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10.2.2020

Math Class for Hamilton Home Buyers – Calculators for Everyone!

Buying

You know how your math teacher always told you that you wouldn’t have a calculator when you need to do math in real life? That’s not at all true.  We have SIX free calculators available to make your life a little easier.  Sorry, Mrs. Jones.

 

LAND TRANSFER TAX CALCULATOR

Have you ever heard of welcome tax? It’s a one-time tax bill charged to home-buyers when they take possession of their house.  I’ve always thought what a backhanded “welcome” it is to call it that.  Seriously?

“Welcome to the neighbourhood.  Pay up.”  Sheesh.

As it turns out, the name of the tax is just a play on words:  Jean Bienvenue was a Quebec politician who created a tax on the transfer of property in that province in 1976.  “Bienvenue” means “welcome.”  Ironic, right?

In April 1974, Ontario instituted a Land Transfer Tax that is paid by buyers (never sellers).  In 2008, Toronto added its own municipal tax that effectively doubles the amount of tax a buyer can expect to pay.

The only situations that *may* offer exemptions from paying land transfer taxes are:

  • A purchase by a first time buyer (up to a capped maximum)
  • A transfer between spouses
  • A transfer between other family members
  • A sale or transfer involving related corporation, or employer/employee relationships

A first time buyer who qualifies for a refund can buy up to $368,000 without paying any of the LTT.  This equates to $4000 refund.

 

You can figure out how much Land Transfer Tax you will pay, if you want to.  Here are the rules:

  • On amounts up to $55,000 you pay 0.5%
  • On amounts over $55,000.01 up to $250,000 you pay 1.0%
  • On amounts between $250,000.01-400,000 you pay 1.5%
  • On amounts between $400,000.01-2,000,000 for a single-family residence you pay 2.0%
  • On amounts over $2,000,000.01 you pay 2.5%

*Only use the information above if Mrs. Jones is standing over you and not allowing you to use this Land Transfer Tax calculator!

 

MORTGAGE PAYMENT CALCULATOR

When you work with us at the Brandow Group, you will often hear us recommend that you talk to a skilled mortgage broker to explore your options for financing.  Mortgages are not all created equal,  and it’s important that you get as much information about what type of loans are available to you as possible before you agree to anything.

Interest rates, amortization schedules, mortgage type and terms, prepayment privileges, default insurance, and early payment penalties all factor into your total cost.  Examining these details ahead of time will help you choose wisely and plan for your own financial success.

If you aren’t sure how much of your savings you want to use toward your downpayment, or how much difference the interest rates being offered will make – this calculator is for you.  Try different combinations of numbers and you may be surprised where the biggest savings are to be had!

*This calculator is not a substitute for a consultation with a great mortgage broker – just a tool you can use to impress the broker with your knowledge when you meet him or her!

 

MORTGAGE AFFORDABILITY CALCULATOR

Banks love acronyms.  Look around at the posters on the walls, and you’ll see a bunch of them:  RSP, RRIF, GIC, CD, ATM, APR…and if someone is having a bad day, they may throw in a NSF.

Two acronyms you may not hear as often are GDS and TDS, which stand for Gross Debt Service and Total Debt Service.   Even though we may not see them as often, these ones are a huge part of your home-buying qualification, since lenders use these two ratios to decide exactly how much money they will allow you to borrow.

Gross Debt Service calculates your housing costs in relation to your income this way:

Mortgage Payment + Property Taxes + Heating Costs + 50% of your Condo Fees

Annual Income

 

Total Debt Service adds in any other debt, like credit cards, car payments, and other loans to the calculation. (Ironic that the word “gross” is in the other ratio, isn’t it?)

So…

Housing Expenses (per GDS) + Credit Card Interest + Car Payments + Other Loan Expenses

Annual Income

 

When analyzing a file,  the lender analyzes the “GDS/TDS ratios” and there are some benchmarks that they use to create an offer for you.

The standard, average numbers they look for are 32% for GDS, and 40% for TDS. (Meaning that your household expenses represent 32% or less of your total annual income, and your total debt load is no more than 40% of your income.)  Lenders express this as 32/40.

Some applicants with excellent credit scores, good, stable income, and a higher down payment may be able to borrow based on calculations that show up to 39/44.

When CMHC is involved, though, the rules tighten up, and the maximum they will consider is 35/42.  This was adjusted in July 2020 to prevent buyers from struggling if the interest rates go up on mortgages.

See what lenders will see when they work on your file by running your own numbers here.

*Check out some tips that could help improve your ratios before you’re ready to apply for a mortgage!

 

CMHC INSURANCE CALCULATOR

CMHC is one of three mortgage insurance providers in Canada that help buyers with lower down payments to get into their first home.  They bridge the gap between the traditional 20% down payment that lenders require by insuring the difference for folks with 5-19% down.

By charging a premium to the buyer for their insurance policy, they create the opportunity for more Canadians to own real estate.  There are limits and parameters, of course.

For example:

  • The value of the property cannot exceed $1,000,000.
  • A buyer may purchase up to $500,000 with only 5% down, but must have 10% of the remaining portion for amounts over that.
  • Funds must come from the buyer’s own resources or a gift from a family member.
  • Property being purchased can contain between 1-4 separate dwelling units.
  • GDS/TDS ratios must be within allowable limits.

To calculate the cost of mortgage default insurance, enter your purchase price and your downpayment amount here.  It will give you an idea of whether investing now is worth the additional premium in order to take advantage of current market growth.

*Pro tip:  If you must discuss your decision to go with a high-ratio mortgage with someone who is convinced you should have waited and saved more, here are some points of analysis to show that you’ve done your homework.  This could be a real generation gap issue between Boomers/Millenials/Gen Z!

 

DOWN PAYMENT SAVINGS CALCULATOR

Have you ever seen the story of what happens if you start saving with a penny, doubled every day for a month?  The point of the story is to demonstrate the power of compounding – and it is a very impressive chart.

Chances are pretty good that none of us will be able to put funds away that aggressively … but every one of us can benefit from momentum once we begin saving.  The snowball effect is real, and watching your nest egg grow is immensely satisfying.

You will find many websites dedicated to helping you start a side hustle for extra cash, cut costs or even slash taxes to keep more of your own earnings.

However you choose to save for your down payment, you will doubtless benefit from an organized plan, including a written budget.

Create an official cash flow summary for yourself to help with motivation!

*The time-tested method of saving that advocates Paying Yourself First is a very effective strategy for reaching your financial goals.

 

DEBT REPAYMENT CALCULATOR

There is no doubt that debt, especially credit card debt, can be extremely stressful.  High interest rates on outstanding balances can inflate the true cost of purchases to unreasonable heights, and make repayment difficult and exasperating.

For anyone who is considering buying a house, especially for the first time, it is wise to consider paying off all debt first, if at all possible.  This will help you qualify for better mortgage rates and terms, and give you the wiggle room you may need, as you make your mortgage payments, to do repairs and improvements to your home.

As with saving toward a down payment, rapid debt repayment requires commitment to a plan, preferably one that is down in writing.  The good thing is that, once you’ve paid off all debt, if you just continue putting the same amount into savings for a while, you will soon have a positive balance that is even larger than the outstanding amount owing was!

Here is a repayment calculator to help you plan for the day you get your ZERO statement from the credit card company!

 

*In conclusion, here are some wise words from Manoj Arora:

 ‘When you know the impact of little expenses, you will realize that there is nothing little in this world.’

 

It is our hope that these tools will help you make sound financial decisions along the way in your journey to home ownership.  If you have questions or would like to discuss your circumstances with a view to buying your first home, we are here to help!

 

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