You may have heard the terms Home Equity Line of Credit, HELOC, readvanceable mortgage, ‘Smith Manoeuvre’ used by sophisticated investors. It is a popular strategy with sophisticated investors, but how does it actually work? Continue reading →

You hear the terminology ‘pre-approval’ often, but do you know exactly what it entails? One of the biggest misconceptions is that a pre-approval commitment from a lender is a guarantee of financing…it is simply just Continue reading →

In a previous blog, I covered the basics on the GDS (gross debt service) and TDS (Total debt service) ratios.  Rental income is treated differently from your regular gross income earnings. How rental income is calculated Continue reading →

Debt ratios are fundamental to mortgage approval. The purpose of the ratio is to assess whether you, the borrow, can service your existing debt plus the new debt that you are applying for. The typical mortgage lender expects Continue reading →

Sept 4, 2012. If you’re seeking a home equity line of credit (HELOC) or readvanceable mortgage equalling 66%-80% of your home’s value, it would be wise to act soon. Rumour has it that some banks may start cutting back on their HELOC lending limits this month. This move relates to Continue reading →

June 21, 2012 The Federal Government announced  four new clampdowns on insured mortgages (more than 80% loan to value) that will quickly come into effect on Monday, July 9th, 2012. Continue reading →

Continue reading →

I thought it is worthwhile to inject clarity into this topic because now, the overwhelming amount of lenders require ‘title insurance’ (usually it is stated on the mortgage commitment ‘up to date survey, good marketable title or, in lieu, lender title insurance is acceptable ‘). If you need to take away one piece of vital information from this blog post, it is this: Continue reading →

March 2012 Phew! The recent 2012 Canada budget annoucement did not include any changes to mortgage rules. There was speculation that they might be talk of lowering the amortization from 30 to 25 year or increasing the minimum downpayment requirements up from 5% (for owner-occupied property, rental property minimum remains at 20%).

Over the last 4 years, there have been a number changes to mortgage rules, it seems the government feels that is enough changes for now. Interestingly, Jim Flaherty, the Minister of Finance was recently quoted saying:

“I find it a bit off that some of the bank executives are taking the position that the Minister of Finance or the government somehow should tell them how to run their business,” ……”They must forget that they are actually the ones who issue the mortgages,”……. “It’s their market. It’s not my market. They decide what they want to charge in interest rates. They’re the ones who make the profits out of this business, so I do find it a bit much when some of the bank executives turn to the government, the Minister of Finance and say, ‘”You ought to change the rules and make it tighter.”’

No one is stopping lenders from making their own policies, beyond what is stipulated by the government. If lenders feel things are too risky, they can make their policies stricter, you don’t necessarily need government intervention for that. The mortgage market is filled with many lenders, some have more flexible policies than others, it comes down to a business decision on each company’s part. Certainly, if the retail banks decide to make their policies stricter, in lieu of not receiving any new mortgage rules from the government, you will most likely see another mortgage lender market emerging that can accommodate for the consumers that can’t fit their model. Competition is good, this could be good for consumers.

You can check out the highlights of the 2012 budget here:

http://www.canada.com/business/Budget+Highlights+2012+federal+budget/6380795/story.html

Savvy real estate investors run their real estate investing like a real business, not just like a hobby. You can’t have the attitude of skimping out on advice and professional services. In addition to having the right mortgage broker on your team that can help you navigate through mortgage planning and the ongoing changes in mortgage rules and policies, you will need to align yourself with the right lawyers and accountants. Submitting your tax returns with intentional errors or full of ‘gray areas’ is business suicide. You do not want to set yourself up for an audit (which my accountant says, ‘not if, but when’), and put your joint venture business partners in jeopardy (auditor may sniff out a new path to follow).

Unfortunately, in the world of tax auditing, you are considered guilty until proven innocent, pretty harsh if you can’t produce the right documents. Think about trying to fish for documents or remember some expense that happene d years ago. Not worth the time, best you spent that time focussing on productive things. Keeping good records for tax purposes has multiple benefits. From a mortgage perspective, it will make the mortgage approval process so much easier and faster, plus you will get instant credibility with your mortgage broker and the lenders’ underwriting departments. It is always a pleasure working with clients that have documents at the touch of a button. Having your financial documents in order will help you understand the health of your business (Are you making money or not? What holes leaking money do you need to plug?) and mostly importantly, avoid the unpleasant tax audit panic and scramble.

Here is a recent article I came across ‘Where Revenue Canada Finds Unreported Income’, much of the points made in this article affect real estate investors, take note.

http://www.capitalmagazine.ca/tax/where-revenue-canada-finds-unreported-income-9378

A summary of the points from the article:

• Repairs or renovations. Don’t claim capital improvements as repairs . Canada Revenue Agency (CRA) scrutinizes businesses that buy, renovate, and sell buildings because unreported cash income can be used to pay contractors under the table.
• Net-worth audit. CRA looks to see if your lifestyle is roughly equivalent to your income and net worth.
  Inferred revenues. With cash-intensive businesses, CRA double-checks reported company revenues by indirect means, such as extrapolating.
• Personal use of company vehicles. Document in a log and only claim expenses for the business portion.
• Meals, entertainment, travel. Make sure you can explain how all such expenses relate to the business.
• Ineligible business expenses. For example, golfing does not qualify.
• Loans from the corporate account. CRA looking for evidence of timely repayment.
• Credit cards. For business expenses, CRA doesn’t regard a credit card statement as sufficient record-keeping.