10 Mar

Is Today the Right Day To Buy Yourself A Home Or Not?


Posted by: Bonnie Barker

Is Today The Right Day To Buy Yourself A Home Or Not?Q. Is today the right day to buy yourself a home or not?

A. Today is the right day assuming one has found a specific property that works for them on all levels.

This question arises on a near daily basis within our social circles and most of the chatter around the topic is largely noise. Noise that needs to be blocked out so that you can evaluate your own personal circumstances fairly.

If the conversation is about an owner occupied property which one plans to reside at for at least the next 7-10 years, then arguably yes the right time to buy is today.

Over a 7-10 year horizon the day to day, even the month to month gyrations of the market will tend to resemble those of a small yo-yo on a large escalator.  Some ups and downs although with the lows often not dropping below the second last high. This is true of nearly any major urban 25 year chart of Real Estate Values.

There are some key considerations that will dictate not only the continued value, but perhaps more importantly your own ability to stay put for that magic 7-10 year time frame.

  • Location
  • Layout
  • Age
  • Size
  • Recreational amenities
  • Schools
  • Distance from workplace
  • Potential basement suite revenue
  • the list goes on…

Getting all of these variables aligned is something that takes dedication on the part of the both the buyer and their Realtor.  The hunt itself can easily consume a few months or more, and for some may result in over 100 viewings.  This is more than enough to juggle without also trying to ‘time the market’ on that perfect home.

Speaking of timing; consider allowing for a small overlap during which you have access to both the current residence as well as the new one. Being able to install new flooring throughout, complete interior painting, or upgrade kitchens and bathrooms, without having to live in the middle of the disruption is well worth an extra month of rent or the marginal costs of bridge financing. The costs involved are surprisingly lower than most clients expect.

Keep in mind during your search that the MLS #’s are an imperfect indicator of what is happening today in the market, as in literally ‘today’, MLS data reflects purchase contracts that were negotiated 30, 60, 90 or even 120 days prior to the completion date which was itself in the previous months report.  In other words by the time the MLS data indicates a trend one way or another said trend has in fact been in motion for as long as 6 months and could be either reversing or ramping up further.

Where then to get the most accurate data?

Talk to front line folks, Realtors, Brokers, Appraisers, etc. for a better handle on up to the minute trends.  Ask an Industry Expert – like your local Dominion Lending Centres mortgage professional.

Short term fluctuations in values and/or interest rates are themselves not the key factors in many peoples decision to buy, instead it is finding that perfect combination of all the factors that create a home within a community and the realization that homeowners win in the long run by owning, not by sitting on the sidelines.

It is all about finding a place you can call home for the duration. To be able to plant roots and become a part of a community.  Home ownership will undeniably continue to be a part of living the Canadian dream.

Perhaps the (short term) timing will feel imperfect, as it did for presale buyers in 2007, whose completion dates were set for Spring 2009.  However 7-10 years later most will be glad that they bought when they did.  In fact many were smiling again as soon as the Spring of 2010.

Home ownership remains the one true forced savings plan, and one of the best investments we make socially as it provides an individual and/or a family with a certain sense of security, stability and community. Block out the noise and do what is right for you.

9 Mar

RRSP Contributions: To Preserve or Not To Preserve? That is the question…


Posted by: Bonnie Barker


RRSP Contributions: To Preserve or Not To Preserve? That is the question…A recent BMO study shows that the number of Canadians withdrawing money from their RRSP increased to 38% from 34% last year, and on average these Canadians are taking out larger sums of money.

The government requires RRSPs to be converted to a RRIF when a Canadian turns 71. After 71, withdrawals begin and they are taxed as income. Annual minimum withdrawal begins at 7.48% for those aged 71 and rise annually to a maximum of 20% for Canadians 94 and older.

Retirees often resort to tapping into RRIFs to access large sums. For some, RRIFS are viewed as their savings and emergency fund. For others, a RRIF withdrawal is their preferred solution over borrowing money, so that they can avoid monthly loan payments.

A RRIF withdrawal is a common solution, and the financial implications can be severe for seniors.

Let’s look at an example

Background: A retired widow living in B.C. has a modest pension income and only a little over $100,000 in her RRIF.

Goal: Financially help a family member by withdrawing $40,000 out of her RRIF.

Reality: Client discovers at her bank that she has an immediate withholding tax that she must pay because she is withdrawing from a registered investment. Because of this, she must take out an additional $12,000 to cover the withholding tax, which is considerably more than planned. In April, income taxes are due and the full amount of her RRIF withdrawal is added to her income, which increases her income considerably and moves her up a tax bracket. As we know, more income = more taxes. And now she owes an additional $18,000 in income taxes. Where would she find the money to pay her income taxes?

In addition, the savings she intended to use to support herself through retirement decreased substantially and won’t go as far for her as planned. Also, because of her decision to draw the excess amount from her RRIF, she experiences government clawbacks on her income pensions such as, Old Age Security (OAS), Guaranteed Income Supplement (GIS) and other benefits and she now has an increase in her quarterly tax installments. To make matters worse, she is no longer eligible for her provincial health care assistance, and is responsible for the full monthly premium payments herself.

Alternate solution:

By using her home equity with a reverse mortgage, her retirement savings could have been fully preserved. Income could have remained the same because funds from a reverse mortgage are tax-free and do not get added to her income. Best of all, there would have been no tax implications and she could have prevented her pension and her provincial health care assistance from being affected.

This is a true story.

We met this client when her $18,000 income tax bill was due. She was able to use her home and a reverse mortgage to help her in this situation.

Dominion Lending Centres mortgage brokers and advisors see it all the time.

Life events happen. If you know a retiree looking for a financial solution to help a family member or to cover sudden life expenses, recommend they take the time to consider the tax implications that an extra RRIF withdrawal may have on their financial situation.

Then the question really becomes: Which asset should I use? My RRIF or my home?

A reverse mortgage provides a tax-efficient solution, helps clients keep their savings to support retirement and requires no monthly payments (including interest payments).

If this client had a conversation with her DLC mortgage broker to consider all options, she would have been left in a much better financial position for years to come.