Whittle it down: The First Time Home Buyer’s Tax Credit & Tax Deductible Mortgages
As my 20-something year old friend Maddi eloquently put, the only thing more confusing for first time home buyers than mortgages are taxes. And yes, Canadian mortgage rates, with their first time home buyer’s tax credit & tax deductible mortgages and taxes certainly do have a bad rep for being complicated. Anyone who has started diving into the world of “how do I use a mortgage payment calculator?” or “what are first time home buyer tax credits & what is a tax deductible mortgage” can certainly understand. But it doesn’t need to be the so complicated, even when mortgages and taxes are being combined. Yes, combined.
Read on for Aleem from The Mortgage Specialist’s breakdown on two ways you can save money: Tax Deductible Mortgages & the First Time Home Buyers’ Tax Credit (HBTC).
What is it?
A tax deductible mortgage is a process of qualifying your mortgage payments as investments. It goes something like this: mortgage payment > re-borrowing > investing to earn income > tax deduction. Still confused? Imagine the following scenario:
Let’s say you want to invest your annual bonus – $15,000 – in mutual funds. Rather than investing the funds directly, you use the $15K to pay down your mortgage principle, than re-borrow the funds against your house to invest. In this case, because the $15K was effectively borrowed for the purpose of earning income, it qualifies as being tax deductible. But remember, in order to balance out all the details of your own specific situation, it is recommended to use a mortgage calculator to see how this payment would affect the principal. Or better yet, call us and we can help you with this calculation.
So is it right for me?
A tax deductible mortgage is definitely not for everyone since the level of risk involved is increased. However, if you are a first time home buyer in Canada who wants to know what kind of savings this kind of mortgage could bring, then you definitely shouldn’t hesitate to talk to your financial adviser and mortgage broker. They’ll be able to assess how much you could potentially save, and will also have a clearer idea of the specific risks associated with making your own mortgage tax deductible.
What is it?
Not to be confused with the First Time Home Buyers’ Plan, the HBTC is a government initiative that gives $750 (for 2015) to first time home buyers. Here’s how it works: the government decides on the lowest federal income tax rate for the year, and then multiplies that by $5,000 (5000*0.15=750).
So is it right for me?
The CRA does have a few conditions you need to meet in order to get the $750. Essentially, the property that you are looking at has to be your principal residence no later than 1 year after you buy and you can share the amount with a co-buyer but not claim double. There are a few other conditions which can be found on their website, but if you meet those two main requirements then you are most probably eligible to get the tax credit!
To Wrap Things Up
Neither taxes nor mortgages need to be scary if you know how to make them work for you. So what are you waiting for? Take advantage of some of the all time lowest mortgage rates in Canada and talk to Aleem about getting your dream home now. He’ll dig through all the numbers and percentages for you to help you whittle it down so that you can be mortgage free faster.