ve got to work with and your all-important tolerance to risk. After reading the brief overview of mutual funds, Guaranteed Investment Certificates (GIC) and savings accounts below, it is advisable to discuss all your options with a personal finance advisor who can assess your situation on an individual basis.

Mutual Funds

A mutual fund is an investment where the money invested by many investors is pooled and then invested in a wide range of investments. The investments typically included in mutual funds include stocks, bonds, securities, short-term money instruments and others. Mutual funds are generally considered to be pretty safe as they are highly diversified. Each mutual fund will have a manger that is charged with trading the fund’s assets regularly. This person’s job is to maximize the rate of return for all the investor’s whose money is invested in the fund. The benefit of investing your money in mutual funds is that you can start with as little as $25 dollars and contribute to your fund on a regular basis. This is a great way to get started in investments and to grow your money even when you do not have access to a lump sum.

Guaranteed Investment Certificates (GIC)

A Guaranteed Investment Certificate, or GIC is a type of Canadian investment in which the rate of return is guaranteed over a fixed period of time. Guaranteed Investment Certificates are relatively low-risk investments, and thus yield smaller returns than that of stocks, bonds and mutual funds. Within the category of GIC’s, there are lower-risk options and higher-risk options; however, GIC’s in general are considered low risk because even if you earn less interest or jeapordize your access to interest earned by withdrawing early your initial investment is guaranteed. These safe and secure Canadian investments earn interest at a fixed rate, variable rate, or based on a market-based index.

Savings Accounts

Savings accounts are very safe and flexible places in which to basically store your money. You can open a savings account at any bank and with as little as $25. You will have access to your money at all times, and depending on how much you keep in your savings account at any given time, may not even have to pay any bank fees. The downside of keeping money in a savings account is that your cash will earn little to no interest. Interest-bearing savings accounts earn very little interest compared to Guaranteed Investment Certificates or mutual funds. However, if you feel that you will (or may) need access to your cash during the short term, this is a great and safe place in which to keep your savings. Many people start saving with this type of account then transfer lump sums to other investments such as GIC’s or mutual funds.

The Verdict

Now that you know a bit more about GIC’s, mutual funds and savings accounts, you are better prepared to talk to your financial advisor about what’s best for you. If you don’t currently work with a financial advisor, speak with a customer service representative at your bank.

Whether you are looking for a mortgage refinance, fixed, variable, open or closed Mortgage loan, our financial Coaches can help you figure out which one is just right for you. Ontario Credit Union offers the most convenient GIC rates on the market.

Mutual Funds FAQ:

Question: If need to take $50K from my mutual funds (in Canada), how much tax do I need to keep to cover it at tax time?
Does anyone know how much cash I need to put aside to pay the tax on $50,000.00? I want to take it from my mutual funds which have been untouched in decades. I need only 50,000. How much should I take out to have 50 free and clear?

Answer: You need to calculate your capital gain, which will determine your tax. This all depends on your Adjusted Cost Basis (ACB) which is what you paid for the portion of the funds you are selling.

Say the Adjusted Cost Basis on the total funds is $100K. Say they are now worth $150K. If you sold 60K, your realised gain is 60K – (60/150*100K) = 20K. You figure cap gain on $20K = 1/2 of 20K x your marginal tax bracket, which is probably around 45%, depending on your province. In this case, the tax is about $4500, leaving you $55500.

Question: Investing in Mutual Funds in Today’s economy?
I was just wondering if it is smart to invest into mutual funds considering the current recession, etc. I’m in Canada, so, I don’t know if that impacts anything or not. I just wanted to start saving money and allowing it to grow.

Answer: Mutual funds are a long term investment. Today’s economy or next year’s economy makes no difference. Your time horizon is what matters. If you have at least ten years to invest then mutual funds are generally a good idea. When the market is collapsing, that’s when you get stocks dirt cheap and you can make a good profit when the markets recover.

Question: How do I report a mutual fund that was rolled over to buy more mutual funds?
I started out with two mutual funds. When I transferred them to a new investment company those two funds were used to buy three new mutual funds. This year I sold all three funds. I’m using turbo tax and I understand how to report the three I sold but I really lost on how to report the first two I had and never actually got any cash for. There were no gains or losses on them so I’m not sure how to enter the information.

Answer: You don’t need to “get cash” to have a capital gain or loss. From your description, it appears that you sold the first two funds to get money to buy the last three funds. When you sold the first two funds, the amount you received for them determines whether you had a gain or a loss on each, which you have to report on your tax return. Then, your initial investment (or “basis”) the in the last three funds is the amount you paid to buy them, not the amount you paid to buy the first two funds which you later sold.

Summary: Report all 5 transactions as if you sold the first two funds for cash, and then bought the last three funds also for cash.

Question: How many mutual funds are there in Canada?
Not fund companies but funds.

Answer: There are over 250 fund families available in Canada. Thus there are thousands of funds available for investing.

Question: My parents up in Canada want to invest in mutual funds using ING Direct. What are some of the hidden fees?
I know that the US has them, however, I also know that the US and Canada ING Directs are different. Can you tell me, what you think of them from personal experience?

Answer: Its irrelevant. Products are products. They all have fees and they are all about the same. What you have to know is it works differently in Canada. The dealer/advisor compensation is built into the fund costs or “hidden” as you term it. So in Canada everyone generally pays a “set” cost of say 2.50%. (for accounts under $500,000) whereas in the US you pay a much lower set fee and then negotiate for the balance. The end cost could still very well be 2.5% in the US but its more transparent. Advise them to hire a qualified financial planner who they know they can trust and knows his stuff.

Question: I am looking for a program that will keep track of mutual funds on a daily basis?
I will be entering the initial cost per unit and the total number of units purchased plus the date of purchase. I would like to see the value in comparison (+or-) to the initial investment on a daily basis.These will be mutual funds purchased in Canada but not all being in Canadian funds.

Answer: The Microsoft excel add-in program may work for you. With a simple spread sheet, add the codes for your mutual funds and anytime you hit “update” you will get the current quote, with the data calculated in your spread sheet.

Question: Do US mutual funds, stocks and Bonds are taxed higher than Canadian investments if you live in Canada?

Answer: You may be subject to withholding taxes on any capital gains, or interest you earn on your US-based investments. You might need to file a 1040NR with the IRS to claim a credit for these on your Canadian taxes.

Canada will tax your Capital gains and interest in the same fashion as on Canadian investments.

The exception is dividends paid from eligable Canadian corporations. There is a tax break on these that makes dividends from Canadian corporations preferable to those from foreign companies.

Question: When looking at diversification of a mutual fund portfolio, how many mutual funds should I be buying into?

Answer: For diversification, putting it into five or so funds that invest in different types of stocks is best. You shouldn’t put it all into an S&P500 fund, because that fund only represents 500 of the biggest companies in the United States — it doesn’t cover small-cap stocks or foreign stocks, for example. You should probably have a large-cap fund, small-cap fund, foreign-stock fund and maybe a value fund and a growth fund. If you buy to many funds, you are likely to have overlapping investments and would be less diversified.

Lowering the Fear Factor on Finances

Tuesday, February 16th, 2010

One of the major reasons why a lot of people are averse to the idea of managing their personal finances is because they find it complicated and cumbersome. However, this state is just indicative of your failure to perform the necessary housecleaning. Your efforts are actually wasted on tasks that could have been avoided in the first place. You have multiple accounts with several banks and overlapping investment portfolio and several brokerage accounts. If your finances are in this kind of situation, then the first thing that you must to is to simplify and get rid of the “excess” fat in your personal finances. Once you are able to simplify your personal finances, managing them will not be very complicated.

How can you simplify your personal finances?

1. Get Rid of Excess Bank Accounts

If you try to analyze your requirements, you will find out that there is no need in having more than one bank account. If you currently have several bank accounts, consider closing those accounts that are deemed unnecessary. If you are married, then you may have a joint account to pay for your household expenses and two separate bank accounts for you and your spouse. You will be able to manage and monitor your cash flow once you are able to reduce the number of your bank accounts.

2. Go for Paperless Transactions

There are a lot of transactions that allow paperless billing. Take advantage of this opportunity since this is will reduce the paperwork. The record of your paperless transactions is stored on your PC and you can access them for future reference anytime and anywhere. This is also a more convenient way of doing transactions since you can perform the task at your most convenient time.

3. Automate the payment of your monthly bills

You can also set up a standard payment arrangement for all your monthly bills through your credit card. In this way, you can just make a lump sum payment for a specific set of monthly bills. You will no longer have to remember and follow up your payments for individual bills that fall due every month. This makes it also easier for you to monitor and manage your monthly expenses.

4. Streamline your Brokerage Accounts

Like your bank accounts, you will have to review your existing broker accounts and explore the possibility of consolidating them so that you can simplify the monitoring and management your investment portfolio. You can avoid having overlapping investments if you are able to reduce the number of your broker accounts to the ones you feel most comfortable doing business with. With a reduced brokerage portfolio, you can also enjoy certain benefits such as reduced fees when your investment reaches a certain threshold level.

5. Perform a monthly financial review

In most instances, people start off on a high note in their budgeting only to taper off after a few months. The next thing they knew is that their finances have turned into a complex jumble. They are left with no choice but to start all over again. You must be consistent in keeping track of your cash flow and net worth. You must perform a periodic review of your personal finances. You can easily manage your finances if you consistently perform monthly review. This set up also allows you to spot potential financial problems before they become serious and unmanageable.

There is no magic formula when it comes to effective personal finance management. You only have to keep things simple so that you will be able to manage them more effectively. If you are able to develop this mindset, you are well on your way to becoming a financially independent person.

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Personal Finances FAQ:

Question: Is their a personal finance site on the internet that can help me budget?

Answer: If you know how to use excel, they have a great personal/family budget application. Just open up Excel, go to the search bar in the upper right hand corner and type “family budget” and samples you can download will pop up. It’s a very easy fill in the blank form with all the categories you probably need already there.

Question: Does the study of economics help a person to manage their personal finances better?
or I should ask if this study should help a person to manage their finances better or if what is learned has nothing to do with a person’s financial situation.

Answer: Economics has nothing to do with personal finances. Actually an entry level finance class would be more appropriate for that. Economics is more of a study of rational behavior and the allocation of scarce economic resources like time and money. An understanding of economics does allow a person to realize and seize upon opportunities to save or make money.

Question: What is the best money management program out for personal finance?
To help get a plan to reduce debt, balance checkbook, and reminds you to pay your bills.

Answer: My personal favorite is Quicken. I’ve used it since 2001 and can’t imagine managing my personal finances without it. There are others out there though. Obviously different people will have different preferences.

Question: Can state of Mississippi garnish my wife’s paycheck for a personal finance loan?

Answer: Is the state her employer? Is the state the creditor?

If the state is the employer and the loan was granted through the state then yes. Otherwise they will have to follow the procedures of collecting debt. In order for them to garnish wages, a judgment must be entered against her. The creditor will have to sue to get this.

Question: Personal Finance Question. Please help, I’m desperate.
I am a young adult. My parents are disabled so we live in public housing. I am trying really hard to move out but I can’t work out the numbers. Lets say for example I work for $10/hour, 5 days a week, from 9-5 pm. Annually I can make about $19,200. But the problem with public housing is that I need to pay 30% of my income for rent and my income tax is 10%. So when is all said and done I still don’t have enough money to move out. Any ideas on how I can solve this problem?

Answer: Most people who are just starting out can’t afford their own place. They usually get roommates. I knew 4 guys who shared a nice 2 bedroom apartment once. Get the job first. See how much you can save per month (put it in a bank account) — if you commit to a rent that you can’t afford it won’t make anybody happy. Don’t try to spend more than 1/3 of your total income on rent, because there are always other expenses that come up.

Question: What kind of jobs deal with personal finances?
I have a Bachelor’s Degree in Economics, with a major in Banks and Finances. I currently work for a credit union but I am really interested in personal finances, credit issues, stuff like that. What are some jobs related to these things?

Answer: Today most “financial advisors” are loan officers, branch managers or investment counselors. Unfortunately, the industry has gotten so sales driven, that those are really your options. There is not a way to only advise and not sell, it’s not really profitable for a firm. You could do not-for-profit work, and city/government work, but there is little room for advancement and you will typically end up being tasked with other things. If you think about it though, the best people to give advice are those working in the field and understand how things work. Once you have established enough retail experience you could (in commercial banking or investment firms) move to a “wealth management” where you are doing financial counseling and advising for the affluent.

Question: Can creditors go after my LLC if my personal finances are in ruin?
My personal finances are in ruin. I cannot pay my credit cards and am currently trying to find a solution. Can a creditor attach a claim on my LLC’s bank account that we use for our store? I have 2 employees and the store basically just breaks even. All credit card debts are in my personal name and not the name of my LLC.

Answer: No they can not. If you are a registered corporation under an LLC guidelines and registered with your state attorney general office (you didn’t just use some online legal scam to incorporate), then your personal finances do not affect the corporation. That is why they call it a Limited Liability Corporation, to protect the officers assets.

Question: Personal finances?
I’m 22 and am just out of school. I’ve never had a very good control over my finances and would like any tips to help with budgeting, lowering spending habits, easy ways to keep track of spending habits, etc. I don’t want to have to pay for any of it though. I want to know how to get myself out of debt so when I start paying college loans in June I’ll have a better grip on covering my expenses and being able to save up so I can move out of my parents’ house.

Answer: Yes, you CAN take control of your finances. A little dedication and self-control can transform your financial situation, if you’re willing to stick to it.

Look at your expenses from the past year and create a budget that realistically reflects how you spend. Then see what you can cut out, and focus on long-term goals. Make debt repayment a top priority, since the interest will play havoc with your finances as long as you have the debt. Starting today, never spend more than you make – use your credit card only if you are 100% sure you will pay off the entire amount every month. Track all your spending, in a computer program or even just scribbling down the amount in a handwritten budget list.

You can do it. Just stick to it and remind yourself of the goal.