6 things you need to know before you sell.

If you’re thinking about or already going through a separation or divorce, you’re definitely not alone. The sad truth is that more and more Canadian families are experiencing the same thing:
•    Our divorce rate has doubled since the early 70s.
•    Almost half of marriages end in divorce.
•    There are over 70,000 divorces in Canada every year.

Unfortunately, a divorce doesn’t only result in emotional pain, it can often lead to financial turmoil. After all, you’re not just breaking up a family unit, you’re breaking up an important economic unit too. Deciding how to deal with financial issues—especially those involving the family home—can be the most intimidating and potentially devastating part of ending your marriage.

As your local mortgage advisor, I have many years of experience dealing with mortgages and divorce. I’ve learned that the best way to achieve a successful outcome is to approach the divorce just as you would the dissolution of any financial partnership. This means trying to keep emotions out of the process while developing a rational, workable plan.

What you need most during this uncertain and confusing time is some unemotional, straightforward information and advice. And that’s exactly what I provide! Once you know how a divorce affects your home and mortgage, making important decisions becomes a lot easier. As a neutral third party I can help you make logical decisions that will continue to benefit you, your family and any new homes you buy in the future.

Here are just of few of the complicated issues you need to think about as you navigate the minefield of separation and divorce.

1. Decide whether you, your spouse or neither of you will continue living in the home.

One of the first things you have to decide is whether you want to keep living in the house.
•    Will the familiar surroundings be comforting or bring back unpleasant memories?
•    Would you rather move to a new place and make a clean start?
•    If you have children, does one parent have custody?
•    Does it make sense to keep living in the same neighbourhood to minimize disruption for the children?
•    Would you and your ex prefer to have separate residences close together so the kids can attend one school and visit both homes easily?

Once you decide on your emotional and family needs, here are some of your financial options:
•    Sell the house and divide the proceeds. Of course, how the proceeds are divided depends on the divorce settlement, where the original down payment came from, and the property laws in your specific area. But regardless of how large a share you end up with, it’s essential to maximize your home’s selling price. I can help make sure that the financing structure is attractive to buyers, and introduce you to some of my expert real estate partners who can help you get the best price. Keep in mind that the proceeds—and therefore your share—will be reduced by the selling expenses, legal fees, etc.
•    Buy out your spouse and keep the house. Determining how much this will cost depends on a lot of factors. Your spouse may put a marital lien on the property or there may be a court order that specifies how the equity in the home has to be distributed. You may have a specified amount of time to obtain the funds to buy out your spouse. Once you know what percentage of the equity belongs to your spouse, the home’s value needs to be determined by an appraiser. This will tell you what actual dollar amount you owe. The next challenge is coming up with the funds to do this. This usually involves refinancing the home to access the equity you owe your spouse (see below).
•    Let your spouse buy you out so you can start fresh. Walking away with cash in your pocket can be great, but beware of the pitfalls! If your spouse buys you out without refinancing the mortgage, most lenders will continue to consider both of you—as original co-signers—to be liable for the loan. Even though you won’t have legal ownership of the home, this financial liability will make it very difficult for you to purchase a new home.
•    Continue to own the house jointly for a while. This can be an attractive option if you’d rather not make any immediate decisions. But again, beware of the pitfalls. If you’re sharing the mortgage payments, make sure BOTH spouses continue to pay—or the home could go into arrears or foreclosure, and destroy BOTH of your credit ratings. Also, if one spouse is going to be living in the house during this arrangement, make sure you have an agreement on rental payments and what happens if payments stop.

2. If you’re buying out your spouse, how will you pay for it?

No matter which decision you make, there will be financial repercussions. Buying out your spouse requires you to come up with a significant amount of money in a relatively short period of time. Yes, it’s often possible to refinance the home so you can take out enough equity to pay off your spouse. But keep in mind that you’ll be making increased mortgage payments on only ONE salary—not to mention all the utility payments, medical bills, etc. If you used two incomes to qualify for the original mortgage, qualifying for refinancing on your own may be difficult.

This is where I can help! As an independent mortgage advisor, I have access to specialized mortgage lenders who offer innovative solutions for situations just like this. I can also counsel you on ways to improve your credit score, see if you can use child support payments or alimony to help qualify for refinancing, and help you develop a new budget and saving plan that recognizes your new financial realities.

3. Make sure you have an official record of support payments.

Accepting support payments from your spouse in cash may sound like a good idea. But if you decide to use your support payments to help qualify for the refinancing of your existing home or purchasing a new home, you could run into problems. Lenders require proof of income. You need a paper trail—an official record of on-time payment in full—so the lender can count your support as income. Without it, you may not get your financing. But don’t worry. These are exactly the kind of potential difficulties I help my clients avoid every day!

4. Put yourself in full control of mortgage payments as soon as possible.

It’s essential for divorcing couples to realize that if they have joint debt, their credit ratings are LINKED until they separate their obligations. This means it’s in both spouses’ best interest to make payments on time. However, the stress of divorce can sometimes lead people to behave in financially unreliable or even irresponsible ways. A few missed payments on the part of your spouse, and your credit score—not to mention your family home—may be at risk. That’s why I always advise my clients to take control of payments that affect their credit rating as soon as possible (see below).

Many couples believe that a divorce decree relieves a spouse of a joint financial obligation. But the truth is court orders and divorce decrees can’t save you from financial risk if your spouse doesn’t make agreed-upon mortgage payments. This is because when a married couple signs a joint loan application, both spouses make a legal agreement with the lender to pay back the debt. A court can’t overturn this contract without the agreement of the lender.

Therefore, it’s vital to work with a mortgage professional who understands these legal issues and can help ensure you leave the home completely free of both the real estate AND the loan!

5. Protect your credit score.

Your credit score is what gives you the ability to finance future purchases. If your score becomes damaged during divorce, moving on can become extremely difficult. As I said, part of my mortgage service is to counsel you on ways to preserve and improve your credit score during divorce.

Remember, if mortgage payments are missed because your spouse has failed to make a court-ordered payment, YOUR credit score will suffer too. Regardless of what your divorce decree says or what’s fair, if you have a joint debt, you’re responsible for it.

Here are some ways to protect your credit score BEFORE any payments are missed:
•    If possible, close all joint credit cards immediately. If you can’t close one because there’s still money owed on the account, freeze it so no one can continue to use it (make sure you continue making at least the minimum payments in the meantime). Then come to an agreement with your spouse on transferring the joint debt to individual credit cards.
•    If you don’t have a credit card in your own name, get one now. Building your own credit history takes time, so start today!
•    While waiting either to sell your home or refinance it, make sure your mortgage payments are up to date, even if it comes out of your own money. This protects your credit score and you’ll likely be able to claim the funds back under court order.
•    As I said, make sure have your name removed from the property title AND from the mortgage, so your credit score doesn’t continue to be impacted after you’ve moved out.

6. How to finance your next home.

If you’ve received funds from the sale of your previous home or from a buy-out from your spouse, this will likely give you a healthy down payment for your next home. But before you start shopping, it’s important to recognize your new realities:
•    Single income.
•    One person handling all the maintenance and repairs.
•    The effect that shared custody of children may have on where you buy.
•    And more!

As your local mortgage expert, I can analyze your current credit situation and income (including any allowed child support or alimony payments) and help you get pre-approved for financing. If you like, I can also introduce you to trusted real estate partners who can help you find the perfect home for your new life.

If you’d prefer to purchase a home before your divorce becomes final, I can look into your situation and make some recommendations. Keep in mind that in some cases, as long as you’re still technically married, your spouse will continue to have a marital interest in assets that you purchase. Also, you’ll have to qualify for the new mortgage without taking into account any support payments because there won’t yet be a final divorce decree. Obviously, this route requires that you proceed with caution, but I’ll be there to help and offer advice every step of the way!

As you can see, there are many financial traps you can fall into as you sell and buy during a divorce. The advantage of working with a seasoned mortgage professional like me is that I’ve dealt with all of these issues countless times and helped my clients achieve the new start they’re looking for.

The best time to talk to me is NOW before your divorce and before you start looking for a new home. I’ll sit down with you, analyze your situation in detail and outline the options available. Once we’ve determined your financial ability to proceed—or set in place a plan to improve your creditworthiness—I’ll present a range of innovative mortgages that answer your needs, then provide objective advice to help you choose the one that fits you and your family best.

Please feel free to contact me today, even if it’s just to ask a quick question without obligation: 905-835-5559 or email mark@mortgageloansontario.ca

I’ve helped many people like you pick up the pieces as they set out on their own. My service is compassionate and supportive, and since I’m an independent advisor, I can usually help you find a lower interest rate, so this major part of your divorce is more affordable. I look forward to hearing from you today.

Even though Americans have had tax deductible mortgages for years, Canadians still don’t enjoy that privilege. However, there is a way for you to deduct your mortgage interest while increasing your wealth. Known as the “Smith Manoeuvre”, this strategy involves continuously withdrawing equity from your home and investing it. Of course, when you borrow money for an investment, the interest is tax deductible. So if you borrow money from your home equity to make investments, your mortgage interest becomes tax deductible.

To make this strategy work, you need a re-advanceable or line-of-credit mortgage that lets you continuously extract equity as you pay your mortgage down. Every time you make a payment and reduce your principal, you then immediately extract that equity and add it to your investment account. Since you’ve been able to deduct your mortgage interest, at the end of the year you’ll generate a tax refund that you can use to make a lump sum payment on your mortgage—which makes even more funds available for investment.

Combining this tax deductible mortgage with a sound investment strategy can significantly increase your net worth over the long term. For a free analysis of how the “Smith Manoeuvre” can work for you, give us a call today at 905-835-5559

Some of these tips result in bigger savings than others, but if you take advantage of all the ones that apply to you, the total savings can be substantial.

1.    Contribute to a Tax-Free Savings Account. You can invest up to $5,000 per year without paying taxes on the income, no matter when or why you withdraw it.

2.    Use capital losses to offset capital gains. If you’re like most of us, many of your stock investments still haven’t recovered from 2008 and 2009. However, you may also have some stocks that created capital gains in 2010. Consider selling some losing stocks and using those losses to offset your capital gains.

3.    Optimize your charitable donations. Since the deduction rate for charitable donations nearly doubles for amounts over $200, never claim less than $200. Carry forward donations and claim them all in a year when your income is higher.

4.    Maximize RRSP contributions. If you have contribution room from previous years, use it up. If you don’t need all your contributions in a year when your income is low, carry the contributions into future years.

5.    Invest in a revenue property. When you own a rental property, not only do you benefit from monthly rent income and long term property value appreciation, your mortgage interest and expenses are tax deductible. For advice on this tax saving tip, talk to me today!

Good Debt vs. Bad Debt – What’s the Difference?

More and more people are getting swallowed up by debt. I’m sure you’ve read and heard many of the statistics and stories in the news. One of the keys to financial independence is to get rid of your bad debt and acquire good debt. Bad debt is debt that makes you poor, such as credit card debt, car loans, school loans – this is consumer debt. These types of debt are typically used to purhcase items that over time decease in value or don’t provide you any ROI. Good debt is debt you acquire that actually works for you. The best example of good debt is a mortgage loan on a rental property that throws off positive cash flow every month. Good debt is money that you borrow to purchase assets that put money in your pocket.

5 Steps to Eliminate Your Bad Debt and Acquire More Good Debt

Step 1 – Stop accumulating bad debt. Whatever you purchase via credit cards must be paid off in full at the end of each month. No exceptions.

Step 2 – Make a list of all your consumer (bad) debts. This includes each credit card, car loans, school loans, and any other bad debts you have acquired.

Step 3 – Refinance your mortgage to consolidate your high interest debts. Chances are you’ve built up enough equity in your home to pay off your high interest credit cards and consumer loans. Your mortgage advisor can help determine how much equity is available and how much you can save by increasing your mortgage balance to pay off bad debts at lower interest rates.

Step 4 – Explore the option of using additional equity in your home to increase cash flow. After you consolidate your bad debts you may still have equity left over to invest in a secure cash flow producing asset. For example, the equity could be invested in a First Mortgage Fund that earns 9% interest. With a home mortgage interest of 5% the net return on this investment would be 4%. That return can be left to compound or withdrawn every month.

Step 5 – Pay yourself first.  Put aside a set percentage from each paycheck or each payment you receive from other sources. Deposit that money into an investment savings account. Once your money goes into the account, NEVER take it out, until you are ready to invest it. Now – instead of just paying creditors – you’re paying yourself for only one type of purchase: assets that give you positive cash flow each month. By adopting this as a consistent habit you will be out of the Rat Race faster than you ever dreamed!

Your credit score is a three-digit number that lenders use to predict your creditworthiness. Credit reporting companies calculate your score based on your payment history, how much you owe, how long you’ve had credit and how often you apply for new credit. In general, the higher your score, the less likely you are to become delinquent on credit. If it’s above 650, you’ll probably qualify for a standard loan. If it’s lower, you may have trouble getting new credit.

Because your credit score and credit report are constantly changing, it’s important to review them on a regular basis, at least once a year. Since there are two main credit reporting companies in Canada—Equifax and TransUnion—it’s a good idea to check your records with both companies. This helps you identify and correct any inaccurate information, detect any fraudulent activity and gauge your overall credit health.

If you’re planning on applying for a mortgage, it’s especially important to check your report a few months in advance. If your credit score is a little low, here are some actions you can take to improve it:

•    Pay all your bills on time. Paying late or going into collection can reduce your score.

•    Don’t max out your credit limits. Keeping balances below 65-75% of your limit can increase your score.

•    Don’t apply for credit you don’t need. Too many inquires over a short period can reduce your score.

•    Don’t close old credit accounts, even if they’re inactive. This can make your credit history appear shorter which can reduce your score.

•    Correct any negative inaccuracies on your credit report. This can increase your score.

Still wondering what your credit score is and how to improve it? We have provided a detailed guide on how to obtain your report free of charge or for a small fee if you wish. CLICK HERE to view the guide.

It can be a real challenge to spend our money wisely, especially tax refunds, which may seem like free money! With the average Canadian tax refund at $750 it’s tempting to blow it on something fun. However, every astute financial planner, adviser, banker, broker and financial journalist will tell you: If you’re getting a refund, you’re doing it all wrong.

By definition, a tax refund means you’re giving the government an interest-free loan. If you want to get less in a refund, you should reduce the amount of money the government withholds from your paycheque. To do so, you can increase the number of exemptions you claim. It’s usually smarter to save the extra money all year long and earn interest on it for yourself.
Additionally, instead of spending your refund on a new outfit or big screen TV, here are some ways to generate future value and accelerate your progress to financial freedom:
•    Start saving a down payment for a revenue property. By choosing the right property, the rental revenue will cover your mortgage payments and your equity will increase month after month.
•    Invest in your professional development. Take a course or attend a conference that will help advance your career. YOU will always be your best investment.
•    Do a home renovation. Investing in strategic home improvements can significantly boost the value of your home, build your net worth and transform your living space into the dream home you’ve always wanted.
•    Make a charitable contribution. Not only will you be helping a worthy cause, you’ll lower your tax bill next year.

Whatever you decide to do with your refund, keep in mind how hard you worked for that money, and make sure it’s working just as hard for you!

Here are two ways to save BIG by putting a little extra money down on your mortgage.

Consider making accelerated bi-weekly payments. This is where you divide your monthly payment in half, but instead of making two payments per month (24 per year), you make payments every two weeks (26 per year). This example is based on a $300,000 mortgage at 4.99% over a 35-year amortization (the 35-year term is not available as per the CMHC guideline changes last spring). As you can see, the extra cost per month is minimal, but the savings are huge!

Or consider making a lump sum payment. Let’s say you have a $150,000 mortgage at 5.45% over a 5-year term (25 year amortization). You get a $15,000 bonus at work and apply it to your mortgage at the beginning of the third year.

If you’d like to find out exactly how much you can save on your mortgage, call me today!

The general consensus has been that the Canadian government will not be raising the prime rate until late this year. However it is becoming more and more evident that the housing market in general is growing at an incredible pace and is hotter than ever. Although this can be a good thing, it can also cause additional speculation and a possible housing bubble. In addition another reason rates may be going up soon is that inflation is increasing as well.

Although the finance minister has said he will not raise rates until at least June of this year 2010, In my opinion rates will be going up come the next monetary meeting this summer.

But don’t go sounding the alarms, of course they will probably not raise rates by a whole % point or anything crazy like that. Currently prime is set at 2.25% and I would venture to guess that prime will increase to 2.5 or 2.75.

In retrospect that is still a fantastic rate, and if you are thinking about doing a refi you still have time to lock in great rates. On another note, if you are carrying a variable or floating rate mortgage and are considering locking in within the next 3 months or so its best you get that done now, before the prime rate jumps a bit in the summer.

At the end of the day, although Canada is probably in the forefront of recovery from the worldwide economic turndown we are still not out of the woods yet and thus rates will still remain low until at least late 2011, and will probably not return to pre reccession highs until 2012 or somewhere around there.

Of course that is just 1 mans opinion!