Bond yields do move up and down all the time so an fixed rate increase does not mean fixed rates are now trending upwards.  Over the past 12 months we have seen the 5 year fixed mortgage rate fluctuate between 3.29% to as high at 4.50%.  Rates overall are still low.

• Size of down payment and emergency fund (there is nothing like being house poor i.e. all income money wrapped up in home expense)
• The likely hood of rates rising any time soon (if they do not as many expect, this permits more time to save down payment and closing costs)
• The possibility that home prices may fall.  A 10% drop would offset a 2% increase in mortgage rates.

Good numbers in the in the Institute of Supply Management, Non Manufacturing Index reinforced the job figures, relaxing the aversion to risk and bumping-up the yield on our benchmark, 5-year bond. Those yields remain up.

This is a relatively quiet week for market moving financial data: Canada’s merchandise trade balance and American consumer sentiment numbers are due out on Friday.

Call or email me with questions on this tax strategy.

Mortgage Refinance is basically taken your existing mortgage and adding new money onto it or adding a separate mortgage/Line of credit.   In Canada you can borrow up to 85% of your home value, 80% for investment property.  For example a home worth $400,000.00 with a mortgage of $200,000.00 can be refinanced back up to $340,000.00 ($400,000.00 x .85%) or the client has $140,000.00 of equity they can take out.  Traditional mortgage refinance has being used for Debt Consolidation, To Purchasing another property or Investing in RRSP or other Investments.

Debt Consolidation:  This is where the client combines all their outstanding debt into one loan/mortgage,  By doing this they can increase their cash flow and lower their overall monthly cost and interest rate. Let’s take a client with a $300,000.00 mortgage, a unsecured line of credit for $20,000.00 and a visa of $10,000.00.  This client’s monthly cost on the mortgage is $1700.00, $600.00 on the line of credit and $100.00 on the visa.  That is total monthly costs of $2400.00.  If the client rolled all their debt into one loan/mortgage their monthly expense would be reduced to  $1900.00 per month.  That is savings of $500.00 and all debts are being paid down.  With rates being as low as they are there mortgage amortization (mortgage pay off time)would also decrease.

Purchase another property.  Because the equity in your home is yours you can use this money as a down payment on a investment property, new home or second home such as a cottage.  Purchasing a investment property is a great way of building for retirement.  On a investment property the rent you collect can pay your mortgage and the mortgage interest is a tax right off.  So if you do your home work correctly you can own a investment property by using the equity in your home and pay off the mortgage with the rent collected.

Equity Take Out to Invest.  Equity from your home can be used to invest in investment such as stocks, bonds and mutual funds.  If someone has a high RRSP contribution limit, they could use equity from your home (at a really low interest rates) and apply the money into their RRSP which could result in a very large cheque back from revenue Canada.  Consulting with an accountant on this strategy too is a good idea.

A new round of new mortgage rules form Ottawa could include tough new measures for calculating how the self-employed qualify for loans and tighten regulations for condominium buyers.   Ottawa remains concerned about the possibility of an inflated housing market and wants to crack down on the practice where consumers self-disclose what they make when applying for a  loan.  In the case of the condominium buyer, the government continues to consider a proposal that would have 100% of condo fees count when assessing how much debt a consumer could afford, currently 50% of condo fees are used in debt calculations.  Going back to the standard 25 year amortization is also on the cards for this year.  Only time will tell if we get new mortgage rules this year.

The current forecast for a improving economy soon is slim.  With Europe and the US still in trouble economic recovery is not expected until late 2013.  The next meeting for the Bank of Canada will be in March where again no rate increase is expected.

Sources for down payment can be banks accounts, investments, Lines of credit (secured against property), Gifted funds.

Bank Accounts:  If a borrow has savings in a bank account or accounts, three months transaction history of the accounts must be provided for down payment verification.  Any deposit in the account over the past three month period that is higher than $2000.00 must have a paper trail.  So if making a large deposits into the account make sure there is a paper trail for the deposit otherwise make deposit smaller.

Investments:  Investments such as RRSP, GICs, mutual funds or stocks.  Again a three month history of the account will need to be provided to the mortgage broker/lender for down payment verification.  In some cases the lender will also require the funds to be deposited into a bank account (provide transaction) before closing.

Secured Line of Credit:  A borrower may use a secured line of credit as a down payment.  Equity in a property is considered an asset.  Secured Lines of Credit on personal or investment properties can be used.

Gifted Funds:  A borrower may receive funds from a immediate family member to be used for down payment.  The borrower will need to provide transaction of the funds being deposited into their account along with a signed gift letter which is provided to the borrower by the mortgage broker.