You might be surprised to learn that you don’t need to be one of the uber-rich or make six figures to have a second property. You just need to have knowledge, determination and financial planning!

If you are considering purchasing that second property to use as a rental property, there are a few things to consider:

1. The minimum down payment required is 20% of the purchase price, and the funds must come from your own savings; you cannot use a gift from someone else.

2. Only a portion of the rental income can be used for the qualifying and determining how much of a mortgage you can afford to borrow. Some lenders will only allow you to use 50% of the income added to yours, while other lenders may allow up to 80% of the rental income while subtracting your expenses. This can have a much higher impact on how much you can afford.

3. Interest rates usually have a premium on them when the mortgage is for a rental property versus a mortgage for a home someone intends on living in. The premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.
Rental income from the property can be used to debt service the mortgage application, but do bear in mind that some lenders will have a minimum liquid net worth requirement outside of the property. Also, if you do eventually want to sell this property, do note that it will be subject to capital gains tax. Your accountant will be able to help you with that aspect if you do decide to sell in the future.

Prior to taking on a secondary property, you will need to have your down payment in order (whether from savings or home equity) based on the minimum requirements, and also have sufficient credit score to qualify (680 or higher). In addition to the down payment, you will also need to pass the stress-test and prove that you can financially carry both mortgages.

If you are looking to purchase a rental property, give me a call before you start. I would love to help review your financial situation, current mortgage and equity, and help you make a plan. The keys to success are right around the corner with a little bit of expert advice!

Sincerely,
Kim

I’m not a financial advisor, nor am I an expert in investing, but in these turbulent economic times it’s more important than ever to discuss this important and controversial topic…

Even today, both mutual funds and real estate still offer investment potential.

Wondering which is better?

Here are a few things to consider….

When you borrow to make either investment, the interest is tax deductible. But revenue property delivers further benefits: maintenance expenses and building depreciation are also deductible.

If liquidity is important, mutual funds offer faster access to cash than real estate.

In both cases, buying low is important – but with a revenue property you can buy even lower with a fixer-upper, do the work yourself, and create even higher profits.

Real estate offers leverage opportunities. Let’s say you make a 20% down payment on a $500K house and in two years it’s worth 10% more ($550K). The return on your actual investment is 50%!

Leveraging equities can be riskier because values change more rapidly. Plus, the bank won’t loan you $400K to buy a $500K stock.

Both real estate and mutual funds gain value over the long term. But revenue properties also yield monthly income which can cover mortgage payments. As you build equity, you have more funds to purchase a second property.

If you’re interested in investing in Real Estate, send me a message and we can book a free call today.

Sincerely,
Kim

One of the best reasons to work with a licensed mortgage professional is interest rate. Everyone is concerned with rates. We all want to get the best rate, and while it is true that big banks often have the lowest interest rates, it’s their terms and conditions that may not always be in your best interest.

As a Mortgage Agent, one of my jobs is to carefully review your lender’s terms and conditions with you to make sure you are clear about what you’re signing – you have a rate going into your mortgage, and another one going out, and I don’t want you to have any surprises!

As I mentioned, big banks often have the lowest interest rates, but if you have to break the term of your mortgage early, it’s going to cost you.

No one plans to break their mortgage term early, but life happens and statistics show that about 68% of Canadians will break their mortgage term at approximately the 36 month mark. When the term is broken, there is a penalty and it will either be 3 months interest or the interest rate differential.

The interest rate differential is not a standard calculation – every lender has their own method of determining this number and it could cost you tens of thousands of dollars!

This is just one great reason to think beyond the rate. Here are 4 more considerations that could help you save money and frustration over the life of your mortgage.

#1: Amortization: This is the length of time it takes to pay off your mortgage.

It’s tempting to choose a longer amortization because that keeps your payments low.

But lengthening your amortization means you’re paying off your mortgage more slowly, so you end up paying much more in interest. Choosing the correct amortization for your needs can help you become mortgage-free much sooner!

#2: Term: This is the length of time your rate is locked in.

Short or variable terms generally have a lower interest rate than longer terms.

But before you choose a term, consider where interest rates are going and how secure your financial situation is.

Can you afford a sudden rise in payments, or do you need the security of payment stability over the long term?

#3: Flexibility: Give some thought to what your situation and needs will be in five or ten years.

Is there the chance you’ll get transferred? If so, maybe you should consider a portable mortgage.

What if you get a raise and want to pay down your mortgage more quickly? In that case, you’ll wish you’d chosen one with low or no prepayment penalties.

It’s essential to consider these possibilities before you lock yourself in!

#4: Proactive service: With some lenders, once you’ve closed the deal, you never hear from them again.

But a reputable mortgage professional will stay on top of your mortgage on a regular basis, always looking for ways to help you pay less interest and become mortgage-free sooner.

Finding the lowest rate can be easy. But if you’d like some help adding these other vital factors into the equation, give us a call.

We’re happy to offer a free mortgage analysis to make sure you’re taking the shortest possible route to mortgage freedom!

Sincerely,
Kim

Did you know that most of the wealthiest people in the world got to where they are by investing in real estate? It’s actually been referred to as the #1 Millionaire-Maker.

By having an understanding of how money works and making smart, responsible choices, you can build a secure financial future for your family.

So let’s talk about the 6 ways that you can create wealth by investing in Real Estate.

1. Benefit from inflation – Inflation is only bad if you don’t own an asset that’s gaining value. If property values rise and rents rise, so do your profits.
2. Generate cash flow – Have you ever heard the phrase “make your money work for you”? Smart investing will make your mortgage payments for you. Once your mortgage is reduced or paid off, all this extra cash can be invested for retirement.
3. Reduce your taxes – The expenses of operating a revenue property are tax deductible. Bonus!
4. Asymmetric risk and reward – This is a fancy way of saying that you put down a small sum of your own money, borrow the rest, then, as the property increases in value, your equity position rises substantially. The bank takes most of the risk, while you enjoy most of the reward.
5. Asset appreciation – You may initially take on a lot of debt when you buy a revenue property, and that can feel a bit intimidating – but this is what is considered “good debt” that will generate investment-grade returns over time. It’s not like a car that begins to depreciate as soon as you buy it, real estate almost always increases in value.
6. Inexpensive source of funds – Once you’ve built some equity, you can access it at inexpensive mortgage rates to fund new investments and keep the ball rolling.

Of course, it goes without saying that you must be prepared and responsible, because if you aren’t you could get in over your head. However, the stability of investing in Real Estate has been proven to be the safest way to build your wealth.

Sincerely,
Kim

If you’re anything like me, keeping records of income and expenses–and convincing your spouse to do the same–can be a real challenge. I started this challenge for myself by first saving every receipt from every purchase I made for a month, then I divided everything into categories to see how much I was spending and where. Finally, I decided which changes were going to have the most impact.

Here are 4 simple tips you can try that you might find helpful…

#1: Budget Envelopes. This may seem a bit old-fashioned, but it’s a great solution for visual people. When you get paid, take out the cash you need for the month and divide it into envelopes labeled as groceries, dining out, movies, clothes, vacation fund, miscellaneous, etc. This obviously is going to work best for things that aren’t automatic withdrawals – you must be sure enough money is left in your bank account to cover these bills. Once an envelope is empty, it stays empty until next month. No excuses.

#2: Set Limits. Set a limit for all non-essential expenses. If something comes up, for example you want a new sofa or cell phone, discuss with your partner and plan to save up in the miscellaneous envelope or better yet, create a new envelope for that expense and decide how much you can put into that envelope each month to save up for it. If it is something you want sooner rather than later, you may need to cut back in another category to speed things up.

#3: Annual Projections. In addition to keeping track of each expense, figure out how much each one costs per year. When you see that your $4 daily coffee actually costs over $900 a year, you may consider making coffee at home. Do the same with lottery tickets, alcohol, snack foods, impulse spending on clothes, new electronics, and so on. Keep all your receipts and record them in a spreadsheet to keep track of how much you actually spend.

#4: Reverse Budgeting. This means that when you get paid, you pay all of your bills and essentials first, then, whatever is left – if anything – can be used for non-essentials. It isn’t as structured as my first 3 ideas and doesn’t help you to build your savings though.

I hope you found this helpful. When it comes to changing our spending habits, discipline can be tough – but it does become easier with practice. A wise person once told me that if you work hard and sacrifice now, life becomes simpler later, but if you keep life simple now, you will work hard and sacrifice for much longer.

Sincerely,
Kim

Today I want to talk about debt and more importantly, how to get out of it! No one sets out to get into loads of debt, it just seems to happen to some and not to others.

Here are 7 traits of debt-free people that sets them apart from everyone else…

1. They are repulsed by debt – it’s not just a preference, it’s a passion. Some people simple hate the feeling of being in debt, so they avoid it like the plague.
2. Debt-free people are willing to sacrifice – if need be, they’re willing to give up eating out or wearing the latest fashion. They know that these sacrifices are temporary and will lead to better things like future prosperity!
3. They are goal-driven – Not only do they set a goal, they made detailed plans and take the necessary steps to make sure they get there.
4. These are patient people – Impulsive and impatient people tend to get into debt more quickly, but debt-free folks are content to wait until they have the extra cash flow to buy what they want.
5. They have more confidence – they don’t care that they may be dressed out of style, drive a beaten up car or still use a flip phone. Debt free people are more concerned with reaching their goals than what people think.
6. Debt-free people are responsible – taking responsibility for their actions – knowing that if they want something, they are going to have to pay for it TODAY, not next year, along with the interest.
7. Finally, debt-free people are not materialistic – they aren’t impressed by big shiny cars, or big houses. Their MO is to build long-term financial security, which will benefit them far more than fancy toys.

So, are you ready to change some of your goals and values to become debt-free? Giving up some of the things that bring you joy, can be really difficult, but the long term gains and peace of mind are worth every sacrifice!

Sincerely,
Kim

Have you ever wondered what your credit score is or how it’s calculated?

Your credit score is a three-digit number between 300-900 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 680, you’ll probably qualify for a standard loan, but if it’s lower than that, you may have trouble getting new credit.

If your score is lower than you’d like, here are 6 ways to raise it…

1. Check your credit report regularly – at least once a year and make sure your report agrees with your records. Correct any errors you notice as soon as possible and watch for signs of identity theft. There are two main credit reporting companies in Canada: Equifax and Trans Union and their reports can be different from each other, so it’s good to check with both companies – even though they do charge a fee. Free credit checks from Credit Karma are not accurate and may not reflect reports from Trans Union or Equifax. And, if you are thinking about applying for a mortgage, it’s especially important to check your report a few months in advance. That way, if your score is on the low side, you have some time to raise it.
2. Make sure your credit limits appear – If your credit card limits aren’t listed, your cards are assumed to be maxed out – and this damages your credit score. Ensure your limits are indicated and stay well below them to maintain a higher score. If you can keep your balances below 50% of your available credit, that is best. For example, having two credit cards with $3000 limits and balances of $1000 is much better than having one credit cards with a $3500 limit and $2000 balance. Make sense?
3. Pay ALL of your bills on time! I know that this can be difficult, especially in a pandemic, if your income has been impacted. However, if you have been falling behind, take care of past due accounts first – delinquent accounts reduce your score more than anything else.
4. Pay new liens or charge-offs (debts that your creditor thinks is not likely to be collected) – These are your next priority, however, if they are older than 24 months they have already done their damage. While you may still need to address these, your effort will be better focused on the other suggestions I’m discussing.
5. Don’t cancel your credit cards – credit scoring software totals your available credit limits across all your cards. If you close a credit card, suddenly you have a total lower limit which means your credit to debt ratio is higher. This drives down your score. An exception to this rule is if you know you don’t have self-control and know you will max out these cards and not keep up with payments.
6. Keep your old cards active – the longer you’ve had an account open, the longer your average credit history and the less likely you are to default on it. But it’s not enough to simply keep these accounts open, you have to use the card – even if it’s only a couple of times a year. Keep these old cards open and don’t apply for credit you don’t need – too many inquiries over a short period of time can reduce your score.

I hope you have found this helpful. If you have any questions about your credit score and want help, please call me and we can set up an appointment to chat about which options will work best for you.

Sincerely,
Kim