Nominal vs. Effective Interest Rate: What's the Difference?

It's important to know what type of interest you're paying when you take out a mortgage.  There are basically two types, but each of them is sometimes known by more than one name.

• Nominal Interest Rate. Also known as simple interest rate. Nominal interest is calculated on the original      principal only. If you borrow $100,000 for one year at 7%, you end up paying back $107,000.
• Effective Interest Rate. Also known as compound interest. With effective interest, the interest rate is applied to the original principal AND all the accumulated interest. If you borrow $100,000 for one year at 7% and the interest is compounded semi-annually, you end up paying back $107,122.50. Therefore, the effective interest rate is actually 7.1225%. In Canada, this is known as the Annual Percentage Rate (APR) and it's the rate that Canadian mortgage lenders are required to quote.

Of course, actual mortgages are more complicated than this because payments are made monthly (or even more frequently), rather than at the end of the year. But the result is still the same: the effective interest rate is slightly higher than the nominal interest rate. If you find mortgage rate calculations confusing—and who doesn't!—feel free to give me a call. I'd be happy to sit down with you, explain what you should be looking for and make sure you get the lowest rate available! Kupina Mortgage Team

Yes, You Can Achieve Debt Freedom!

Chances are, your mortgage payment is your single, biggest after-tax expense. Unfortunately, thanks to the way lenders calculate interest, most of your payments go to interest instead of principal. Which is why, if you ever actually pay off your mortgage, you end up paying two to three TIMES the value of your home. No wonder 70% of homeowners never live long enough to own their home free and clear! Historically, the fastest way to pay off your mortgage and reduce interest payments was to increase your income, reduce expenses and make extra lump sum payments on your mortgage. The problem is, most people cringe at the idea of sacrificing short-term pleasures for long-term treasures. But there IS a way to eliminate all your debts—credit card, car loan, even your mortgage—two to three times faster, thus saving you tens of thousands of dollars in interest, WITHOUT affecting your household budget! Imagine how great it would feel to be completely debt-free, giving you the cash flow and freedom to provide for your family, save for retirement and even go on vacation. With our new debt-elimination system, you can:

• *Save tens of thousands in interest payments
• *Pay off your mortgage in half the time (or less!)
• *Eliminate all your debts, including credit cards, car loans, etc.
• *See the impact of financial decisions in advance
• *Plan, maintain and track your monthly budget
• *Accelerate your progress to financial freedom!

By not managing debt properly, the average homeowner pays over $100,000 in unnecessary interest. NOW is the time to take action! Our free, no obligation Financial Analysis will show you exactly how much you're paying in unnecessary interest and how much faster we can help you become mortgage-free without changing your household budget. Call for your free analysis today, and start transforming your tomorrows! Kupina Mortgage Team

5 Proven Ways to Legally Reduce Your Taxes

If these tips are appropriate for you, you can save taxes, increase your savings and build financial security.

1. Ask your employer to contribute some of your compensation directly to your RRSP. This means tax doesn't have to be withheld on the amount paid, so you get a larger RRSP contribution — plus your interest will compound faster.
2.  If you have a mortgage and substantial non-registered investments, consider liquidating some investments, use the funds to pay down your mortgage, then extract equity to purchase new investments. Borrowing money from your home to make investments makes your mortgage interest tax deductible.
3. Start doing some work from home so you can deduct certain home expenses. If you regularly work at home or host client meetings, ask your employer to formalize the arrangement in writing.
4. Since some investments are taxed at higher rates than others, make sure to put your highly-taxed investments—such as GICs and bonds—into RRSPs and Tax Free Savings Accounts. Stock dividends are taxed at a lower rate, so they should go in your non-registered account.
5. If you're expecting a big tax refund this year, request a reduction in the taxes deducted from your pay. This means you get the refund you're expecting earlier.

If you'd like more valuable tax tips, I can introduce you to one of my trusted local tax experts. Call me today.

Life After Bankruptcy: Yes, You Can Get a Mortgage!

Sometimes bad financial situations happen to good people and bankruptcy is the only way out. But it's not all doom and gloom! It's possible to put your credit back on track and qualify for a mortgage, even after bankruptcy. Here's how:

• Find the right lender. Unlike mainstream lenders, non-conforming lenders will usually provide financing after a bankruptcy, if you can demonstrate that you're now a good credit risk and have sufficient income.
• Wait a couple of years. Most lenders won't approve a mortgage until two years after bankruptcy.
• Have a good reason. If bankruptcy was due to factors beyond your control, you're more likely to get a mortgage. Reasons such as poor money management and excessive debt aren't looked at favorably.
• Save a down payment. Most lenders will consider a 10% down payment (your own funds, not borrowed or a gift), or even 5% in some instances. However, the higher your down payment, the lower your interest rate will be.
• Re-establish good credit. Get a copy of your credit report from Equifax or TransUnion, and work on building a recent record of on-time payments on major bank or credit cards. Missing a payment at this stage could lead lenders to decline you. By rebuilding your creditworthiness, you can raise your credit score, which will lower the rate you'll end up paying.
• Work to keep your rate low. Most lenders charge a higher rate for previous bankruptcies, and some charge extra fees. You can keep your rate as low as possible by waiting for two years after discharge, re-establishing good credit, raising your credit score, saving your own down payment, maintaining good debt servicing ratios, and demonstrating a long term history of job stability.
• Don't do it alone. As your mortgage professional, I can coach you on how to improve your credit score over time and help you source an affordable mortgage despite bruised credit. If you—or someone you know—would like a free, no obligation consultation, call me today!