Principal: $300,000
Payment frequency: Monthly
Mortgage type: Fixed rate
Interest Rate: 3.99%
Amortization: 25 years
Total Payment: $1576.43
Total P+I Payment for term: $94,585.80
Total Interest Cost for Term: $55,697.22
Total Principal Repayment for Term: $38,888.58
Mortgage Balance at End of Term: $261,111.42

Now let’s take a look at the same example, but amortized over 35 years.

Principal: $300,000
Payment frequency: Monthly
Mortgage type: Fixed rate
Interest Rate: 3.99%
Amortization: 35 years
Total Payment: $1320.64
Total P+I Payment for term: $79,238.40
Total Interest Cost for Term: $57,290.85
Total Principal Repayment for Term: $21,947.55
Mortgage Balance at End of Term: $278,052.45

So as you can see from the examples above, there’s not a significant difference in interest cost between the two scenarios for the first 5 years. The difference in interest cost is $1593.63. But the difference in paid principal? $16941.03. So why would anyone choose a 35 year amortization over a 25 year amortization? Flexibility. By choosing a maximum amortization of 35 years, it allows you to reduce your monthly payments. Not sure which option to go with? Talk to your mortgage advisor or give me a call and I can help you crunch the numbers, and determine what makes most sense for your unique situation. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Some examples of passive income that the trust would receive are:

1. Dividends from Corporations owned by the Trust
2. Capital Gains from the sale of a Stock owned by the Trust
3. Interest from investments and promissory notes owned by the Trust
4. Rental Income from Real Estate owned by the Trust

There are many other ways to receive Passive income, however the main types of passive income you will see coming into your trust are dividends, interest, capital gains and rental income. Each form of passive income is taxed differently in the individuals’ hands, however in a trust this is not always the case. Dividends and interest income that are retained by the trust incur the highest marginal tax rate. (currently 39% in Alberta). For Capital Gains, 50% of the Gain that is retained by the Trust is taxed at the highest marginal tax rate. Rental income gets the rental expenses deducted from it, and any net income that is retained by the trust is taxed at the highest marginal tax rate.

So you must be wondering “Why I would retain income in the trust if I am going to pay the highest marginal tax rate?” Before answering this question you must have the knowledge of what marginal tax rate you are at personally. Obviously if you are already at the highest marginal tax rate personally then you may not want to take any further income from the trust. The next thing to look at is why you would need to retain income in the trust. You can simply flow through that income to the beneficiaries, which include yourself, your spouse if you are married, children if you have any, and so on. Trusts are great to flow through income, and most income that the trust receives can flow to the beneficiaries retaining the same characteristics from when it comes in to when it goes out. For example, if the trust is receiving dividends, it can typically pay dividends in the same amount to the beneficiaries. Dividends are taxed lower to individuals as we receive a dividend tax credit on these dividends and we also pay no CPP! Typically you can split the income between multiple beneficiaries which is key in tax planning!

There are many examples of how not to retain income in the trust. Another example would be to own real estate in a Corporation that is owned by the trust. This Corporation can deduct all the rental expenses and then can further pay more expenses, such as a management fee, to offset any profits. Trusts can do this as well, but there may be more benefits and options to do it in this way.

There are many more strategies that can be incurred using a trust, and there may be some specific instances where you would want to retain income in the trust, such as a Capital Gains sale where you can apply the Capital Gains Exemption. Trusts do require thought and planning and Kustom Design is here to help you plan and maximize the use of your structures, minimize your taxes, minimize your liability, create more cash flow and put your assets into the hands of the next generations without the Government taking half of them!

1. Lend

2. Gift/Transfer

3. Sell/Acquire

4. Income from Business and/or investments

We’ve now gone deeper into #1 and #2, so let’s now discuss the other 2.

Similarly to gifting to a trust, when the trust is purchasing an asset in an arm’s length transaction it should purchase the asset at Fair Market Value. We’ve already discussed Fair Market Value in a prior blog, however “arm’s length” is another term we must become familiar with. Some examples of an arm’s length purchase by the trust would include purchasing assets from the Trustee, the beneficiaries, the settler or a corporation that the trust has ownership of. If the asset is purchased by the trust in a non arm’s length transaction then the Fair Market Value is not important and we can just deal with the asset at the actual purchase price.

When you are selling assets to a trust, similarly to other sales, cash is not the only form of payment that can be used. For example the trust could give a promissory note, another asset such as shares, or a combination of assets and promissory note. The same rules for the promissory note that we discussed in prior blogs would apply when it comes to interest and payments. As always with specific transactions of your trust it is best to seek Professional advice, Kustom Design is here to work with you for all your financial, accounting, tax and structuring needs.

The other main way to get assets into a trust is to simply receive income from business and/or investments. Typically the businesses and investments that the trust is receiving income from are owned by the trust. Trusts would typically receive non active income, such as dividends, interest or capital gains from these businesses and or investments.

Customization
If you buy brand new, you have the option to customize. This can include the planning and design of every element in your home if you start from scratch or having an input on minor elements such as colors and materials if you buy a pre-planned house. If you buy an existing home, it comes as is and customizing it may involve more work and more money.

Warranty
Builders usually provide a warranty on their brand new homes to cover any defects in the home’s construction. This can offer you peace of mind because you know you won’t have to spend any money on major repairs for the first few years. Having said that, new homes do need time to settle so whether the construction is sound and foundation likely to shift are unknown. Homeowners can also run into issues with builder warranties if the builder goes out of business or if the defect is not covered under the warranty.

Safety and Building Codes
Brand new homes must comply with up to date building codes that apply to the area such as electrical, plumbing, fire safety and natural disaster protection whereas older homes may need to be brought up to date. The one thing that I would have to agree with though is that new homes tend to use less expensive materials that don’t match the quality or lifespan as the materials more likely found in older homes.

Contemporary Style
Newer homes have better layouts because they get with the times but newer homes tend to be farther from the core of the city. If you don’t mind living in the suburbs then this won’t be an issue for you but if want a shorter commute, then you may have to settle for an older home.

Low Maintenance
With a brand new home you can just move right in and not worry about having to get your hands dirty, so if you like something low maintenance, then buying new may appeal to you.

If you decide to buy new, TD can hold your interest rate for up to 12 months from the application date subject to approval of the builder. On single homes, this can be extended to 18 months in the Greater Toronto and Vancouver areas or 24 months on townhomes and condominiums. In a rising interest rate environment, this is a good option to have, especially since it takes a while for new homes to be built. Talk to your lender to see if they have any special programs in place if you decide to buy new or give me a call and I can show you your options. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Original Article: The Globe and Mail

Customization
If you buy brand new, you have the option to customize. This can include the planning and design of every element in your home if you start from scratch or having an input on minor elements such as colors and materials if you buy a pre-planned house. If you buy an existing home, it comes as is and customizing it may involve more work and more money.

Warranty
Builders usually provide a warranty on their brand new homes to cover any defects in the home’s construction. This can offer you peace of mind because you know you won’t have to spend any money on major repairs for the first few years. Having said that, new homes do need time to settle so whether the construction is sound and foundation likely to shift are unknown. Homeowners can also run into issues with builder warranties if the builder goes out of business or if the defect is not covered under the warranty.

Safety and Building Codes
Brand new homes must comply with up to date building codes that apply to the area such as electrical, plumbing, fire safety and natural disaster protection whereas older homes may need to be brought up to date. The one thing that I would have to agree with though is that new homes tend to use less expensive materials that don’t match the quality or lifespan as the materials more likely found in older homes.

Contemporary Style
Newer homes have better layouts because they get with the times but newer homes tend to be farther from the core of the city. If you don’t mind living in the suburbs then this won’t be an issue for you but if want a shorter commute, then you may have to settle for an older home.

Low Maintenance
With a brand new home you can just move right in and not worry about having to get your hands dirty, so if you like something low maintenance, then buying new may appeal to you.

If you decide to buy new, TD can hold your interest rate for up to 12 months from the application date subject to approval of the builder. On single homes, this can be extended to 18 months in the Greater Toronto and Vancouver areas or 24 months on townhomes and condominiums. In a rising interest rate environment, this is a good option to have, especially since it takes a while for new homes to be built. Talk to your lender to see if they have any special programs in place if you decide to buy new or give me a call and I can show you your options. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Original Article: The Globe and Mail

1. Lend

2. Gift/Transfer

3. Sell/Acquire

4. Income from Business and/or investments

Let’s start with lending to a trust. You can lend money or assets to a trust, by simply taking back a Promissory Note. This means that the Trust is taking a loan from you and is going to pay interest no less than once a year and intents to one day pay back the principal. When lending to a trust the current prescribed interest rate must be used as the minimum interest rate for the loan. You can go higher if there is a purpose for doing so. Currently the prescribed interest rate is quite low at 1% (as of the date of this blog) and has been that low for over a year now. This is extremely beneficial for loaning to a trust or Corporation as well as for spousal loans. If you have any such loans that are still at a higher interest rate, now would be the time to reissue the loan at the lower interest rate. Interest on loans must be paid within 30 days after the trust’s year end. A Family Trust has a year end date of December 31^st, so the interest must be paid by January 31^st of the following year.

Let’s now talk about gifting to a trust. Gifting to a trust is not used in many circumstances as there are many issues around gifting to a trust. As discussed in the last blog, when assets are put into a trust they must be put in at Fair Market Value. This is of course true if a gift is coming to the trust, meaning that the person gifting the assets may have a capital gain on the “deemed disposition” of the asset. If there is no gain on the asset then this would be irrelevant, however it is something that must be considered before the gifting happens. We also must look at attribution when an asset is being gifted to a trust. For example if someone gifted the trust some stocks, then the income from the stocks may be attributable back to the person who gifted the stocks. There are many considerations when looking at gifting to a trust, and in fact it may not be the best option to get assets into a trust. Typically the settlor and trustees would not want to make gifts after the set up of the trust.

Again, it is best to consult with a professional before making any movement of assets and/or funds into and out of a trust. Kustom Design is here to help you. In my next blog we will discuss the other 2 ways to get assets and funds into a trust.

As already discussed, when you are setting up a Family Trust it is best to have someone else settle the trust with a small asset, such as a silver ingot. This is the initial property of the trust and should be the only asset given to the trust without consideration. Typically when assets or funds are put into a trust there should be consideration for the asset or funds. For example if we’re going to put real estate into the trust, there must be consideration to acquire the real estate, such as currency or another form of asset in consideration for the real estate. This is a general rule although there are some small exceptions which are very specific and will not be covered in this blog series.

When putting assets into the trust we must consider the tax consequences. First of all we must understand that all assets going into a trust should be at Fair market Value. Fair Market Value is the current price that the asset would sell for on the open market. For example if it is real estate, you can look at a Market Assessment by a licensed realtor, an appraisal from a licensed appraiser, or sometimes the value on the Property Tax Assessment of the property. This means that if you own the asset that is going to be put into the trust, you will most likely have a disposition that could result in a Capital Gain. Before transactions are made that add property into a trust or take property out of a trust, you must plan for the potential tax consequence. Kustom Design can help you with the planning, but it is up to you to ensure you take the time and book the consultation.

There are 4 main ways that you can get assets or funds into a trust:

1. Lend

2. Gift/Transfer

3. Sell/Acquire

4. Income from Business and/or investments

Each of these methods are dealt with differently for tax purposes. In the next blogs we will begin to look at each of these ways to get assets and funds into a trust.

There are two types of variable mortgages. Open and closed. Both with TD are 5 year terms but the 2 main differences are the rates and prepayment privileges. With the variable closed, the rate is usually priced below bank prime and with the open it’s usually priced above bank prime. In terms of pre-payment priviledges, the closed term does not allow the mortgage to be pre-paid in full without paying 3 months interest compensation. The open term allows pre-payment in full however administration fees apply if the mortgage is paid in full in the first or second year, $500 and $250 respectively. Two important things to note about variable mortgages with TD is that they are NOT assumable nor portable. To learn more about portability, please visit my article on Porting or Replacing your Mortgage.

The interest rate on a variable mortgage is calculated monthly, not in advance and changes when TD Mortgage Prime changes. This is different than a fixed rate mortgage in which the interest is calculated semi-anually and not in advance. The rate is set on the 1st day of each month based on the variable mortgage rate. So if the bank prime changes mid month, your variable rate will not be changed until the first of the following month. Keep in mind your lender’s rate adjustment policy if you choose to go with a variable mortgage. Your payments on our variable mortgage are fixed for the entire 5 year term. I always recommend to those who choose a variable mortgage to set their payments based on a higher rate to pay off the principal faster and to safeguard against interest rate increases. Since interest rate fluctuations can push the outstanding balance beyond the contractual amortization, it is always a good idea to increase the payment frequency and amount. For more information on how to pay off your mortgage faster, please visit my blog on Mortgage Payment Plans and Say Goodbye to your Mortgage Faster. When your interest rate reaches the point where your payments no longer cover the interest charged under the mortgage, this is referred to as the Trigger Rate. If this occurs, you may be asked to pay your mortgage down to the appropriate trigger point, re-evaluate your property, convert your mortgage to a fixed rate, or increase your regular payments.

If you currently have or choose to go with our closed variable mortgage, you have the option to early renew into a fixed rate mortgage with a minimum term equal to the lesser of 3 years or remaining period of the original term. If you have or choose to go with our open variable mortgage, you have the option of renewing into any fixed term mortgage. So as you can see, there is more to variable mortgages than just the rate. Knowing what your options are during your contract period can have an impact on your decision or situation down the road. Going forward, the variable may no longer win according to the Financial Post, but there never seems to be a clear answer on whether to lock in or stay variable. No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

According to Christine Rae, Ontario President of the U.S.-based Real Estate Staging Association, 63% of buyers will pay more money for a house that is move-in ready than one that needs renovations. Staging a home encourages buyers to see themselves living in the space and allows them to form an emotional connection to the property. Staging is not about hiding problems but showcasing a property’s integrity.

A stager will reveal things about your home that you may not want to hear because they must look at it through a buyer’s eyes and ultimately remove any reason for a buyer not to complete a purchase. This can be things like bad odours, outdated floors, drapery, wall colours etc. Remember that that renovations made to sell are not about personal taste but to meet the needs of potential buyers.

The cost to stage your home may vary but can hold potential payback in your price. Consult with your Real Estate Professional to see if they offer home staging as part of their services or can refer you to a home staging professional. If you have any questions or would like to leave a comment, please do so below. Thank You!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Original Article: Comforts of Home