For many homeowners, paying off their mortgage as quickly as possible is a top priority. Paying down extra principal in the early years by whatever means possible can shorten the life of your mortgage – and dramatically lower the interest you'll pay over the long haul. Here are a few tips on how to make this happen:
1. Increase your payment annually to the most you can afford
The upside is that most lenders will allow you to reduce it again to the previous level if it turns out to be too great a burden or your circumstances change.
2. Prepayments give great return on investment
If, for example, you pay an average of 6.0% in mortgage interest, for each $1,000 by which you reduce your mortgage principal, you will save $60 in after tax cash every year.
3. Make use of your RRSP-driven tax rebate as a mortgage prepayment method
Even if you can only prepay annually, make sure tax refunds are set aside for paying down your mortgage. Many Canadians borrow (at prime) to buy an RRSP to ensure the maximum rebate. When applied to the mortgage principal, this refund is a "gift that keeps on giving". Combining the refund with the tax-free interest earned on the RRSP over the subsequent years will quickly outpace the short-term interest costs of the RRSP loan.
4. Increase the frequency of your payments
Make accelerated bi-weekly payments to get a "free" principal reduction equivalent to one full mortgage payment every year — painlessly.
Tuesday, January 25, 2011
First-time Home Buyers
Home ownership is the cornerstone of financial independence and security. It may seem a daunting prospect to younger people or first-time buyers, but it is achievable.
Like many would-be homeowners, you may be wondering how you can possibly afford to buy your first home. Even if you think you can’t afford a home, these saving tips and financing strategies can take you there sooner than you think and turn you from a renter into an owner.
Develop a culture of saving The first priority for you should be to develop a culture of saving. This not only helps you in budgeting and planning for the future, but also to satisfy banks and other lending institutions that you have a clear commitment to save.
Start an automatic saving plan Saving for a down payment can be a financial challenge but it’s a step forward to owning your dream home. Make saving automatic by setting up an automatic savings plan at your bank to regularly move a specific amount of money directly from your chequing account to a savings account. You’ll be surprised at how much you can save and how quickly the “pay yourself first” approach adds up.
Borrow from yourself The federal government’s Home Buyer’s Plan (HBP) lets you borrow from your Registered Retirement Savings Plan (RRSP) to help purchase your first home. You and your partner can each withdraw up to $20,000, provided it’s not locked-in and the money has been in the RRSP for at least 90 days. You have to repay the loan in installments over the next 15 years to avoid a tax hit.
Take a holiday from tax If you open a new Tax-Free Savings Account (TFSA), you won’t pay any tax on earnings, which will help you compound your savings. You can contribute up to $5,000 a year to a TFSA, and save for anything you like, tax-free.
Review your mortgage options Once you make the decision to purchase a property, the next choice is the type of loan to suit your budget. The two most common types of loans are the variable interest rate loan and the fixed interest rate loan.
You can now choose to pay back your mortgage over 25 or 30 years, instead of the traditional 20-year amortization period. This means you will pay more interest over the long term, but you can reduce monthly payments to get into your starter home. You can always change this later, once your income rises and you can pay your mortgage down faster.
Get into a starter house Try to be as flexible as possible when choosing your first home. Unless you are status conscious, your first home doesn’t necessarily have to be your dream home. You could settle for a starter home, which you can afford with a small down payment and easy mortgage installments. There are plenty of lower-priced houses out there in need of repair, with some "Do-It-Yourself" projects where you can add more value to the house. Just be careful not to buy a place where the cost of repairs will eat up any profits you might make when you sell.
In just a few years you will build enough equity in your starter home to make it easier for you to sell and move into to your dream home.
Buying your first home is an exciting process. After all, your home could be the largest asset you’ll ever own. Being able to finance most of its cost will take a load off your back in the future.
Like many would-be homeowners, you may be wondering how you can possibly afford to buy your first home. Even if you think you can’t afford a home, these saving tips and financing strategies can take you there sooner than you think and turn you from a renter into an owner.
Develop a culture of saving The first priority for you should be to develop a culture of saving. This not only helps you in budgeting and planning for the future, but also to satisfy banks and other lending institutions that you have a clear commitment to save.
Start an automatic saving plan Saving for a down payment can be a financial challenge but it’s a step forward to owning your dream home. Make saving automatic by setting up an automatic savings plan at your bank to regularly move a specific amount of money directly from your chequing account to a savings account. You’ll be surprised at how much you can save and how quickly the “pay yourself first” approach adds up.
Borrow from yourself The federal government’s Home Buyer’s Plan (HBP) lets you borrow from your Registered Retirement Savings Plan (RRSP) to help purchase your first home. You and your partner can each withdraw up to $20,000, provided it’s not locked-in and the money has been in the RRSP for at least 90 days. You have to repay the loan in installments over the next 15 years to avoid a tax hit.
Take a holiday from tax If you open a new Tax-Free Savings Account (TFSA), you won’t pay any tax on earnings, which will help you compound your savings. You can contribute up to $5,000 a year to a TFSA, and save for anything you like, tax-free.
Review your mortgage options Once you make the decision to purchase a property, the next choice is the type of loan to suit your budget. The two most common types of loans are the variable interest rate loan and the fixed interest rate loan.
You can now choose to pay back your mortgage over 25 or 30 years, instead of the traditional 20-year amortization period. This means you will pay more interest over the long term, but you can reduce monthly payments to get into your starter home. You can always change this later, once your income rises and you can pay your mortgage down faster.
Get into a starter house Try to be as flexible as possible when choosing your first home. Unless you are status conscious, your first home doesn’t necessarily have to be your dream home. You could settle for a starter home, which you can afford with a small down payment and easy mortgage installments. There are plenty of lower-priced houses out there in need of repair, with some "Do-It-Yourself" projects where you can add more value to the house. Just be careful not to buy a place where the cost of repairs will eat up any profits you might make when you sell.
In just a few years you will build enough equity in your starter home to make it easier for you to sell and move into to your dream home.
Buying your first home is an exciting process. After all, your home could be the largest asset you’ll ever own. Being able to finance most of its cost will take a load off your back in the future.
Monday, January 24, 2011
The biggest bang for your reno buck?
Toronto’s real estate landscape is a mix of new condos and old homes – everyone has an opinion on which they prefer to own. What do you think nets better value when you throw a design overhaul into the mix?
It really is all about choice and your lifestyle. If tackling the complete renovation of an older home fills you with excitement and you are happy that this will be your ‘hobby’ for the next year then jump right in. If, on the other hand, it fills you with horror then please run. If you are handy and can do much of the running around and some renovations yourself, then this is still the best way to increase your investment.
Where should my money go?
A new kitchen and bathrooms are the most important jobs to tackle. You really don’t have to buy top of the line; new is new. If you have hardwood floors or parquet it’s wise to refinish them, everyone loves smart flooring. Knocking walls down and opening up these older spaces is very much in vogue and will always benefit resale.
And what about condos?
In the case of a new condo I always feel that you should take every upgrade that you can afford. In the case of updating an older condo, again, it is the kitchen and bathrooms that need the overhaul. There are some amazing new materials around, from crushed glass countertops, even flooring made from recycled materials. Dated wood cabinets can be spray painted glossy white for a fresh look and will save on budget, which can then be put towards new appliances. Just replacing outdated fixtures in the bathrooms, a fresh coat of paint and new towels will brighten up the space. Lay carpet tile in interesting patterns and colours for the bedrooms.
Any favourites?
The flueless fireplace: these I love. They can be just hung on a wall and immediately create a warm cozy ambience.
And the bottom line?
Whether you are reviving an older home, an outdated condo or a new condo, first start with your budget and spend your money where you get the biggest bang for the buck.
Need help with your home or condo renos or staging for sale? When the time is right, contact me directly at 416-564-9937 and let me assist you with renovating, staging and a pre-inspection. I can help!
It really is all about choice and your lifestyle. If tackling the complete renovation of an older home fills you with excitement and you are happy that this will be your ‘hobby’ for the next year then jump right in. If, on the other hand, it fills you with horror then please run. If you are handy and can do much of the running around and some renovations yourself, then this is still the best way to increase your investment.
Where should my money go?
A new kitchen and bathrooms are the most important jobs to tackle. You really don’t have to buy top of the line; new is new. If you have hardwood floors or parquet it’s wise to refinish them, everyone loves smart flooring. Knocking walls down and opening up these older spaces is very much in vogue and will always benefit resale.
And what about condos?
In the case of a new condo I always feel that you should take every upgrade that you can afford. In the case of updating an older condo, again, it is the kitchen and bathrooms that need the overhaul. There are some amazing new materials around, from crushed glass countertops, even flooring made from recycled materials. Dated wood cabinets can be spray painted glossy white for a fresh look and will save on budget, which can then be put towards new appliances. Just replacing outdated fixtures in the bathrooms, a fresh coat of paint and new towels will brighten up the space. Lay carpet tile in interesting patterns and colours for the bedrooms.
Any favourites?
The flueless fireplace: these I love. They can be just hung on a wall and immediately create a warm cozy ambience.
And the bottom line?
Whether you are reviving an older home, an outdated condo or a new condo, first start with your budget and spend your money where you get the biggest bang for the buck.
Need help with your home or condo renos or staging for sale? When the time is right, contact me directly at 416-564-9937 and let me assist you with renovating, staging and a pre-inspection. I can help!
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