- 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.
Monday, 29 April 2013
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.
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!
Sunday, 7 April 2013
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.
- 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.
- 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.
- 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.
- 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.
- 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.
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!
Wednesday, 6 February 2013
Mortgage Rate Minder
February 6, 2013: This edition of the Mortgage Rate Minder has the latest, best rates for Canadian mortgages. At Dominion Lending Centres, we work on your behalf to find the mortgage that suits your needs. Best of all — our service is free.* It's the selected lender that pays us and YOU get the best rate. Please note that rates shown are subject to change without notice. The rates shown are posted rates and the actual rate you receive may be different, depending upon your personal financial situation. Check with us for full details and to determine what rate will be available for you.*(O.A.C., E.&O.E.) Explore Mortgage Scenarios with Helpful Calculators at http://www.KupinaMortgage.com
Rates are subject to change without notice. *OAC E&OE Prime Rate is 3.00% Variable rate mortgage from as low as Prime - 0.35%
Current Mortgage Rates
| Term | Bank rates | Our Rates |
| 6 Month | 4.00% | 3.95% |
| 1 YEAR | 3.00% | 2.74% |
| 2 YEARS | 3.14% | 2.69% |
| 3 YEARS | 3.70% | 2.69% |
| 4 YEARS | 4.70% | 2.99% |
| 5 YEARS | 5.24% | 2.94% |
| 7 YEARS | 6.35% | 3.59% |
| 10 YEARS | 6.75% | 3.79% |
Monday, 7 January 2013
New Homebuyer Calculator & Mobile App
Canada Mortgage and Housing Corporation (CMHC) recently introduced two new tools to help Canadian homebuyers make informed and responsible home-buying decisions – including a calculator and mobile app. CMHC's new Debt Service Calculator allows homebuyers to evaluate their financial situation and understand how much they can comfortably afford to spend on a mortgage. The easy-to-use calculator allows users to quickly estimate their gross debt-service ratio (GDS) and total debt-service ratio (TDS) – both important measures in assessing their financial readiness for homeownership. The Debt Service Calculator can be accessed by visiting: www.cmhc-schl.gc.ca/en/co/
Does Breaking Your Mortgage Make Sense?
With mortgage rates still hovering at historic lows, chances are you've considered breaking your current mortgage and renewing now before rates begin to rise. Perhaps you want to free up cash for such things as renovations, travel or putting towards your children's education? Or maybe you want to pay down debt or pay your mortgage off faster? If you've thought about breaking your mortgage and taking advantage of these historically low rates, feel free to give me a call or send me an email to discuss your options. In some cases, the penalty can be quite substantial if you aren't very far into your mortgage term, but we can determine if breaking your mortgage now will benefit you long term. People often assume the penalty for breaking a mortgage amounts to three months' interest payments so, when they crunch the numbers, it doesn't seem so bad. In most cases, however, the penalty is the greater of three months' interest or the interest rate differential (IRD). The IRD is the difference between the interest rate on your mortgage contract and today's rate, which is the rate at which the lender can relend the money. And with rates so low these days, the IRD tends to be greater than three months' interest. Because this is a way for banks to recuperate any losses, for some people, breaking and renegotiating at a lower rate without careful planning can mean they come out no further ahead. Keep in mind, however, that penalties vary from lender to lender and there are different penalties for different types of mortgages. In addition, the size of your down payment and whether you opted for a "cash back" mortgage can influence penalties. While breaking a mortgage and paying penalties based on the IRD can result in a break-even proposition in the short term, if you look at the big picture, you'll see that the true savings are long term – as we know that rates will be higher in the years to come. Your current goal is to secure a long-term rate commitment before it's too late, and here lies the significant future savings. As always, if you have questions about breaking your mortgage to secure a lower rate, or general mortgage questions, I'm here to help! Kupina Mortgage Team | www.kupinamortgage.com
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