Why Mortgages Are Important In Today Economic Environment
Getting a mortgage was never an easy thing to do, but in today"s economic climate, the mere thought of a mortgage can make your hair, and your finances, stand on end. And the rules change depending on where you live. Living in Canada, there are essential things you"ve got to know to get through the process of purchasing, refinancing or adding value to your home, as only a mortgage broker can tell you.
Governments Reward Debtors
The government loves debtors. Especially those who build equity through their debt, make their payments on time and bolster the economy through the creation of debt.
Keeping your money in a lock box in the closet won"t help you on your taxes and neither will investing your money in Money Market accounts or the stock market""the government takes a percentage (equal to or higher than what you pay on your regular income) of the interest you make on these types of investments.
If you"re ready to sign on the line for a mortgage, you may be able to keep your check book in your pocket at tax time. Debt, especially for a new mortgage, can be arranged to be tax-deductible.
For those currently living in the BC, the low Vancouver mortgage interest rates paired with the deductible nature of your new debt, will make the price of a new home even more appealing when the tax man comes to call.
Increase Your Net Worth and Build Equity
The market twists and turns with the volatility of a tornado and you can never be sure whether your property will increase or decrease in value over time""just like the stock market. But trends over time show that real estate has the ability to bounce back quickly and even grow as the going gets rough.
The BC Assessment Authority reported in 2008 that real estate values across British Columbia rose more than 16% in 2007. If you"re purchasing a home, in Vancouver, for example, you may find that in combination with low Vancouver mortgage interest rates, the real estate value increase over time, will provide you with an equitable investment that can pay off debt or even pay for things you really want, like a vacation to the Bahamas.
Think about the numbers. If your current property value in Vancouver is $300,000 and you have an average rate of appreciation equal to 5%, your home will be worth $315,000 after one year and nearly $383,000 after 5 years, giving you a tax-free benefit of approximately $82,000. This is dependent, of course, upon your upkeep of the property and current market conditions.
You Can Use Your Mortgage to Help Pay Off Other Debt
Your home is not simply an investment in your family and your future. It is also a safety net for when other bills, such as credit card debt, become a huge financial burden. You can use the equity in your home to help consolidate your other bills and make the cost manageable.
For example, if you have an existing $230,000 mortgage in Vancouver with Vancouver mortgage interest rates at 5.5%, $35,000 in credit card debt and a $15,000 car loan equate to nearly $2750 in payments each month. However, consolidating these debts through your mortgage can result in a monthly payment of less than $1450 per month.
Your Mortgage Has High Leveragability
If you purchase your home with a $60,000 down payment and it increases in value by $15,000 the first year, your return on investment is 25%, tax-free. But this is only possible with a mortgage. With Vancouver mortgage interest rates as low as 2%, and the probable necessity for moving in the near future or needing to tap into the equity and value of your home, can you afford not to have a mortgage? (For more information read "The Power of Leverage")
Do You Have to Have a Mortgage?
You don"t have to have a mortgage, but choosing not to have a mortgage, especially in the current economy, may be one of the biggest mistakes you"ll ever make. There are plenty of excuses for not using a mortgage to purchase your home""I don"t need one, it"s too much paperwork, etc., etc.
by: Jeff EvansAbout the Author:Jeff Evans is a licensed mortgage broker in Vancouver, British Columbia, Canada working with Centum Innovative Financial Inc. Jeff regularly works with clients with a wide variety of circumstances. You can find out more about Jeff and mortgages by visiting http://www.ownthathome.ca.