Home Buyer's Tax Credit

Today's focus is on the Home Buyers' Tax Credit (HBTC).

What is this credit?

The Federal Budget 2009 proposed a tax credit for First Time Home Buyers as an action to provide support for Home Ownership. This proposal was thought to assist first-time home buyers with the costs associated with the purchase of a home (i.e. legal fees, disbursements and land transfer taxes).

For 2009 and subsequent years, the budget proposes to introduce a new non-refundable income tax credit, based on the amount of $5000 for first time home buyers who plan to purchase after January 27, 2009. For an eligible individual, the credit will provide up to $750 in federal tax
relief starting in 2009.

How is the new HBTC calculated?

It is calculated based by multiplying the lower personal income tax rate for the year (15% in 2009) by $5000. So that means, for 2009, the credit will be $750.

Who qualifies for the HBTC?

The individual must meet the below criteria:

# They acquire a qualifying home.
# Neither the individual or spouse/common-law partner has owned and lived in another home in the year of purchase or any of the 4 preceding years.
# A person with a disability or are buying a house for a related person with a disability, you DO NOT have to be a first time home buyer. The home must enable the person with a disability to live in a more accessible dwelling.

Who is considered a person with disability?

An individual who is eligible for the Disability Tax Credit (DTC).

What is a qualifying home?

# The home must be located in Canada.
# This includes existing and new construction. Single-family homes, semi-detached homes, townhouses, mobile homes, condominium units, apartments in duplexes, triplexes, fourplexes or apartment buildings all qualify.
# A share in a co-operative housing corporation that entitles you to possess and gives you an equity interest in a housing unit located in Canada also qualifies. (BUT a share that only provides you with a right to tenancy in the housing does NOT qualify).
# You or the related person with a disability must intend to occupy the home as a principal residence no later than ONE year of purchase.

Can my spouse/common-law/friend claim the HBTC?

Either person can claim the credit or you can share it. BUT the total of both claims cannot exceed $750.

If you are purchasing a home with a friend, and you both meet the conditions for the HBTC, either one of you may claim the credit or share it. BUT the total cannot exceed $750.

Does the home have to be registered under the applicable land registration system?

Yes. The home must be registered in accordance with the applicable land registration system.

How do I claim the HBTC?

Beginning with the 2009 personal income tax return, a new line will be incorporated for you to claim the credit.

Do I have to submit any supporting documents with my income tax?

No. But make sure that the information is available just in case CRA requests for it.

Is the HBTC connected to the Home Buyer’s Plan?

No. Some of the conditions for the HBTC and Home Buyer’s Plan are similar but they are not connected. Eligibility for the HBTC will not change if you participate in the Home Buyer’s Plan.

For more information on the First-Time Home Buyers’ Tax Credit, click on Department of Finance’s Budget 2009 (Page 128).

Please refer to Canada Revenue Agency’s website for up-to-date details on the HBTC.

Home Buyer's Tax Credit

I.D.E.A.S. For Choosing Between A Fixed and Variable Rate.

March 29, 2010
I.D.E.A.S. For Choosing Between A Fixed And Variable Rate

Best-Mortgage-termsThe first question people often ask when deciding between a fixed and variable mortgage is: “Where do you see rates going?”

They assume we as mortgage planners know…and of course we don’t. No one does.

We can, and do, present a variety of possible rate scenarios based on:

* where we are in the rate cycle
* how rates have performed after past recessions
* and other available research.

But you never know for sure where the rate setters (the Bank of Canada and bond traders) will take the market.

Aside from reading the tea leaves on rates, the best thing a borrower can do is measure his/her ability to handle rising payments. To gauge that, we use a handy acronym called IDEAS.

IDEAS stands for Income, Debt, Equity, Assets, Satisfaction With Risk.

More specifically:

* Income -- Is the borrower’s income stable and reliable?
o Is there a low chance of income interruption? (You don’t want payments to soar if there’s a chance you’ll be out of a job for a while)
o Does the borrower earn enough to pay his/her variable-rate mortgage as if it were a 5-year fixed mortgage? (i.e., Can he/she afford to set his/her payments higher to offset the effect of rising rates?)
* Debt -- Does the client have a reasonable debt ratio?
o Is the person’s total debt ratio under 40% based on the posted 5-year fixed qualification rate (so that his/her budget isn’t crushed if prime rate jumps to 6.25% or more)?
o Can the borrower withstand 50% higher payments if rates rocketed up 4%?
* Equity -- Does the client have enough equity?
o Is the loan-to-value under 80-85% so the person could refinance if absolutely needed?
* Assets -- Does the client have enough assets?
o Preferably 6 months of living expenses (in liquid assets) to act as a payment buffer if needed.
o Does the person have a credit line as a backup source of liquidity?
* Satisfaction With Risk -- Can the client accept risk?
o If rates increase 2.50%, can he/she handle payments rising over 30%? What if rates jump 4%?
o Does he/she understand that a fixed rate will save him/her more money up to 23% of the time--according to popular research? (Fixed or Variable)

If most, or all, of the answers to the above are affirmative, a variable rate is something the homeowner can entertain.

After evaluating someone against the IDEAS measure, we then discuss (among other things):

* Future interest rate scenarios, and how rising rates could impact payments and amortization time.
* The tools that variable rate holders can use to deal with payment risk, like “hold-the-payment” features (which don’t eliminate payment risk entirely) and hybrid mortgages.
* The pros and cons of relying on a rate conversion (i.e., locking in a variable rate)
* The cost comparison of variable versus fixed terms, based on future rate assumptions.

For most people, the decision between fixed and variable will either save them thousands or cost them thousands. The goal is to try and take as much of the gamble out of the equation as possible.

I.D.E.A.S. For Choosing Between A Fixed and Variable Rate.

Generating 70% Replacement Ratio to Retire at 65, Requires 35 years of saving 10-20% of Income!

Jonathon Chevreau, Financial Post

Canadians hoping to "replace" 70% of their working income when retiring at 65 will need to save a "very high" portion of their annual pre-retirement earnings, says a C.D. Howe Institute study released today. Depending on their earned income while working, they will need to save between 10 and 21% of their pre-tax earnings every year: for 35 consecutive years between age 30 and 65, says the report, titled The Piggy Bank Index: Matching Canadians' Savings Rates to Their Retirement Dreams. The full 10-page e-brief can be found by clicking here. [If you have trouble with the link, as I did, copy it and paste it directly into your browser.]

Limits on tax-assisted savings prevent most high-earners from replacing 70% of working incomes

The authors -- David A. Dodge, Alexandre Laurin and Colin Busby -- say Canadians face obstacles in saving more. "The problem is that although private savings allow choice about retirement age and income, the Income Tax Act limits on tax-recognized savings may prevent many higher income earners from accumulating sufficient RRSP savings to securely replace 70% of their final earnings."

In a press release, former Governor of the Bank of Canada David Dodge [pictured above] said the findings provide "a ‘reality check' about the saving rates required to meet [Canadians'] retirement goals and inform the choices they could have to make between working longer or consuming less and saving more."

The authors assume a 3% real return on investments, despite the fact 4% is the historical norm. They assume inflation will average 2% a year and that public pensions like the CPP/QPP and Old Age Security will continue in their present form.

While a 70% replacement ratio is considered the "gold standard" an appendix provides calculations for more modest income replacement ratios of 60% and 50%.

Only "working poor" can get by saving less than 10% of gross earnings

It finds that with the exception of what it calls "the working poor," most Canadians must save 10 to 21% of gross earnings every year to get to the 70% replacement ratio in retirement. "This fraction is likely higher than many Canadians believe and higher than is set aside in most employer-based group RSPs or defined-contribution plans," the authors write, "It is also higher than the effective contribution over time to many employer-sponsored defined-benefits plans, and for high-income earners exceeds the annual limits placed on RRSP contributions."

Note that last point, given an earlier CD Howe recommendation that RRSP contribution limits be almost doubled from the current 18% of earned income and $22,000 maximum to 34% and $42,000 respectively, as reported in this blog here early in February. The recent federal budget ignored the recommendation but indicated further consultation will occur in the spring. In today's e-brief, the institute adds that "Income Tax Act limits would prevent many earners from accumulating enough RRSP savings over 33 years (by age 63) to replace 70% or more of their working income."

Delaying retirement to age 67 so you save for 37 years reduces the fraction that must be saved somewhat, "but the required saving rate still remains high," the brief says, "People wishing to retire even earlier at 63 face even higher costs."

Delaying saving past 30 means saving more than 20% of income

And as all the nation's banks tell us during RRSP season, delaying the commencement of saving past age 30 means eventually having to save what the institute calls "extraordinarily large fractions of income -- more than 20%" for many above-average earners during the last decade of one's working years.

The paper concludes on a public policy note, saying the debate on how to improve our pension system is "well founded." Policy changes can improve incentives to save for retirement and to more efficiently manage retirement savings. But CD Howe's final line in the brief could have been written by virtually any financial planner or advisor: "In the end, if Canadians want high incomes and consumption in their retirement years, they will have to save more of their incomes and forgo more consumption during their earning years."

Malcolm Hamilton: dreams "shattered" only if you accept 70% replacement target

http://i1.ytimg.com/vi/PwehckljQVU/default.jpgAsked for his reaction to the paper, Mercer's actuary Malcolm Hamilton -- pictured left from a Wealthy Boomer video interview last year -- said he had read an earlier draft but little appears to have changed. Here, unfiltered by me and only lightly edited, is his input sent by email. I've italicized it to make it clear the authorship is his, not mine. I've added the subheads in bold:

The paper shows that:

* If you want to replace 70% of your gross income when you retire at 65, and
* If you earn an above average wage,

then you need to save quite a bit from a rather young age (30). If you want to retire early with that same standard of living, you need to save even more. The conclusions are very sensitive to assumptions about future returns, but that's the way it is.

The big question is whether you need to replace 70% of your gross income to preserve your standard of living when you retire. Most Canadians retire with closer to 50% replacement. Most say that their quality of life is as good or better after retirement than before. As you know, I always felt that 50% would preserve the standard of living of the average family of 4 because a large percentage of their pre retirement income (often 40% to 50%) is consumed by kids, mortgages and taxes.

50% replacement ratio may suffice to preserve low standard of living while working

All of these burdens are hopefully gone by the time they retire. Their pre retirement standard of living is low. The good news is that they don't need to save much to preserve this low standard of living. One of the tables in the report concludes that those with average earnings can retire with 50% replacement at age 65 by saving only 5% of their incomes ... as compared to 11% if they want 70% replacement.

I do worry about the message accompanying the paper ... in essence that Canadians are saving too little and that their dreams will be shattered when they retire. This is true if we accept the 70% target. But it is not true if the target is wrong, and no evidence is offered in support of the 70% target. In essence, if you assume that everyone needs more than they really need when they retire, you conclude that everyone's dream will be shattered ... but so what?

Obsessive retirement saving shouldn't come at cost of raising families

We need to strive for a more balanced perspective. Yes, we want people to have adequate incomes when they retire. But we also want them to have adequate incomes when they are carrying a mortgage and raising their children. Telling them to save obsessively solves the first problem but exacerbates the second. And from my perspective, the second problem may
be the bigger one.

Read more: http://network.nationalpost.com/NP/blogs/wealthyboomer/archive/2010/03/18/generating-70-replacement-ratio-to-retire-at-65-requires-35-years-of-saving-10-to-21-of-income.aspx#ixzz0iZImxZa4

Generating 70% Replacement Ratio to Retire at 65, Requires 35 years of saving 10-20% of Income!

When It Comes to Mortgage Details, Most People Just "Zone Out"

James Pasternak, Financial Post

It is a legal document that stretches about 30 pages and runs about 10,000 words. Its execution takes no more than a couple minutes and when the ink dries on the signature lines, more times than not it is never read and gets slipped into a file folder, largely forgotten.

But despite its casual handling, the residential mortgage agreement governs the largest debt of over 5 million Canadians and within its fine print are the provisions that can make or break a household's financial future. There's a lot at stake. At the beginning of 2004, Canadians held $517.7-billion in mortgages.

"I think most of the major bank representatives do a good job of explaining these provisions to their clients but I think most people zone out and don't really listen. All they think about is getting a mortgage at 3.8% and ‘I want to get this done'," says Len Rodness, Partner, of Toronto-based law firm Torkin Manes (www.torkinmanes.com)

But beyond the interest rate there are a wide range of options and clauses in the mortgage agreement that deserve scrutiny. In a competitive lending environment, shopping for the right mortgage can bring significant savings and peace of mind through the amortization period.

Take the case of Hamilton, Ont., couple Kathy Funke and Dan Perryman. When they were shopping for a home in 2003, the interest rate was the top priority. They also wanted flexible prepayment options and accelerated weekly mortgage payments. To leverage the competitive interest rate they received, they went with a variable rate mortgage. They paid off a $230,000 mortgage in 5 ½ years.

"The power in these things comes from people who know how to manage [the] various privileges. It has a huge [savings] effect on amortization....The ideal thing is to understand what your privileges are and then combine them to your advantage -- to what you can afford to do; to fit your lifestyle and ability to pay," says Jeff Atlin of Thornhill, Ont. based Abacus Mortgages Inc.

And privileges there are. You just have to shop for them.

Accelerated Payment Options: Getting the loan paid earlier

It just seemed like yesteryear when everyone was paying their mortgage on the 1st of every month. Now, in addition to the first of the month option, some of the more common options are accelerated weekly and biweekly or semi-monthly options.

These frequency options result in long term savings. For example if one selects the accelerated biweekly option one is making 26 payments in a year, the equivalent of two prepayments per year over the monthly option. When a $150,000 mortgage amortized over 25 years is paid under an accelerated bi-weekly option, the debt is retired in 21 years and the interest savings are around $18,000.

Toronto resident and electrician Karl Klos, 26, selected "weekly rapid" payments on a mortgage amortized over 35 years. The mortgage payments are made each week but he added the "rapid" option by increasing the amount paid. Mr. Klos says that the payment frequency will pay off his mortgage in 25 years instead of 35 years.

"I can't understand why anybody would do monthly payments anymore now that the banks offer the ability to have weekly payments. It may be a cash flow situation. If you do a weekly mortgage payment it could save you a significant amount of money," says real estate lawyer Len Rodness.

Restating mortgage agreement vows

It doesn't take long after one signs a mortgage agreement to hear from a neighbour or friend that they received a better rate. So when you dig out the mortgage agreement see if there's a clause that allows borrowers to renegotiate their agreement before the end of the term. The bank might use a model called "blend and extend." For example, if one has a $100,000 mortgage at 6% mortgage with two years to go they might blend it with the current five year rate of 3.79%. So according to mortgage broker Atlin when they average out 2/5 of the mortgage at 6% and 3/5 are at 3.79%, the customer will get a new reduced rate of about 4.6%. But the borrower is tied to the bank for another 5 years.

Putting spare cash against the mortgage with no penalty

Almost all mortgage agreements have options for mortgage prepayment without penalty. Klos's mortgage agreement allows prepayments of up to 15% of the annual balance. Most financial institutions provide prepayment options in the 10-20% range. Some lenders allow borrowers to make the prepayment any time during the year while other agreements restrict the prepayment to the anniversary date.

Also, some financial institutions allow customers to make multiple smaller prepayments during the year as long as they don't exceed the annual limit. Funke and Perryman were able to retire their $230,000 mortgage in 5 ½ years primarily because of the prepayment provisions in their mortgage.

Coming up with more money for each payment

Some lenders will allow borrowers to increase the payments without penalty. Depending on the wording of the mortgage agreement the increased payments can range from around 15% to 100% of the current payment. So if one is paying $1,000 per month under the 15% rule, a borrower can raise it to $1,150 per month. Klos's weekly rapid payment plan was based on him raising the weekly payments by 5%.

"Payment and amortization are a function of each other. Any time you raise the payments you shorten the amortization; any time you shorten the amortization you raise the payment," says Mr. Atlin.

The mortgage prenuptial: Penalties for getting out of your mortgage

"A mortgage is a contract first and foremost. It is a contract between a borrower and the lender," Atlin says. And if someone hasn't felt that cold business approach during the course of their mortgage, they certainly will if they try to leave early. Most borrowers pay out their mortgages when they sell their house, win a lottery or are offered a better interest rate by another company. Until recent years, the standard penalty for breaking a mortgage agreement was three months of interest. Paying out a $200,000 mortgage could amount to a $2,500 penalty.

In many current mortgage agreements, the penalty for an early exit (and not extending) is either three months of interest or an interest differential, whichever is greatest.

The mortgage differential penalty can be quite expensive. If a mortgage is at 5% interest rate and you have three years left in your term, the bank will use the difference between the agreement rate and the current market rate to calculate the penalty. Using the 5% case above, let's say the current 3-year mortgage is available at 3.5%. The bank will charge the difference between 5% and 3.5% for the balance of your term.

Bank customers who have an open mortgage with a variable rate can usually pay them out with little or no penalty. Some mortgages are closed for the first few years and then revert to an open option. The penalties, if there are any, would be much lower once the mortgage converts to an open one. If one can, it would be best to wait until the mortgage kicks into open status.

When paying out the mortgage try to have some of it calculated as your annual no-penalty prepayment option. Therefore, if you are paying out a $200,000 mortgage and you also have a 20% per annum prepayment option you might be able to save penalties on $40,000. If the mortgage prepayments can only be done on the anniversary date, make sure that is the day you select to pay out the mortgage.

Mortgage Lifelines

Mortgages are often signed and sealed with the borrower having every intention to pay. However, the world is paved with best intentions and recessions are everyone else's problem until the boss comes into your office with the bad news.

"That is something that nobody turns their attention to at the time. The original document is done. The legal issues are in that original document. For a practical point of view given the state of the economy these [clauses] might be something beneficial," said Len Rodness of Torkin Manes.

Some mortgages include a Rainy Day option. This option allows the borrower to skip one principal and interest payment each mortgage year. The interest portion of the skipped payment or payments will be added to the outstanding principal balance.
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/story.html?id=2631845#ixzz0iTZkol9e

When It Comes to Mortgage Details, Most People Just "Zone Out"

Understanding House Prices

A home may be one of the biggest investments you ever make. Saving up a down payment is just the first step. Find out more.

What factors affect the value of a home?

* Location: Real estate people always say “Location, location, location.” That’s because the area you live in will be the biggest factor affecting your home’s price. It’s smart to buy a home where housing prices are likely to increase. Also, the people who may buy your home from you one day may be willing to pay more for a home that is close to schools, sports centres, stores, services, and so on. Keep that in mind as you look.
* The condition of the home and the property it is on: Does the home need a lot of repairs? How is the roof, plumbing, and electrical wiring? A home in good repair may be worth more. Also, the condition of the outside of the home, the lawn, gardens, driveway, and trees will all affect the value of a home. These are the first things that buyers see, and are together known as curb appeal.
* Renovations and updates: An older home might need some work to keep it safe, modern, and comfortable. If you are buying at a home that has had some renovations, check the quality. When you do work on a home you own, do it as well as you can. Poor work can lower the value.
* The economy: There are some things you can’t control that affect house prices, like interest rates. Higher interest rates mean it costs more for a mortgage, so fewer people buy homes. When that happens, the prices of homes can fall. Lower interest rates, on the other hand, can boost buying and drive prices up. House prices often go up for a while, and then come down a bit. Try to find out as much as you can about how prices are changing, or may change, when deciding to buy or sell a home. Often there will be stories in the paper about housing prices.

How much is my home worth today?

If you’re considering buying a home, or you just bought one, you know how much it’s worth. But if you’ve owned your home for a while, its value has probably changed. Here’s how you can find out how much it’s worth now:

* Call a real estate agent: Ask them for an estimate of your home’s value. You may be able to get an agent to do this for free, because they hope to get your business in the future.
* Ask an appraiser: Your bank or a real estate agent should know a number of appraisers. Banks use them to estimate house values before they approve mortgages. You can also look in the yellow pages. An appraiser will charge a fee for the service.
* Check to see what other homes in your area have sold for recently: Compare your home with similar ones that have sold. Unless you keep up with what’s happening in your area, this information may be hard to get. Ask your real estate agent if you can’t find it yourself.

How much will my home be worth in the future?

To estimate a home’s future value, you will have to do some informed guessing. Start with finding out what has happened to prices in your location over several years.

City Price, 1990 Price, 2005 Total % increase, 1990–2005 Average % increase/year

Halifax 97,238 188,484 93.84% 6.26%

Saint John 78,041 119,718 53.40% 3.56%

Quebec City 81,462 141,485 73.68% 4.91%

Montreal 111,197 203,720 83.21% 5.55%

Ottawa 141,562 248,358 75.44% 5.03%

Toronto 254,890 336,176 31.89% 2.13%

Windsor 106,327 163,001 53.30% 3.55%

Gr Sudbury 108,596 134,440 23.80% 1.59%

Winnipeg 81,740 137,062 67.68% 4.51%

Saskatoon 76,008 144,787 90.49% 6.03%

Calgary 128,484 250,832 95.22% 6.35%

Vancouver 226,385 425,745 88.06% 5.87%


Source: Canadian Real Estate Association (MLS®) http://www.theglobeandmail.com/globe-investor/investment-ideas/investor-education/understanding-house-prices/article658078/
Should I buy a home now, or wait and save more money?

Sometimes people can’t wait to buy a home because of family or personal reasons. For example, they may have a new baby coming and need more room. Or, they are worried about house prices going up faster than they can save.

What if you don’t have the down payment you need for the house of your dreams? Should you wait and save more, or find another way to borrow the money you need? You won’t be able to get a standard mortgage but you could get another type of loan.

Should I save more or borrow more?

Here is a summary of the reasons to buy now, or wait.

Should you:


Reasons for:


Reasons against:

Wait and build up a large down payment?


You will pay less interest. You can avoid paying for mortgage insurance. You reduce the risk of not being able to pay back the loan if the value of your home drops and you have to sell.


You have to wait to own a home and you will pay more rent. You could have put that rent towards paying a mortgage, and owning more of your home faster. You have to be disciplined or you could spend your savings on other things. In some areas, house prices may rise faster than you can save the down payment.



Buy earlier with some other type of loan?


• You can stop paying rent sooner and get into a home faster. • You have the chance to own more of your home sooner. • You don’t risk house prices rising more than you can afford.


• You will pay more interest. • You will have more worries if you take on more debt than you can handle. • If you have to sell and the value of your home drops, you may not be able to pay back the loan.

Understanding House Prices

Regular Reviews of Your Mortgage Ensure Your Loan is Still Right for Your Financial Situation

Regular reviews of your mortgage ensure your loan is still right for your financial situation

by Malcolm Morrison, THE CANADIAN PRESS
TORONTO - Buying a home is probably the most expensive purchase you will ever make and if you're like the vast majority of Canadians, you used a lot of borrowed money to experience the joys of home ownership.

Because you have to pay interest on a loan over years and decades, that means you will end up paying a lot more money for your house or condo than what you paid the seller.

You have to take advantage of every break to reduce your mortgage balance and the amount of time it will take to pay off your home. And that means it's a good idea to take a good hard look at that loan at least once a year.

"There's a lot of things that people don't actually think about," said Jim Rawson, regional manager for mortgage broker Invis in Toronto. For starters, he thinks it is a good idea to keep a mortgage table handy just to remind you how much you're actually paying for that house.

"And you should take a look at it every year and take a look at where you are on it and how much you paid down," he said.

One of the most obvious things you can do - and will shave years off your mortgage term - is make sure you are not paying in monthly installments."You can switch to weekly or bi-weekly and generally most institutions will allow you to do that." Doing so amounts to an extra monthly payment every year. Also, most mortgages are built with an annual pre-payment feature.

"And if you can make a portion of that, any portion of it, you're obviously going to be saving some interest," said Rawson.

Many institutions will allow you to pre-pay at least 15 per cent of your principal balance every year. (MERIX allows 20%)

You may not be able to come up with a huge amount of money every year. But even nibbling away at the balance can carve years off the payment term.

"Ten dollars (a week) is not going to make a huge difference (to you) - but $10 a payment can make a difference," said Rawson.

"And you know a lot of people are getting raises every year, or every couple of years and if they were to apply even a portion of their raise to their mortgage, they would be saving a lot of money over the course of their mortgage."

You may also be thinking of embarking on a major renovation for your kitchen or bathroom or slapping on a new roof.

Many would go the home equity loan route but instead, you could just add the cost to your mortgage for a lower interest rate.

"Absolutely, if you have enough equity built in to your home right now and you're looking at a major renovation, certainly refinancing and adding, increasing your mortgage amount can certainly be a very cost-effective way of borrowing for that renovation," said Charles Lambert, Managing Director, Mortgages, at Bank of Nova Scotia.

"You look at it in terms of relative size of the renovation that you want to do - I'm not sure you want to (do this) if you're repainting your house or something like that."

Instead, he said, a line of credit could be the appropriate way to do a smaller project. And here again, you can use your home as security for a line of credit.

"You can borrow up to 80 per cent of the value of your home," said Lambert.

Secured lines of credit generally charge a point or two above the prime rate.

You could also think about consolidating debt like a credit card balance to a lower rate by tacking it onto your mortgage. But don't use it as an excuse to rack up more debt.

"One of the key things that I always advise clients about is if they're going to pay off credit cards by refinancing your mortgage, you better be cutting up those credit cards," said Rawson.

"It doesn't mean you can spend some more money because that's not going to help at all."

Finally, mortgage interest rates are at extremely low levels now - but they won't stay that way and economists expect the Bank of Canada to start hiking rates later this year.

So for peace of mind, homeowners on a variable rate might want to opt for something fixed right about now.

"If you're looking for long-term stability, then you're probably taking a look at trying to do something fixed for five years or so," said Rawson.

But, historically, rates fluctuate and at some time in the future, you may find that it makes sense to break your mortgage so you can take advantage of a lower rate, despite a high penalty.

For example, Scotiabank would charge you the greater of three months' interest on the mortgage balance or the interest rate differential.

"Sit down with a mortgage pro, they can work out for you whether it makes sense or not," added Rawson, adding if you can save yourself two percentage points over the next five years, you're way ahead.

http://ca.finance.yahoo.com/personal-finance/article/cpmoney/regular-reviews-your-mortgage-ensure-your-loan-still-right-your-financial-situation-20100225

Regular Reviews of Your Mortgage Ensure Your Loan is Still Right for Your Financial Situation

BC Budget 2010

Summary: Budget revenue projections are conservative and expenses are controlled to grow at a modest pace
resulting in the operating deficit disappearing in fiscal year 2013/14. Barring a fallback into recession or another
financial calamity, revenue surprises will be on the upside and there is a reasonable chance of a surplus emerging
one or two years earlier than in the budget.
Fiscal Plan: The provincial government budget deficit is projected at $2.775 billion in the current fiscal year,
declining to $1.715 billion in fiscal 2010/11, $0.945 billion in 2011/12, and to a negligible deficit in the following
year. A surplus is projected in 2013/14. A forecast allowance and contingencies provides a $0.781 billion buffer in
2010/11 and a $1.050 billion in each of the next three years. The total provincial debt rises each year in the fiscal
plan and reaches $58.7 billion or 25.9% of GDP in 2013/14.
Economic Forecast: Budget 2010 incorporates modest economic growth projections through to 2014
with nominal GDP growing 4.5% to 5.0% per year. The unemployment rate declines slowly to 7.0% in 2014. No
recession is foreseen, which is consistent with the consensus view and in any case is difficult to accurately predict
and the main reason for forecast allowances and contingencies.
ECONOMICS
B.C. Budget 2010
1
Five Year Fiscal Plan
($ millions) 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14
Revenue 38,328 37,050 39,190 40,957 42,800 44,280
Total Expense 38,250 39,700 40,605 41,602 42,545 43,470
Surplus (Deficit) before forecast allowance 78 (2,650) (1,415) (645) 255 810
Forecast allowance - (125) (300) (300) (400) (400)
Surplus (Deficit) 78 (2,775) (1,715) (945) (145) 410
Taxpayer-supported capital expenditures 3,778 4,013 5,414 3,609 3,073 3,053
Total capital expenditures 5,540 7,270 8,159 6,528 6,058 5,914
Direct Operating Debt 5,744 6,182 7,511 8,209 7,838 6,976
Total Taxpayer-supported Debt 26,446 29,093 33,748 36,720 38,329 39,618
Total Debt 38,014 41,318 47,757 52,363 55,862 58,667
Taxpayer-supported debt-to-GDP 13.4% 15.5% 17.2% 17.9% 17.8% 17.5%
Source: Budget and Fiscal Plan 2010/11 – 2012/13
B.C. Budget 2010 2
Analysis: Generally, the Ministry of Finance’s forecasts are positioned conservatively. Central 1’s forecast
is more robust in each year of the fiscal plan so that nominal GDP in 2013 is higher by 6.6% or $14.9 billion.
Nominal GDP growth averages 6.1% per year in Central’s forecast versus 4.8% in the fiscal plan. In the Budget’s
fiscal sensitivities table, a 1% change in nominal GDP implies an annual fiscal impact of $150 to $250 million. If
Central 1’s forecast is used, revenues would be about $0.85 to $1.4 billion higher in total to 2013/14.
The forecast averages of the Economic Forecast Council are also higher than the Ministry of Finance forecasts
in each year of the fiscal plan. This applies not only to nominal and real GDP but also to other key indicators
such as the unemployment rate, corporate profits, retail sales, housing starts, U.S. GDP and Canada GDP. The
Ministry’s approach provides a downside buffer to the revenue projections.
Revenue: Projected total revenue grows 5.8% in 2010/11 slowing to 4.5% in the next two years resulting in
$42.8 billion in 2012/13, up 15.5% from 2009/10. The largest contributor to total revenue is from taxation with
a $3.0 billion increase or up 17.7% from 2009/10. Taxation revenue grows mainly from personal income and
consumption taxes, the HST and carbon taxes in particular. Natural resource revenue increases $1.2 billion or
46.2%, mainly on natural gas activity. MSP premiums are increasing Jan. 1, 2011 helping lift other revenue line
Ministry of Finance Economic Forecast: Key Economic Indicators
2009 2010 2011 2012 2013 2014
Real GDP -2.7 e 2.2 2.3 2.7 2.8 2.8
Nominal GDP -5.0 e 4.5 4.7 5.0 4.9 4.8
Employment -2.4 0.9 1.4 1.8 1.8 1.8
Unemployment rate (%) 7.6 7.9 7.7 7.3 7.1 7.0
Total net in-migration (persons, 000s) 57.7 1 53.9 53.6 52.2 52.8 54.0
Personal Income 5.2 e -1.0 2.1 3.8 4.5 4.5
Corporate pre-tax profits -35.8 e 12.7 9.8 7.6 7.5 7.3
Housing starts (units, 000s) 16.1 20.5 23.6 25.8 27.2 27.8
Retail sales -5.1 3.9 4.1 4.6 4.7 4.7
Per cent change unless otherwise noted. Forecasts 2010 to 2014. e Ministry of Finance estimate. 1 BC STATS estimate.
Source: Budget and Fiscal Plan 2010/11 – 2012/13
Revenue by Source
($ millions) Actual
2008/09
Updated
Forecast
2009/10
Budget
Estimate
2010/11
Plan
2011/12
Plan
2012/13
Taxation revenue 18,197 17,023 17,422 18,658 20,039
Natural resource revenue 3,848 2,705 3,280 3,683 3,954
Other revenue 7,389 7,640 7,874 8,251 8,732
Contributions from the federal government 5,989 6,834 7,685 7,283 6,979
Commercial Crown Corporation net income 2,905 2,848 3,001 3,082 3,096
Total revenue 38,328 37,050 39,190 40,957 42,800
Source: Budget and Fiscal Plan 2010/11 – 2012/13
B.C. Budget 2010 3
by 14.3%. The government is reallocating the timing of the HST transition payment from the federal government
so that most appears in the next two years. Previously, $750 million was allocated to 2009/10 compared to $250
currently.
Analysis: Taxation revenues will likely some in higher than projected based on Central 1’s forecasts. Personal and
corporate income taxation along with higher HST revenues will be the main sources of revenue outperformance.
Tax Measures: Very few new measures were announced in Budget 2010. A couple of notable tax changes were
the increase in MSP premiums effective Jan. 1, 2011 and a northern and rural benefit of $200 for homeowners
beginning in the 2011 tax year.
Spending: Total government expense increased 3.8% during the recession and is projected to increase 2.3%
in the coming fiscal year followed by a comparable amount in the years to 21012/13. Total spending rises 7.2%
between 2009/10 and 2012/13 to $42.5 billion. Spending on health services grows 13.8% and accounts for
76.5% of the total increase of $2.84 billion. In contrast, education spending increases 2.6% and social services by
0.6%. Debt servicing costs are projected to rise 33.6% or $0.74 billion to $2.95 billion.
Full-Time Equivalents (FTEs): Budget 2010 put forward a three-year plan to reduce the number of FTEs
in the provincial government by 10.4% or 3,720. This is a large change from the plan in Budget 2009 and in the
September Budget Update in which the current 2011/12 FTE projection is 9.6% and 6.5% lower, respectively.
Ministries and special offices will face an 11.4% reduction while FTEs in special delivery agencies are to decline
by 3.8%. Voluntary exits, including retirements, are expected to result in attrition-based reductions in the public
service. Budget 2010 does not include funding for wage increases as collective agreements are renewed, consistent
with the net-zero cost mandate for the collective bargaining cycle already underway.
Expense by Function
($ millions) Actual
2008/09
Updated
Forecast
2009/10
Budget
Estimate
2010/11
Plan
2011/12
Plan
2012/13
Health 15,050 15,717 16,474 17,426 17,893
Education 10,470 10,734 10,820 10,949 11,011
Social Services 3,150 3,399 3,454 3,419 3,418
Protection of persons and property 1,406 1,433 1,426 1,365 1,364
Transportation 1,402 1,448 1,515 1,670 1,739
Natural resources and economic development 1,578 1,916 1,314 1,389 1,416
Other 1,732 1,227 1,395 1,203 1,219
Contingencies - 456 450 450 450
General government 1,336 1,162 1,376 1,110 1,085
Debt servicing costs 2,144 2,208 2,381 2,621 2,950
Subtotal 38,268 39,700 40,605 41,602 42,545
Other (18) - - - -
Total expense 38,250 39,700 40,605 41,602 42,545
Source: Budget and Fiscal Plan 2010/11 – 2012/13
B.C. Budget 2010 4
Analysis: According to the budget document, staffing costs represent about 7% of consolidated revenue fund
expenses (about $34 billion) implying a total cost of around $2.4 billion per year. An 11.4% reduction in FTEs in
2012/13 results in a lower total staffing cost of about $275 million. During the three-year plan, lower staffing costs
amount to about $575 million.
Capital Spending: Infrastructure spending climbs to $8.1 billion in the coming year from $7.3 billion last
year. Spending declines in 2010/11 to $6.5 billion and $6.0 billion in 2012/13. Contingencies of between $200
and $300 million per year provide a buffer against unforeseen costs.
Capital Spending
($ millions) Actual
2008/09
Updated
Forecast
2009/10
Budget
Estimate
2010/11
Plan
2011/12
Plan
2012/13
Total taxpayer-supported 3,778 4,031 5,414 3,609 3,073
Total self-supported commercial 1,762 3,257 2,745 2,919 2,985
Total capital spending 5,540 7,270 8,159 6,528 6,058
Source:Budget and Fiscal Plan 2010/11 – 2012/13
Analysis: Capital spending provides an economic boost for the construction industry and the economy
in addition to providing vital services to the population and economic agents. The return on public capital is
considerable and similar to the rate of return on private capital. The financing of public capital accounts for the
bulk of the provincial debt.
Provincial Debt: Taxpayer-supported debt is forecast to increase 31.7% or $9.2 billion to $38.3 billion by
2012/13, reflecting the capital investments planned over the next three years and the projected deficits. Total
provincial debt, which includes commercial Crown self-supported debt, is forecast to increase 35.2% or $14.5
billion to $55.9 billion by 2012/13.
The ratio of taxpayer-supported debt, which excludes commercial Crown corporations’ debt, to GDP ratio is
forecast to increase from 15.5% in 2009/10 to 17.2% in 2010/11 and to 17.9% in 2011/12 before returning to a
downward trend by falling to 17.8 per cent in 2012/13. Total provincial debt-to-GDP rises to 25.9% in 2012/13
from 22.0% in 2009/10.
Full-Time Equivalents (FTEs)
Actual
2008/09
Updated
Forecast
2009/10
Budget
Estimate
2010/11
Plan
2011/12
Plan
2012/13
Ministries and special offi ces (CRF) 31,874 31,284 30,096 28,501 27,732
Service delivery agencies 4,403 4,436 4,204 4,249 4,268
Budget 2010 36,277 35,720 34,300 32,750 32,000
September Budget Update 2009 36,277 36,427 35,589 35,043
Budget 2009 36,205 36,564 36,448 36,232
Sources: Budget and Fiscal Plan 2009/10 to 2011/12, September Budget Update 2009/10 to 2011/12,
Budget and Fiscal Plan 2010/11 to 2012/13
Central 1 Credit Union Economics
Helmut Pastrick, Chief Economist . David Hobden, Economist . Judy Wozencroft, Economic Services Coordinator
5
Provincial Debt Summary
($ millions unless otherwise indicated) Actual
2008/09
Updated
Forecast
2009/10
Budget
Estimate
2010/11
Plan
2011/12
Plan
2012/13
Total taxpayer-supported debt 26,446 29,093 33,748 36,720 38,329
Total self-supported debt 11,568 12,100 13,709 15,343 17,133
Total debt before forecast allowance 38,014 41,193 47,457 52,063 55,462
Forecast allowance - 125 300 300 400
Total provincial debt 38,014 41,318 47,757 52,363 55,862
Debt as a percent of GDP
Taxpayer-supported 13.4% 15.5% 17.2% 17.9% 17.8%
Total provincial 19.2% 22.0% 24.3% 25.5% 25.9%
Source: Budget and Fiscal Plan 2010/11 to 2012/13
Analysis: Debt levels are rising at a faster pace following as a result of the recession, operating deficits and
stepped up capital spending. The provincial government’s starting point for this cyclical upturn came from a low
point following the surplus years earlier this decade. The projected debt burden is not onerous and a plan is in
place to control its trajectory. The bond rating agencies will view the plan as credible and not make any changes
to the province’s AAA rating. There is a greater than 50:50 chance debt levels will be lower than projected since
there are a number of prudence factors built into the fiscal plan.
The 2010/11 deficit could come in below $1 billion and there is a small chance the 2011/12 deficit disappears
assuming the economy grows sufficiently to generate more revenues than in the plan. An operating surplus very
likely emerges in 2012/13 and the surplus in 2013/14 could well top $1.5 billion. Should these results prevail, the
provincial debt would be correspondingly lower so that by 2012/13, the total debt could be closer to $50 billion
and down to 21% of GDP.

BC Budget 2010

Pressure Grows for Bank of Canada to Hike Rates

Paul Vieira, Financial Post

OTTAWA -- Pressure on the Bank of Canada to move early on raising interest rates mounted Monday after data on fourth-quarter gross domestic product suggested the economy is roaring its way out of recession after recording the fastest pace of growth in nearly a decade.

The central bank could provide hints of a change Tuesday morning when it releases its latest statement on interest rates. Its plan for almost a year has been to conditionally keep its benchmark rate at 0.25% until July in an effort to pump up economic growth after the great recession.

Data from Statistics Canada suggest the emergency-level rates have worked their magic, perhaps faster and better than anticipated.

The economy expanded 5% in the final three months of 2009, blasting past market expectations for a 4% gain - and the bank's own 3.3% forecast - and setting the stage for robust growth this quarter. It is also the fastest pace of quarterly economic growth since late 2000. Further, the data were solid across the board, with personal consumption and net trade contributing to the performance.

Third-quarter data were also revised upward, with growth of 0.9% as opposed to the original 0.4% reading.

This comes on top of January inflation data that indicated price increases have moved closer to the central bank's 2% target earlier than envisaged.

"With growth being stronger than expected and inflation sticky ... we remain of the view that the Bank of Canada has the full green light to hike as emergency conditions have passed and with it justification for sticking to the zero lower bound on rates," said economists Derek Holt and Karen Cordes from Scotia Capital.

Yanick Desnoyers, assistant chief economist at National Bank Financial, said a rate hike could come as early as next month, when data might show the output gap - or the amount of slack in the economy - is narrowing faster than the central bank expected.

He added the headline GDP data might be underestimating how quickly economic slack is being absorbed. For instance, gross domestic income – or the sum of all wages, corporate profits and tax revenue – climbed by 8.5% in the quarter, the best showing since 2005. And that follows a 4.5% gain in the third quarter.

Sheryl King, chief economist and strategist at Bank of America/Merrill Lynch Canada, said she expects a rate hike in June, based on a belief the central bank will want to see through its conditional pledge for as long as possible.

Among the data points she said she found most encouraging was a 4% gain in real wage growth – defined as gains in household income excluding transfers from governments. The last time there was growth in this category was prior to the recession.

"This signals that risk taking and organic growth is coming back in Canada," she said.

Of course, not all analysts believe the data will push Bank of Canada governor Mark Carney to veer off course. Douglas Porter, deputy chief economist at BMO Capital Markets, said the data surely raises the odds of a July rate rise but anything earlier than that remained remote. Analysts at TD Securities also shared a similar view.

Also, the data contained one key blemish – a 9.2% drop in machinery and equipment investment by Canadian companies, which does not bode well for efforts to boost abysmal productivity levels.

The GDP data attracted investors, as the Canadian dollar gained a full US1¢, to US96.01¢, on the possibility of an early rate hike.

Canadian growth should remain robust as the global recovery takes hold. Business surveys released Monday indicated manufacturers continue to lead the recovery, with factory activity expanding last month across Asia, the United States and Europe.
Read more: http://www.financialpost.com/news-sectors/economy/story.html?id=2628952#ixzz0gySOg5Bz

Pressure Grows for Bank of Canada to Hike Rates

Bank of Canada Maintains Overnight rate at 1/4 per cent

Bank of Canada maintains overnight rate target at 1/4 per cent and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010

OTTAWA — The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

The ongoing global economic recovery is being driven largely by strong domestic demand growth in many emerging-market economies and supported in advanced economies by exceptional monetary and fiscal stimulus, as well as extraordinary measures taken to support financial systems.

The level of economic activity in Canada has been slightly higher than the Bank had projected in its January Monetary Policy Report (MPR). The economy grew at an annual rate of 5 per cent in the fourth quarter of 2009, spurred by vigorous domestic spending and further recovery in exports. The underlying factors supporting Canada's recovery are largely unchanged - policy stimulus, increased confidence, improved financial conditions, global growth, and higher terms of trade. At the same time, the persistent strength of the Canadian dollar and the low absolute level of U.S. demand continue to act as significant drags on economic activity in Canada.

Core inflation has been slightly firmer than projected, the result of both transitory factors and the higher level of economic activity. The outlook for inflation should continue to reflect the combined influences of stronger domestic demand, slowing wage growth, and overall excess supply.

Conditional on the current outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target.

The risks to the outlook for inflation continue to be those outlined in the January MPR. On the upside, the main risks are stronger-than-projected global and domestic demand. On the downside, the main risks are a more protracted global recovery and persistent strength of the Canadian dollar. The Bank judges that the main macroeconomic risks to the inflation projection are roughly balanced.
Information note:

The next scheduled date for announcing the overnight rate target is 20 April 2010.
A full update of the Bank's outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 22 April 2010.

Bank of Canada Maintains Overnight rate at 1/4 per cent

How to Avoid a Tax Audit

Dakshana Bascaramurty

Globe and Mail Update Published on Sunday, Feb. 28, 2010 7:10PM EST Last updated on Monday, Mar. 01, 2010 8:18AM EST

Most of us wait till the 11th hour to file our income tax returns, but it’s worth getting a head start on them now. We explain how to send in the best return.

1. File on time

“You don’t want to file too early or file too late, either,” Ryan Rawluk, certified general accountant with Winnipeg-based Nicholas Rawluk LLP, says. “[Accountants] prefer March. A lot of people, it seems to be something they definitely don’t want to do and not their favourite time of year so they put it off as long as possible.”

If you file past the April 30 deadline, you’ll have to pay interest on any tax owed, but filing late could also increase your odds of being audited, he explains.

On the flip side, filing too early can be a problem if you don’t have all your documents. T3s (for income trust holdings) often aren’t available until the end of March, so it’s worth waiting for all the necessary slips so you don’t have to follow up with an adjustment.

Chartered accountant Ryan Rawluk answers your questions and simplifies the world of tax returns

2. Keep track of your receipts

Revenue Canada employees will usually notice any deviations from your usual year-to-year filings, so make sure you have documentation to account for them, Mr. Rawluk says.

One of his clients worked for a company that was bought out. He received a large sum of money, most of which he put into his RSP to avoid taxation. In the past, he’d only claimed $1,000 or $2,000, so a $30,000 claim was out of the ordinary and flagged.

Other examples that might stand out: Your child needed braces, or you donated a few thousand to a relief organization.

“ The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.”— Mark Twain

3. Stay on top of new deductions and credits

Mr. Rawluk notes that various new credits have been introduced over the past few years – including ones for transit passes, children’s fitness and home renovation – so it’s worth getting a head start on your taxes so you don’t miss any of them.

Individuals should think about filing as an entire family unit to take best advantage of all the available deductions and credits, says Evelyn Jacks, the Winnipeg-based author of the Essential Tax Facts book series and president of Knowledge Bureau, a financial education institute. Students can transfer tuition, education and book amounts to a supporting spouse, parent or grandparent. Medical expenses for one individual can be transferred to a supporting earner.

Most people are unaware of what can be claimed as a medical expense, too, she says.

“It would pay off to learn a little more about what’s claimable. People with celiac disease can claim what it costs them [more] for gluten-free bread than it would for regular bread.” A full list can be found by searching for “medical expenses” on the Canada Revenue Agency website.

4. Beware of investment and donation schemes

While Mr. Rawluk encourages taxpayers to make sure they take advantage of deductions and credits, he warns against any that seem too good to be true – because they usually are.

“There are a lot of investment and tax schemes that are taking place such as the buy low, donate high where maybe you put in $5,000 and you get a donation receipt for $30,000,” he says.

Such claims are red flags on tax returns, he says.

“Most of them are being audited by Revenue Canada and most of the people who take part in them end up having to pay back their refunds along with interest and penalties,” he says.

*And don’t do this

Submit your tax returns without triple-checking your math. You’re better off using software than a pen and calculator for greater accuracy.

By the numbers

299: the number of people convicted of tax evasion or tax fraud in Canada in 2007-2008

$10,000: upper limit for home renovation expenses eligible for the Home Renovation Tax Credit

9,905: Quebeckers assessed by Revenue Canada in 2009 for failing to file their tax returns

Source: Canada Revenue Agency

How to Avoid a Tax Audit