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Mortgage-Matters

Debt and Canadian seniors

The number of Canadian seniors is growing quickly, and so is their debt.

A recently released report from Statistics Canada for Insights on Canadian Society takes a look at debt and assets among senior Canadian families.

It noted the changes in debt, assets and net worth among senior Canadian families from 1999 to 2016.

In recent years, household debt has increased. The level of debt and value of assets are especially important for the financial security of seniors.

Because income typically declines during the retirement years, seniors often need accumulated assets to finance their consumption, especially if they do not benefit from a private pension plan.

Debt can also be particularly problematic for seniors as repayment can be more difficult on a reduced income.

In 2016, the proportion of senior families with debt was 42%, up from 27% in 1999.

The report also highlighted that seniors now have a higher debt-to-income ratio with debt more than doubling since 1999 and meanwhile, real estate assets represented 52% of the overall increase in the average value of total assets over the period.

The question for many seniors with a large gain in real estate equity will be:

How do you use the equity built up in your home to help enjoy your retirement?

You have all this debt that you are making payments on and how to you find a way to manage it.

Many might consider a reverse mortgage a final resort but reverse mortgages are becoming more popular in Canada for the very reasons from the report above.

They can be used as a financial planning tool by turning an inactive asset into an active asset as part of plan to integrate real estate equity with other investments such a pensions and RRSPs.

When it comes to the resulting cash flows from a reverse mortgage, Canada Revenue is very clear – they are not taxable and will not affect any current pension income being received.

Funds from a reverse mortgage are also tax-efficient as part of a financial planning process as it might reduce the cash withdrawals from current investment assets which can control how much tax is being paid.

More Canadians are now house-rich, but income poor so a reverse mortgage is becoming a more important option for those that have not saved enough for retirement but have equity in their home because they paid off their mortgage by retirement.

In a recent survey by the non-profit Investor Education Fund, half of all households surveyed said they believe they will exhaust their savings in the first 10 years of retirement.

Some hard decisions may result from that such as being forced to sell or downsize a home. We already know that today’s active seniors want to age in place in their current homes.

If you would like more information about how you can incorporate a reverse mortgage into your retirement planning or discuss how you might eliminate some of your consumer debt to improve your monthly cash flow, give me a call at 1-888-561-2679.



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Mortgages for self-employed

It is no longer 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 actually prove that you have the ability to make your payments.

My best piece of 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 is 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% down payment.
  • Have on hand your GST return, business licence (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 which 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, 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.



Before you list your home

If you are considering listing your home for sale in the near future then there are some things that you need to know.

You may think that your first call should be to a realtor, but it should really be to a mortgage broker – not your mortgage lender, but a mortgage broker.

Why?

A mortgage broker is going to give you unbiased advice and has many options available to ensure that the financing process goes smoothly for your planned move.

You may not fully understand the limitations and conditions of your current mortgage:

  • Is it portable to a new property?
  • What are the potential interest penalties?
  • Do you need to re-qualify for financing?
  • What costs are involved?
  • Does the mortgage still fit your current circumstances?
  • What happens if you want to buy a new home before your current home is sold?

Here is some information to consider and questions to ask.

  • Not all mortgages are portable such as variable rate mortgages and Home Equity Lines of Credit. Other conditions on your mortgage may also prevent you from moving it to a new property. Many low-rate or no-frills mortgage products are not portable.
  • The timing of the sale of your home may affect the amount of interest penalties being charged. The anniversary date of your fixed term mortgage will determine the amount of the interest penalty. Waiting a couple of months could significantly reduce your potential penalties. If the purchase of your new home does not line up with the sale of your current home you will still have to pay the penalties to your lender upfront and the amount will be credited back to you upon closing of your new purchase.
  • You may understand that your current mortgage is portable but did you know that you will most likely have to re-qualify for financing to be able to move your mortgage to a new property. Has your overall debt or employment status changed since you originally qualified for your mortgage? It’s possible you may not qualify with your current lender.
  • Discharge fees and re-investment fees may be charged by your current mortgage lender. Are you aware of the potential costs to either payout or move your current mortgage? There can be times where there may not be sufficient proceeds to provide clear title to your home.
  • If you find a new home before your current home sells do you have sufficient funds available to cover the required deposit? Will you qualify to carry two mortgages or bridge financing?

An experienced mortgage broker can review all of the above with you to ensure that the sale of your home goes smoothly with no unexpected surprises.

We can calculate penalties, discuss options for bridge financing as that is not available with all lenders, provide an option for deposit funds and check the mortgage market to make sure you have the right mortgage with the best rates, terms and conditions for your current circumstances.

We will complete a full review so you can move to your next home with ease.

If you have any questions please reach out to me by phone at 888-561-2679 or email [email protected]



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Review your mortgage

Stick out your financial paperwork and say, “Ahhh!”

It’s time for a check-up.

Thankfully, this check-up doesn’t require you to face your weight on that maddeningly accurate doctor’s scale, or sit in a cold and drafty little room with an open hospital gown. Actually, it’s a mortgage check-up that’s in order, and making time for a quick review may yield some amazing results.

About 80% of Canadians visit their doctor at least once a year to help ensure they remain physically fit but far fewer are checking their financial fitness annually.

Life changes, families grow, jobs move, retirement objectives shift. There are any number of reasons why your mortgage and possibly your entire financial picture should be evaluated from year to year.

Maybe there are no changes needed but if there are it’s better to identify them early.

The mortgage you signed up for a few years ago may no longer be the best fit for you. Doing a financial check-up is a very smart thing to do annually.

Many often just wait for the renewal letter before they look at their mortgage and then go back to their current lender without considering whether that mortgage meets their current needs.

There are so many things that a mortgage can do for you. It can help you:

  • become more tax efficient
  • build wealth for retirement
  • renovate your home,
  • consolidate high interest credit card debt
  • perhaps invest in a business
  • purchase a vacation or rental property
  • and so much more.

When you obtain a mortgage it is most likely the largest financial transaction of your life.

Here’s a thought for you – instead of focusing solely on the interest rate perhaps it might be important to consider various strategies that you can utilize within your mortgage that will assist you with your goal of mortgage freedom and financial freedom when you are ready to retire.

Having the same mortgage strategy your entire life is not always the best financial decision. If you are applying different mortgage strategies at different stages of your life, just like your other investments, it can lead to the financial wealth and the independence you are hoping for in retirement.

Don’t wait for your mortgage to come up for renewal and don’t wait until after you have made a major change in your personal situation.

By reviewing annually you will ensure you stay financially fit.

Give me a call today at 1-888-561-2679 or email me at [email protected] so we can schedule your check-up. I promise it won’t hurt!



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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