Most mortgages have the option to allow payments to be made on a weekly or bi-weekly basis. This option may be desirable for two reasons. The first is it can save you money as you can expect to pay off your mortgage about 4 years sooner. This can save you dramatically over the life of your mortgage. The other reason why these options are so popular is that if your employer pays you on a weekly or bi-weekly basis, you can simplify your budgeting by making the payment line up with the way you paid.

Paying extra amounts on your mortgage can make a big interest saving over time. When we select a mortgage company, privilege payments options are something that we look for. A 20% privilege payment will allow you to pay off up to $20,000 per year on a $100 000 mortgage. It is important that the privilege payment also be flexible to allow you to pay smaller payments on the mortgage and as often as you wish. An extra $1000 periodically paid on a mortgage can help you become mortgage free faster.

When you require a mortgage for more than 75% of the purchase price of a property, that mortgage must be insured by Canada Mortgage and Housing (CMHC) or GE Mortgage insurance. The premium charged by these company`s decreases as the down payment increases. When you finance your property at 95%, a premium of 2.75% is added to the mortgage. By increasing the down payment to 10% of the purchase price the premium can be reduced to 2.5%. If you can put down 25%, you can avoid any additional insurance fee. Depending on your situation there are ways that you can structure this financing to avoid the CMHC or GE insurance premium.

As mentioned above, when you put a 25% down payment on your purchase you can avoid the CMHC premium. More importantly the larger the down payment, the lower the amount of interest you will pay over the life of your mortgage. It is important to note that it may not be wise to stretch yourself to increase your down payment and end up borrowing on credit cards or a line of credit at a higher rate.

The options for mortgages available can be very confusing for most mortgage shoppers. Terms for mortgages vary between variable and fixed rate, 6-month terms to 10 year terms. Taking a variable or floating rate mortgage can have savings. Typically the shorter the term or guarantee of the rate, the lower the rate will be. This does not always happen, depending on the market place and the economy, but history has shown that short-term rates tend to be lower than long-term rates. The up side of variable rate is the strong potential for interest rate savings. The down side is the fact that you are accepting the interest rate risk without a guarantee. If you are considering a variable rate mortgage you need to look at your own risk tolerance, and your cash flow available to deal with potential increased payment. Considering projections of rates and where we see interest rates heading can also be important in this decision. Make sure you talk to an expert when you are making this decision.

Oct 23, Toronto, Ontario - After much debate for months and months, here is the new Toronto Land Transfer Tax that was just passed by Council on 22 October 2007 and takes effect on 1 February 2008. Transactions entered into prior to the end of the year will be fully exempt whenever they close. For the first two months of the year, the deals must close before February 1st 2008. After that, the full tax applies.

The new tax is an addition to the existing land transfer tax. The extra tax is payable on residential and commercial property purchases, including vacant land.

So how will this affect the real estate market in Toronto an surrounding areas?



EXISTING Ontario Land Transfer Tax:

Land transfer taxes are levied on properties that are changing hands, are the responsibility of the purchaser. Current tax rates (effective from June 1, 1989)

0.5% of the value of consideration for the transfer up to and including $55,000,  
1% of the value of the consideration which exceeds $55,000 up to and including $250,000, and  
1.5% of the value of the consideration which exceeds $250,000, and
2% of the amount by which the value of the consideration exceeds $400,000 for land that contains at least one and not more than two single family residences.
ADDITIONAL NEW Land Transfer Tax :

New tax rates (on purchase agreements signed after Dec 31, 2007 and close after Feb 1, 2008).

0.5% on first $55,000,  
1% on next $345,000, and
2% on portion over $400,000


Examples of new Land Transfer Tax ($)

Home Price       Ontario LTT     Toronto LTT      Total LTT    
250,000  2,225  2,225  4,450
350,000  3,725  3,225  6,950
450,000  5,475  4,725  10,200
500,000  6,475  5,725  12,200


For first time purchasers:

A rebate of up to $3,725 will apply to first-time purchasers of both new and existing homes. This means a full rebate for first-time buyers of homes valued at $400,000 or less. For example, a first-time purchaser of a home valued at $600,000 would pay land transfer tax according to the scale shown above, and receive a rebate of $3,725. A first time home buyer of a home valued at $300,000 would get a full rebate on the land transfer tax.


Why Toronto imposed new land transfer tax?

City of Toronto’s projected revenue shortfall for 2008 budget is approximately $415 million. The city will be able to raise additional $155 million by Land Transfer tax and another $20 million by the new Toronto Vehicle ownership tax. That means a revenue shortfall of perhaps $239 million for next year’s budget. This may translate into new taxes on property, alcohol, road tolls, entertainment, parking, billboards, etc.

Toronto is the ONLY jurisdiction with two home buying taxes, highest land transfer taxes in Canada and the second highest in North America.

What may happen now?

A second land transfer tax (LTT) on top of current provincial LTT, is almost 100% increase which might slow down real estate activity for short period of time only.

Home buyers will have less money for down payment, furniture, appliances or renovations. This could ultimately cost over $15,000 for an average buyer when coupled with other real estate closing costs and goods that follow home’s purchase. First-time buyers will not get affected as they will NOT pay the City’s new land transfer tax on first $400,000 of their property’s price.

Since there is no new local home buying tax in 905 region, more buyers and investors will move out of Toronto. Real estate markets outside Toronto will grow more as many investors and buyers will move into Mississauga, Oakville, Milton, Brampton, Markham, Richmond Hill, Ajax and Pickering.