Newsletter January 2022

The year 2022 has started, the year of hope, and I would like to believe that, finally, things will be good.

• Prime Rate remains unchanged, how to be prepared for possible increase in the future?
• There are discussions about additional taxes on properties with value of over $1 million.
• How to get 9.0% or higher return on your investments with reliability?
• Manulife Bank is offering $1,000 cash back on application for line of credit submitted prior to April 15th.
• RRSP – effective way to reduce taxes, what is more beneficial for you – RRSP or TFSA?

Now in more details on these topics:

1. Prime Rate remains unchanged, how to be prepared for possible increase in the future?

At its meeting on January 26th of 2022, Central Bank of Canada maintained current overnight lending rate at the same level, as result, there were no changes.
Many understand that the Prime Rate is likely to increase which means mortgage payments with variable rates will also increase.
How can we prepare for such scenario? This question is very actual right now.
We have discussed this topic in our article published in the Russian newspapers in recent days, you can find the article at the link https://www.totrov.com/en/resources-en/articles/art-2021-11-1/.

The article analyses the following positions:

• is it needed to switch to a fixed rate?
• calculations provided on how many times the bank rate have to increase in order for us to lose if we continue to hold a variable rate mortgage.
• how to protect yourself from increasing rate if your variable rate is over 1.7%.
• what variable rate is available on the market and is interesting because the payment amount is fixed for the whole 5 years (changes in mortgage rate are reflected through change in amortization period).
• our offers with variable rates with 0.99% interest on 3 and 5 years for those buying with low down payment and property value of under 1 million.

Many experts believe that the interest will start increasing in March 2022 and there may be several such increases this year.
Please read the article provided in the link above, to be prepared for the increasing Prime Rate.

2. There are discussions about additional taxes on properties with value of over $1 million.

On January 14th, “National Post” published the following article “Canada can’t just tax its way out of housing conundrum”. The article informs that recently there have been discussion on introducing additional tax (Surtax) on properties with value of over 1 million – 0.5% on value over 1 million and 1% on value over 2 million. These taxes are only applied to value above 1 million, but are calculated annually and have to be paid back upon sale of the property.
A provided example discusses a sale of a property with an average value of $1,720,000 over 10 years in possession, which will result in additional taxes of $36,000 ($720,000 x 0.5% x 10 years). Of course, many are against this solution to real estate market. There needs to be more construction in quantity that would satisfy the property market demand.
I also agree with the author of the article, that such solutions will bring additional problems and will be unfair to property owners in Ontario and Vancouver. I hope this does not happen.

3. How to get 9.0% or higher return on your investments with reliability?

Lately I have been asking people who have property and equity in their property in the 1-million-dollar range or even higher – do you feel like a millionaire?
I think the answer is pretty obvious: NO.
To answer why, one woman gave a very good answer: I DON’T BENEFIT FROM THE FACT THAT THE HOUSE VALUE IS OVER A MILLION AND THERE IS NO MORTGAGE.
And this is really true. There is equity, but it is not working.
Often, property owners have credit lines with house as collateral, the available balance on these lines of credit can bring a reliable return of 9%.
This does not have to be a home equity line of credit, your savings, sitting in savings accounts and not earing anything, can also provide such high return.
We are talking about providing private mortgages.
All private mortgages get processed through lawyers; the property to be used as collateral is registered with a lien; the owner will be unable to sell or refinance the property without repaying borrowed amount.
When done through our office, if, for whatever reason, the borrower is unable to pay or is not paying, we will be paying the monthly interest, and then we deal with the borrower, at the very least you will be receiving the monthly payment on time.
For example, due to COVID, some people have requested to delay the payments, as the businesses were not working.
We have offered them to do so but for the lenders we continued to make monthly payments from our office.
The invested funds are secured by the property, so there is always something that guarantees the return, but we take the responsibility to ensure timely repayments, all the way until the investor receives back their money.
Why do people borrow money with such high interest?
Some times in life there are situations when someone needs finances for a short period of time. For example, person wants to buy another property and sell the current one. The person may want to take the money out of the current property, move into a new property, fix up current property, sell it and return the money. Currently, the property is so expensive that it is very difficult to obtain mortgage on two or more properties if both have a loan.
If a person has a property and equity in the property, they can solve this problem by borrowing against their property and is willing to pay higher interest on the loan for a short term.
Using available line of credit collateralized by property, you can help somebody solve their problem and make some money along the way, which in turn can help you pay off your mortgage, if you still have it or simply increase your net worth.
Interest on the line of credit is approximately 3%, interest on private loan is 9% or even higher, difference of 6% on large amount can be a significant support to a family.
All expenses on processing such loan are paid by the borrower of the loan.
We are always responsible for what we do and we always have options for investments, even now, at the beginning of February. We are waiting for your calls.

4. Manulife Bank is offering $1,000 cash back on application for line of credit submitted prior to April 15th.

Line of credit with property as collateral is offered by many banks, but with Manulife Bank it is significantly different from other lines of credit, offered by other institutions and for better.
Line of credit with this bank allows you to daily payoff your loan by combining debit account and credit line into one, which allows to lower your loan daily without making any changes in your life, which in turn allows for faster repayment of the main loan – mortgage.
In order to promote this unique line of credit Manulife Bank offers $1,000 cash back to those that submit an application to open such credit before April 15th.
Please read how the line of credit works on our website: www.totrov.com/en/mortgage-en/flexible-mortgage-account/ and Manulife Bank website:www.manulifebank.ca/personal-banking/mortgages/manulife-one.html and on Youtube manulife one banking – Bing video

5. RRSP – effective way to reduce taxes. What is more beneficial for you – RRSP or TFSA?

Without knowing the specifics it is difficult to say what fits you best – RRSP or TFSA, but with both programs we can offer either an interesting investment fund, or RRSP and TFSA savings accounts with attractive rates.
Investment market has declined significantly at the beginning of the year, which is beneficial for new investments.
But in general, after the volatility of the first part of the year, it will go up and over the longer term, statistically will earn return much higher than the interest on the savings accounts. This is similar to the volatility in the real estate market. If the property is not sold the year the prices decreased, in a few years the value will increase and there will be profit anyway.

We are waiting for your call and to see you in person.
Our office is open from 9 a.m. to 9 p.m. and on Saturdays by appointments.

Сергей Тотров
Financial Advisor, CFP, CLU, EPC
Mortgage Broker, AMP
TOP – 75 Mortgage Broker in Canada
in 2015, 2016, 2017, 2018, 2019, 2020
416-222-0533
www.totrov.com

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