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Ryan Zupan
#103, 1245 W Broadway,
Vancouver, BC
V6H 1G7
604.250.6122
City Wide Mortgage Services – Zupan Mortgage Services (E, & O, E.).
Is it worth waiting to save 20% down? Pay the insurance premium or wait?
/in mortgage advice, Mortgage Basics, mortgage tips /by adminHi, Ryan Zupan here with the Mortgage Centre City Wide. Last week, we talked about mortgage insurance, what it is & what the premiums are, and this week we’re going to talk about whether it’s worth buying today, paying the premium, or waiting until you have a 20% down payment & avoid the premium all together.
Let’s look at this example. Let’s say you want to buy a $400K condo &, right now, you have 5% saved for a down payment – $20K. The CMHC premium in this case is $10,450. To avoid paying that, you will need $60K MORE than you have right now. I’m going to need $80,000 for a 20% down payment. Ask yourself, how long will it take you to save that $60K? 4 years? 5 years? Maybe longer? How much higher do you expect property values to have increased by that time? More than that $10K? Is it worth waiting?
Let’s say you are able to save $12K / year & it would take you 5 years to save the 20% down payment. If you went ahead & bought today with 5% down, paid that premium, then just applied that $12K per year as a lump-sum on your mortgage, not only will you pay off that premium in a year’s time, but, compared to buying with 20% down, after your 5 year term, you will have a lower outstanding balance, a lower payment & be 5 years closer to paying off your 25 year mortgage than you would waiting. All this AND you get to buy a home today, for today’s prices, with interest rates still much lower than they’ll likely be in 5 years & avoid paying rent for the next 5 years.
If you’d like more information on the insurance premiums, or you’d like me to calculate how much the premiums are going to cost you – is it worth you buying today or is it worth waiting – contact me, I’m Ryan at City Wide Financial.
Ryan Zupan
Mortgage Planner
604.250.6122
ryan@mortgagecentrebc.com
Mortgage Basics: What is CMHC mortgage insurance?
/in Mortgage Basics /by adminHi, Ryan Zupan here with The Mortgage Centre – City Wide. Today, we’re continuing our talks on the very basics of a mortgage & go over mortgage insurance. What is mortgage insurance?
Here in Canada, if you purchase a home with less than 20% down, you will need to purchase mortgage insurance. Commonly referred to as CMHC, but is also offered by Genworth & Canada Guaranty. Your mortgage insurance premiums are the same no matter where you go, so you don’t have to worry about shopping around. And that amount is just added to the mortgage amount & paid off over time.
Now the guidelines between the insurers aren’t actually the same. So this is where a broker can be very useful because we can match you up with a lender that works with the insurer, who best fits your situation. Not all lenders work with all the insurers.
So what kind of premiums are we talking about? If you purchase a home with the minimum down payment – 5% – the premium is 2.75% of the mortgage amount, not the purchase price. The premium does go down for every 5% you put down:
5% down – 2.75%
10% down – 2.00%
15% down – 1.75%
20% down – n/a
Now, if you choose an amortization longer than 25 years, let’s say 30 years, that premium is 0.20% more.
In my opinion, mortgage insurance is a good thing, because without it, first time buyers would have a much harder time getting into the real estate market.
Without mortgage insurance, banks would not want to finance purchases with, say, 5% down because it’s a riskier investment. Banks do not like foreclosures because they typically lose money going through all the legal proceedings, the lost mortgage income & trying to sell the place. That 5% of your equity will get swallowed up extremely quickly if you decide to run off to Tahiti after closing.
More options are good options.
I’m Ryan with the Mortgage Centre – tune into my next video where we’ll go over why it’s better to pay the premium & buy, rather than waiting to save 20% down.
Ryan Zupan
ryan@mortgagecentrebc.com
604.250.6122
Mortgage Basics 101: What is amortization?
/in Mortgage Basics /by adminRyan Zupan here with City Wide Financial. This is the first of a series of segments I’m going to do on the basic elements of your mortgage. We’re going to first talk about amortization. The amortization is like the lifespan of your mortgage. Making regular payments, this is how long it will take you to repay the loan. The longer your amortization, the less your payments will be. All things being equal, the shorter the amortization, the higher your payments will be.
So why would anyone want a shorter amortization? The longer you draw out your mortgage, the longer your amortization, the more interest you will pay over time. So you want to find a middle ground, where you have a mortgage payment you feel comfortable making, but also one that isn’t going to have your mortgage follow you around until retirement.
Right now, in Canada, the longest amortization you can choose with less than 20% down, is 30 years. There are a few institutions that will accept 35 year or longer amortizations with 20% down, but those are really exceptions & you don’t want your mortgage to follow you around that long.
If you choose, say, a 30 year amortization, all is not list. If you go with accelerated payments, say accelerated bi-weekly payments, you’re going to bring that amortization down to pretty close to 25 years. You’re going to lose 5 years right out of the gate.
Even, when you first buy, if you’re worried that you don’t want your mortgage to follow you around until retirement, there are lot of strategies & ways that we can cut that time down & save you money.
For more information on the different elements of a mortgage, check out my later videos or contact me:
Ryan Zupan
Mortgage Planner
604.250.6122
ryan@mortgagecentrebc.com
Mortgage Basics 101: What is a down payment?
/in Mortgage Basics /by adminHi, Ryan Zupan here with City Wide Financial. Today, we’re going to continue our series of talks on the basics of a mortgage & talk about down payment. Let’s say I want to buy a $500K condo here in Vancouver. Well, most of us don’t have $500K sitting under our mattress, ready to buy a home with, so I’m going to have to buy some money – I’m going to need a mortgage. But, I’ve managed to save a few thousand here & there & have $25K ready to put into the purchase of my home.
That $25K of my money is my down payment. Down payment is the amount of equity you’re putting into your home. So you have your down payment (equity) & your mortgage (debt). Down payment + mortgage = purchase price. The minimum down payment here in Canada is 5%. There are programs available where you can borrow that 5%.
For down payments between 5-20%, you need to purchase mortgage insurance. I will discuss this in my next video, but you’ve probably heard the word CMHC used a lot lately, that’s mortgage insurance. So, for down payments between 5-20%, you need to purchase insurance, so it will be a little more expensive for you.
The last thing I’ll talk about is, sometimes people are faced with the dilemma – should I save for a home or for retirement. If I max out my RRSP each year, that doesn’t leave much extra to save for a down payment. The government has a program available for first time buyers, where you are allowed to use up to $25K from your RRSPs to buy a home. There are some restrictions & you do have to pay the amount back, but you can look at my website for more info: https://ZupanMortgage.com/first-time-buyers/tax-incentives
If you’d like to know how much you can afford, or to lock in a rate, contact me, Ryan at City Wide Financial.
Ryan Zupan
Mortgage Planner
604.250.6122
ryan@mortgagecentrebc.com
Mortgage Basics 101: What is your mortgage term?
/in Mortgage Basics /by adminHi Ryan Zupan here with City Wide Financial. Today I’m going to talk about your mortgage term. There are 2 time frames you need to think about when you get your mortgage. The first is your amortization – the life of your mortgage – the second is your mortgage term – the length of your mortgage contract. This is the period of time where you & your lender agree to a specific interest rate, payment & options (in the case of a variable rate, your payment & rate would fluctuate throughout the year).
Your mortgage options are things like your prepayment privileges. How much money can you put towards your mortgage each year? How much can you increase your payment? What happens if you miss a payment? Your ability to move the mortgage to another home if you sell your property? There’s a lot of things to consider.
It’s important that you choose the right term, because if you break your term, if you break your mortgage early, you have to pay a penalty. In a lot of cases that penalty is quite expensive. It’s very important that you think about your goals with that property.
If, for example, your investment portfolio does well, or you get transferred, or house prices increase such that you want to sell. It’s important that you have chosen the right term so that you cost is minimized.
A big mistake I see with buyers, is when they are shopping for their mortgage, they are just looking at interest rate. Rate is just one piece of the pie. If you’re going to sign a 5 year term, for example, you should be looking at what are your total interest costs over that 5 year period? What will your outstanding balance be at the end of term?
Sometimes it’s better going with a slightly higher interest rate IF you have better mortgage options because that mortgage is going to cost you less over the 5 year period.
There are two types of terms: short term (6 months – 3 years) & long terms (3 years & above). Unless you’re planning on selling your home in under 5 years, most people go with a 5 year term. That’s the sweet spot, right now anyways, between getting a low rate & locking it in for a relatively long period of time.
Some people, who are OK with more risk, will just go after short terms. With a shorter terms, your rate is less, so they prefer renegotiating their mortgage every 2-3 years & chasing that lower rate. It really depends on your risk tolerance, your plans with the property, etc.
If you’d like to help choosing the right term or you would like to know your interest costs over the term of your current mortgage, contact me, I’m Ryan at City Wide Financial.
Tax Tips: How Prepayments Save Your After Tax Dollars
/in mortgage advice, mortgage strategies /by adminAlright, so it is everyone’s favorite time of year, Tax Season! Now, if you’re like me, you enjoy paying taxes as much as you enjoy finding an empty toilet paper roll in a public washroom. They’re both revolting. But in my effort to symbolically “spare a square,” I’m going to share some insight into how making prepayments on your mortgage are related to income tax.
Keep in mind, I’m a Mortgage professional & not a tax expert, but there are some very basic truisms I’d like to share:
Unlike the States, mortgage interest in Canada is not tax-deductible. The monthly payments you make are with your after-tax income — what I mean is, the payments are with money you’ve earned & already paid tax on. This makes it even more important to make prepayments on your mortgage early, as you will not only save dramatically on you long-term interest costs, but you’ll save from having to apply future after-tax dollars to your mortgage payments.
If you have a mortgage interest rate of 5%, for every $1000 of principle you reduce your debt by, you will save $50 in after tax cash each year. Looking at it this way, in an income tax bracket of, say, 40%, you need to earn $83.33 to pay the interest for every $1000 of outstanding principle so there is a huge benefit to reducing this balance.
Any prepayments — whether it’s lump-sum, doubling up payments, increasing payments, anything above your required monthly commitment — are going directly to reducing your outstanding balance. You wont’t have to pay interest down the road on that amount so you are saving your future, after tax dollars.
You could also think of this as your return on investment for making prepayments is 8.33% before tax & 5% after tax, which is better than most fixed return investments — bonds, GICs, etc.
So make lump-sum payments, double up payments when you can, use your RRSP-driven tax rebate to pay down your mortgage, you’ll not only save tremendous amounts of interest, but you’ll save from having to apply future after-tax dollars to your mortgage.
For more information on mortgage tax strategies, or learn how you should be using your prepayment privileges, contact me, I’m Ryan @ City Wide Financial.
Ryan Zupan
Mortgage Planner
ryan@mortgagecentrebc.com
604.250.6122