Toronto Condo and Real Estate Blog

Looks like this season’s record amount of snow had its toll on some Toronto home buyers and made them decide to wait out for the spring market.

“Low inventory levels kept the Toronto real estate market brisk but well off record levels last month,” Toronto Real Estate Board President Maureen O’Neill announced today.

The average price in the GTA rose four per cent to $380,338 and two per cent in the City of Toronto to $404,361, compared to last March.

The average Days on Market (DOM) was only 30 days. DOM is one of the indicators Real Estate Agents watch closely, and 30 days is a good indicator of a healthy market.

“Overall sales in the GTA declined 22% compared to March 2007, 27% in the city of Toronto and 18% in the 905 suburbs,” said Ms. O’Neill. “It’s important to recognize though, that despite the worst winter in decades, 6,631 homes changed hands last month in the GTA and that is still a significant number.”

However, some GTA neighbourhoods (Bowmanville, Burlington and Thorncliffe Park ) experienced increased sales activity last month driven primarily by strong detached and semi-detached home sales.

Ms. O’Neill says that March’s moderate performance isn’t disturbing given that Canadian economic fundamentals are holding steady. “Forty per cent of international households that come to Canada settle in the GTA, giving us robust immigration levels; employment and wages continue to be strong; borrowing costs remain at historically low levels and there is a wide variety of mortgage products from which to choose,” she said.

This means that there is a steady demand for housing and consumers should have the financial resources to buy homes; with such pent-up demand it is an excellent time to sell your home.

“We remain concerned about the land transfer tax in Toronto and the economic slowdown in the United States,” added Ms. O’Neill. “Home sales in the City of Toronto spiked towards the end of 2007 probably in a bid to avoid the Toronto land transfer tax, but have since dropped off since the introduction of the tax.”

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Contact the Jeffrey Team for more information - 416-388-1960

Is Your Mortgage Tax Deductible? The Smith Manoeuvre

If you are like most Canadians the answer is NO. The interest you pay on your home mortgage is not tax deductible in Canada. But if you do some smart planning, the interest paid on a mortgage can become tax deductible, even when the mortgage is on your principal residence.

Our American friends already enjoy the luxury of claiming their mortgage interest. So is there a way for you as a Canadian homeowner to make your mortgage interest payments tax deductible? Well, according to Fraser Smith, the author of the best seller book “Is your Mortgage Tax Deductible - The Smith Manoeuvre”, you can.

But before we start to explain how the “Smith Manoeuvre” works let us discuss a couple of background issues:

“Good debt” vs. “bad debt”
When you borrow money to make money, it is an investment. The interest you pay to service that debt can be deducted from your income before you pay your taxes. That’s “good” debt!  On the other side, borrowing money to buy depreciating items (car, television, or to pay for vacations) will always be considered as “bad” debt.

How to convert bad debt to good debt?
The real trick is to convert “bad” debt to “good” debt. The concept of converting your debt from non-tax deductible to deductible debt is gaining popularity in Canada. Many outspoken proponents of the concept believes that every Canadian should be aware of their ability to convert their debt – more specifically, the ability to convert their mortgage into a tax deductible debt.

What is the Smith Manoeuvre?
The Smith Manoeuvre is a financial strategy pioneered by Fraser Smith, a veteran BC-based financial consultant. It is designed to convert the non-tax deductible interest debt of a residential mortgage to the tax deductible debt of an investment loan – generating annual tax deductions.

Most Canadians are unaware of the real cost of their mortgage, or underestimate the amount of interest they would pay on a mortgage and have no idea of the total cost. For example, a $150,000 mortgage at seven per cent paid over a 25-year period would cost the homeowner more than the original mortgage amount ($165,000) just in interest alone. At a 40 per cent tax bracket, the mortgage holder would need to have earned $525,000 to pay off that $150,000 debt. That’s why more and more Canadians are investigating tax-deductibility as an alternative option.

To summarize, the Smith Manoeuvre in a nutshell, is where you borrow against the equity in your home, invest it in income producing entities, and use the tax return to further pay down the mortgage. Repeat until your mortgage is completely paid off, this will leave you with a large portfolio and an investment loan. Your mortgage is now an investment loan, which is tax deductible and hopefully your portfolio is larger than your loan.

As an example, a $200,000 mortgage at seven per cent would cost the homeowner about $1,400 a month. In the first month, roughly $1,150 would go towards interest and $250 towards the principal. According to Smith, To convert that debt to tax deductible borrowings, the homeowner should then take that $250 back out of their home equity and invest it.

By the end of the first year, the homeowner will have re-advanced and invested about $3,100. Borrowing back the money and investing it creates an “investment loan”, the interest on which may now be tax-deductible. This process is repeated year after year.

Although the debt level remains at the original $200,000, more and more of it is being systematically converted to tax-deductible debt. In addition, ever-increasing tax refunds received by the happy homeowner could also be applied against their mortgage, and then re-borrowed and invested. Also, the homeowner could take any non-registered investments and apply those dollars against their mortgage, enabling them to borrow the money back for tax-deductible investing (assuming the costs and potential capital gains triggered by selling the non-registered investment to pay down the mortgage are not prohibitive).

Does this works for you?
It is good to remember that as with any investment program there are risks involved, the program is based on current Canada Revenue Agency (CRA) rulings, which can change over time.

Borrowing to invest is suitable only for investors with higher risk tolerance. You should be fully aware of the risks and benefits associated with investment loans since losses as well as gains may be amplified. The value of your investment will vary and is not necessarily guaranteed, however, you must meet your loan and income tax obligations and repay your loan in full. Any homeowners should consult with their financial advisor. Advisors understand risk tolerance and can assess the appropriateness of the strategy to your specific situation and most importantly, will be able to implement the necessary investment component of the program.

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Contact the Jeffrey Team for more information - 416-388-1960

Canadian Mortgage Consumers Manage their Debt Responsibly and Plan to Pay Off Mortgage Quickly

According a recent survey conducted by the Canada Mortgage and Housing Corporation (CMHC) shows that 78% of Canadians who recently purchased a new home intend to pay off their mortgage as quickly as possible, and many have already taken steps toward that goal.

The 2007 national survey focused primarily on recent purchasers and also for the first time included questions on homeowners’ behaviour regarding mortgage debt re-payment since arranging their mortgage.

Eighty-eight per cent of Canadians feel confident in their ability to manage mortgage debt. This confidence in debt management appears tied to repayment goals; more than 75% of survey respondents who bought a home within the last year say their goal is to pay off their mortgage as quickly as possible. In fact, many are taking steps towards that goal: one-third of purchasers have, at some point, made a lump sum mortgage payment, and a similar proportion had shortened their original mortgage amortization period. Well over half reported making weekly or biweekly payments, and the majority of these payments (84%) are being made on an accelerated basis, shortening the original amortization period and reducing overall interest costs.

“This study confirms that Canadians remain fundamentally cautious when it comes to their mortgage debt,” said Pierre Serré, Vice-President, Insurance Products and Development, CMHC. “The fact that new homeowners are working to pay down principle early and are accelerating payments is a good indication that this responsible behaviour will continue throughout the life of their mortgage.”

CMHC’s survey also indicates that Canadians continue to be well served by the mortgage industry, with 85% of respondents expressing satisfaction with the mortgage process. Eighty-four per cent felt they had access to suitable housing options, 88% felt confident they could manage their debt, and 89% of recent purchasers felt that the mortgage choice they made was the best option for them.

CMHC survey covered 1,404 active mortgage consumers - all prime decision makers -  and the result is a unique perspective on attitudes and behaviours. Results for entire sample is believed to be accurate to +/-2.6%, 19 times out of 20.

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Contact the Jeffrey Team for more information - 416-388-1960