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February 2009
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Vol 2, Issue 2
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Home Sense
By Pauline Tonkin
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Greetings!
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As we look ahead at 2009 and wonder "What will happen and how will it impact our life?", it is a good time to review matters of importance to you and your family. In this issue I've provided some food for thought including - mortgage strategies, choosing between tax free tax savings versus RRSP and savings for homeowners.
This newsletter was created to share information regarding all kinds of money matters, from understanding mortgage financing to ideas on how to save and even make more money for you and your family. I hope you find it a valuable resource over the coming year. Feel free to forward this to those you care about - sharing is a good thing!
Visit my blog (www.mymorrgagebroker.wordpress.com) for regular updates on financial matters and mortgage rates.
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Mortgage Strategies - Save Money Now and Pay It Off Sooner!
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What would you do if you knew you could save thousands of dollars of interest on your mortgage and be mortgage free years sooner?
With the recent drop in interest rates, many people are wondering what to do. Whether your mortgage is up for renewal this year or next - or even if you renewed last year at a higher rate - you have options. A quick review of your personal situation can tell you if renewing your mortgage sooner than later is the best idea for you.
For example, if your mortgage is $200,000 and your making payments at a fixed interest rate of 5.25% for 5 years (25 year amortization) - the difference at today's best rate (4.39%) is .86% which translates into a savings of $97 per month or $8256 in interest costs over the 5-year term of your mortgage. Even with a penalty of approximately $2500 for closing out your mortgage early - you still save.
To maximize the impact of renewing before the end of your term, consider a variable-rate mortgage. You can save on interest now and lock into a fixed mortgage at any time. In the same example your new mortgage rate would be 3.8% (based on the prime lending rate +.8%). Even though the prime rate can change - offset fluctuations by fixing your payment to the same amount you were used to paying ($1191.84). The result is a savings of over $14,842.94 in interest costs and shaving another 5 years off your mortgage!
Your situation may vary depending on your payment schedule and amortization. However, the bottom line is - YOU HAVE OPTIONS.
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Budget Tip
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Making your cup of coffee in the morning instead of buying a $3 specialty coffee on your way to work could save you over $700 a year!
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Mortgage Tip
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Increasing your mortgage payments bi-weekly and increasing them by even 10% can reduce your mortgage by a few years. Let me show you how I can help you save on your mortgage.
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Saving for the Future - TFSA or RRSP?
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With all the advertising for Tax Free Savings Accounts it seems like this is something we simply must do! That depends on your own situation. I found the information below a helpful reference. I think of the TFSA as a good place to start building a savings account that can be used for short term items like buying a newer vehicle, saving for a down payment on a home or renovating and a nest egg for unexpected situations like that new furnace. If you are saving anyway why not put it into a higher yield account and pay no tax on the income.
As in all cases I recommend you consult with your financial planner to discuss this option as part of your overall portfolio.
Deciding which you should contribute to first, a registered retirement savings plan (RRSP) or a tax-free savings account (TFSA), depends on your needs
as well as your current and future tax rate.
Scenario
1. Tax rate when you redeem is expected to be the same as it is today - Contribute to either a TFSA or an RRSP
2. The tax rate is expected to be lower when redeeming than it is today - Contribute to an RRSP first and then to a TFSA
3. The tax rate is expected to be higher when redeeming than it is today -
Contribute to a TFSA first and then to an RRSP
Considerations:
· If you have more than $5,000 to invest you could start with TFSA contribution and then contribute the remainder to an RRSP
· Pension adjustments and lower qualifying income may reduce RRSP contribution limits, making the TFSA preferable
· Consider contributing more to an RRSP when you're subject to a higher tax rate
· If funds might be used for more short-term spending (vs. long-term savings) you might find TFSA preferable
The above information provided by
Melecia Azares,B.B.A.
Financial
Security Advisor-Freedom 55 Financial
Tel.: 604
732-1508 ext 284 - Cell: 604
307-5584
Note from Pauline: After a few calls I discovered that you may also be able to transfer shares in non-registered investments into a tax-free savings account and any income from those shares is non-taxable. Check with your investment company to see if this option is available to you.
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Is it the right time to buy......renovate?
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The answer - it depends on your personal situation.
Recent changes to the Federal budget allows for some savings for first-time homebuyers and home owners wishing to renovate.
First-time buyers - prices are down by 12-20%, interest rates are down to record lows (5-year fixed at 4.39%),
First-time home buyers'
credit
applies to purchases after January 27, 2009 to claim a new non-refundable tax credit of $5,000 and worth up to
$750 ($5,000 × 15%). To qualify, neither the individual nor his or her spouse
or common-law partner can have owned and lived in another home in the calendar
year of the new home purchase or in any of the four preceding calendar years.
The credit can be claimed by either the purchaser or by his or her spouse or
common-law partner.
Home Buyers' Plan threshold increased
The budget increases the amount first-time home buyers can withdraw
tax-free from a Registered Retirement Savings Plan (RRSP) to purchase or build
a new home to $25,000 (up from $20,000). The new limit applies to withdrawals
made after January 27, 2009.
Renovate - construction costs are down, interest rates are down and the new Federal budget tax credit for renovations can help offset the costs to a maximum cost of $10,000 and tax credit of 15% (if contract after January 27, 2009 and paid prior to Feb 1, 2010).
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I hope you find this newsletter informative. If you feel it is of value, please forward to your friends and family. I welcome new subscribers and more ideas for content. By sharing strategies and tips - we can all make the most of our money.
Sincerely,
Pauline Tonkin
Your Trusted Mortgage Specialist
Elder Mortgage - The Mortgage Centre
101-566 Lougheed Highway, Coquitlam, BCV3K 3S3
P: 604 931 4719
C: 604 813 8402
www.mybcmortgage.ca
www.mymortgagebroker.wordpress.com
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Pauline's Pick - Disability Tax Services
If you or anyone you know has a child with special needs you have to get in touch with DTS. I didn't know there was such a service till my good friend, Donna, told me about what they do to help others.
They can help you gain access to tax credits and other resources through the government. Most people don't know what they are entitled to for support. DTS has helped many families access funds to offset the costs to educate and support their children. This is one of those services you have to tell people about!
www.disabilitytaxservices.ca
P: 604 461 5070 or email Donna at donnatds@telus.net.
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