Is Mortgage Interest Tax Deductable?
You may be surprised to learn that mortgage interest is tax deductible, and secured line of credits need to be perceived as a powerful financial tool. Most hope to be financially independent sooner by building an investment portfolio, having said that; many home owners are unaware they may leverage their secured line of credit to buy investments and enjoy significant tax write offs by deducting all interest paid. This is known as “leveraged investing” and each individual has different tolerances and expectations therefore a thorough financial planning consultation is required before engaging in this manoeuvre.
What Are Mortgage Penalties?
Discharging your mortgage early can come with a cost. A lot of banks charge what is called an Interest Rate Differential: a calculation that has no uniform system or rule among lenders or regulation by the Bank Act.
They do this by comparing your interest rate to the banks current interest rate for the term closest to the amount of time left on your mortgage. So if you had two years and four months left on your mortgage, you would think the bank would be using their three-year rate. They don’t always do that. In many cases banks will use a lower rate, of one of the mortgage products that they are offering for the IRD calculation.
And there is no rule about which rate to use, they can use any rate they want. For example if there is a 2% difference between one- and five-year rates, there is a lot of room to manipulate the IRD. On a $450,000 mortgage, that 2% would cost you $9,000 in penalty interest.
How Do I Avoid Mortgage Penalties?
Now that is an EASY QUESTION TO ANSWER….by building a MORTGAGE PLAN! Working together we will find the best solution to meet your needs while maximizing the interest you save over the life or your mortgage, not just over a 5 year term. The best way to avoid discharge penalties is to have a thorough understanding of the terms and conditions of your mortgage before closing. Discharged penalties may be calculated in various manners and targeting the lenders that have fair discharge calculations is important. Most mortgages are portable to other properties yet terms and conditions vary lender to lender. In most cases; when selling and buying no discharge penalty applies when porting a mortgage, and a blended interest rate will be offered for the new mortgage amount required. A discharge penalty can be reduced marginally by utilizing prepayment privileges just prior to discharging the mortgage so that the penalty is calculated on a lower mortgage balance.Call us today!
Do I Need Mortgage Insurance?
Great question and one that really requires the advise of a licensed insurance professional. We can help you get that advise through our Canadian First Financial advisor who is also licensed in insurance. In the interim, why not take advantage of free, no obligation Mortgage life insurance (Creditor Life Plus) for the next 60 days while we get your mortgage in place. That way you can focus on the move and all of the details required in securing your new mortgage and home. Unlike bank creditor insurance this coverage is underwritten up front, is fully portable and the insurer is The Manulife Financial Insurance Company. In addition they offer very economical disability coverage. Canadians are vastly under-insured, especially young first time home buyers. This is a great way to get quick coverage and peace of mind until you are ready to explore further insurance coverage…and you can cancel at anytime. Talk to me about it when we review your mortgage commitment. It will only take about 15 minutes and coverage is virtually instant!