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Mortgage-Matters

Reverse mortgage: tax-free $

A reverse mortgage is a way for homeowners 55 or older to turn up to 55 per cent of the value of their home into tax-free cash.

It’s a loan secured against the value of the home, but unlike a traditional home equity line of credit or a conventional mortgage, it does not require monthly mortgage payments for as long as you live in your home.

What can you do with a reverse mortgage?

  • Pay off debts
  • Renovate or make your home more accessible
  • Handle unexpected expenses
  • Help your children or grandchildren
  • Improve your day-to-day standard of living
  • Make a special trip or purchase

Reverse mortgages have come a long way. They have evolved from a needs-based product to a solution that many financial planners recommend as an important component of a comprehensive retirement plan.

Unfortunately, there are still many misconceptions regarding reverse mortgages. Below, the myths are separated from the facts.

Myth: The bank owns the home.

Fact: You always maintain title ownership and control of your home, and you have the freedom to decide when and if you’d like to move or sell.

Myth: You will owe more than your home is worth.

Fact: Clients can qualify for up to 55 per cent of the appraised value of the home, 33 per cent on average. As the lender has conservative lending practices, you can be confident that there will be equity left in the home when the loan is repaid. In fact, over 99 per cent of reverse mortgage clients have equity remaining in the home when the loan is repaid.

Myth: A reverse mortgage is a solution of last resort.

Fact: Many financial professionals recommend a reverse mortgage because it’s a great way to provide financial flexibility. Since it is tax-free money, it allows retirement savings to last longer.

Myth: You cannot get a reverse mortgage if you have an existing mortgage.

Fact: Many clients use a reverse mortgage to pay off their existing mortgage and other debts, freeing up cash flow for you to use as you wish. How great would it feel to be free of regular mortgage payments?

It is also important to know these two key points.

You will remain the owner of your home and will never be asked to move or sell your home provided you pay your property taxes and home insurance and keep your property well maintained.

A reverse mortgage will not affect any government benefits you may receive such as OAS, CPP or GIS.

A no obligation assessment is available to determine if a reverse mortgage is a suitable option for you. As a mortgage broker my advice is impartial and I will assist you to review all of the mortgage options available to you.

It only takes about 90 seconds for the assessment, so please give me a call at 250-826-3543 or email [email protected].



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CRA debt solutions

The Canada Revenue Agency has far reaching powers when you owe money to them. If you owe them, they will find a way to collect.

  • They charge penalties and interest on your overdue taxes.
  • They can withhold payment of your Child Tax Credit and GST rebate.
  • They can take money from your bank account or garnishee your wages.

When you are self-employed and do not have tax deductions coming off your paycheques and haven’t made other provisions to cover your tax debt at the end of the year, you could have a problem.

Tax debt is serious and should be dealt with immediately.

The CRA will generally not accept any arrangement other than a full payment and this is due and payable at the time of your assessment or reassessment.

They cannot set a precedent that would allow them to accept less from everyone else. They have one of the highest rates of collection activity in Canada as our taxes fund public goods and services.

What do you do if you can’t pay them in full?

Contact them immediately.

You may be to negotiate a payment schedule if you can’t pay the full amount, but they generally will not let it be outstanding for over a few months. Know that they will continue to charge the interest and penalties on the past due amount.

If you own real estate, the CRA can register a lien against your property if what you owe to them has been outstanding for an extended period of time.

This is done to guarantee that you pay your outstanding debt. When a lien is registered against your property it can prohibit you from refinancing or selling your property until the outstanding debt is paid in full.

This is important to note - Filing for bankruptcy, or filing a consumer proposal, does not discharge a lien against your property.

If you go bankrupt on your CRA debt, the lien remains and – even worse – accrues interest over time. Even after your discharge from bankruptcy, the lien remains in force, until you eventually sell your home.

Another point to note — if you are self-employed and your income tax is not current, you will not be able to secure mortgage financing to purchase a home.

Canadian banks will not make unsecured loans for payment of income tax debt and they generally cannot refinance an existing mortgage to cover the debt either. 

If you are a homeowner, having an experienced mortgage broker working for you can save you both time and money when seeking a solution to your CRA problem.

If you simply can’t pay the full amount of your back taxes, consider refinancing your mortgage and using the equity in your home, a consolidation loan is possible which can include tax arrears and other debts.

I have access to lenders that will allow a refinance to pay outstanding CRA debt or second mortgage financing. Please give me a call to discuss at 888-561-2679 or email [email protected].



Mortgages for self-employed

It's not as easy as it once was for the self-employed to obtain mortgage financing.

A few years ago, you could tell your banker how much you made, look them in the eye and then promise you would make your payments.

As long as you had a great credit rating, that was good enough then, but not any longer.

Now, you have to provide a whole lot of paperwork and prove that you have the ability to make your payments.

My best advice for someone who is self-employed and looking to obtain a mortgage whether it is to purchase a property for the first time or moving up, refinancing a mortgage or looking to purchase an investment property –be prepared.

Here are a few pointers that could make the process go smoother:

  • Start early. Meet with your mortgage broker well in advance to discuss what is required to obtain a pre-approval for your financing.
  • Ensure that all your taxes are filed and that you don’t owe anything to the CRA. You will need your last two years Notice of Assessments from the CRA at a minimum.
  • The larger the down payment, the better. Lenders want to see that you have upfront equity. You must have a minimum of five per cent of your own funds and a minimum 10 per cent down payment.
  • Have on hand your GST return, business license (if you don’t have one, get one!) and the Articles of Incorporation for your company.
  • You will need your last two to three years T1 Generals that must be prepared by an accountant.
  • Declare a reasonable income for your profession on your tax return. You might suggest to your accountant that they have a conversation with your mortgage broker if you are considering mortgage financing.

You will want to pass along this note to your accountant – the creative accounting methods used to reduce the amount of personal income tax that you pay is now hindering your ability to obtain mortgage financing. 

If the income you report on your tax return is low, then you are going to have to work harder to justify to a lender that you have the ability to qualify for a mortgage.

An example of that is dividend income. It might be a great idea for tax purposes, but it’s a bad idea if you will be requiring mortgage financing. Most lenders consider dividend income as a one-off bonus and will reduce your qualifying income by that amount.

If there is a history of dividend income we may be able to request an exception from the lender, but I wouldn’t count on it.

There has been general tightening with all lending guidelines and also some extreme changes. Because of all the changes, it is that much more important that you work with an experienced mortgage broker.

You may have to work a little harder and provide more documentation but there are still many options available to the self-employed, so please give me a call 888-561-2679 to ensure that you are in the very best position when it comes time to arrange your mortgage financing.



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Seller's market & mortgages

Stats from the Okanagan Mainline Real Estate Board confirm that there is low inventory for those who are hoping to buy a home.

This will create more competition for the available properties and potentially multiple offer situations with homes selling for higher than the asking price.

If you are in the market for a home right now or are considering a purchase this spring, here is my tip to increase the odds of you being the successful bidder in a possible multiple offer situation.

If you take these steps you might avoid some of the craziness that could happen this spring market.

This is my best tip and easiest tip:

  • Get pre-approved for your mortgage financing. Not pre-qualified, but a full pre-approval.

Before looking for a home or placing an offer, work with your mortgage broker to complete a full mortgage pre-approval.

This will include collecting all supporting documentation that a lender will require to provide a final approval for your financing. We will advise you of your purchasing budget, review any potential challenges and ensure you are set to go other than finding a suitable property.

We can also review the types of properties you are interested in and advise whether there might be any potential financing challenges because of property issues.

If you do all the work upfront, it could prevent your offer from falling apart because you were not able to secure financing for your purchase or possibly losing the property by needing to request an extension to finalize your financing which the seller may not be prepared to offer because there are backup offers on the property.

Being a pre-approved buyer could also place you in a more favourable position in a multiple offer situation.

But a word of caution — do not be tempted to place a subject-free offer. Subject to satisfactory financing is a key clause that needs to be included in every offer. You could be the most well qualified purchaser in history.

Stellar credit, great income and job stability with a significant down payment, but in the end, a lender could still decline your request for financing.

Here’s why. Mortgage-financing approval not only includes the lender being happy with your qualifications, but they must also approve the property. Essentially, it’s a two-step process.

My best advice to you would be to never place a subject-free offer regardless of what others are recommending and to think long and hard about it unless you have the cash in the bank to cover your purchase in the event that you can’t secure satisfactory financing.

Or have a detailed conversation with your mortgage broker well in advance to place a subject-free offer. There are some strategies to minimize your risk but an individual conversation would be required.

In a seller’s market, you need to be prepared to successful, so please give me a call to review your options at 888-561-2679 or email [email protected],



More Mortgage Matters articles

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About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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