Fixed Vs. Variable – The Tide Has TurnedJanuary 20, 2016
It just got easier to buy a homeFebruary 16, 2016
Buying your first home is not as simple as it used to be. First time home buyers need more guidance and direction what with the increase in home prices and the changes in CMHC rules.
That’s why I developed Compass™. Using the tools built into the Compass™ system, First Time Buyers get a clear sense of direction on how to achieve their home ownership goals.
Below is an example of what Compass™ can do for first time home buyers.
Scenario: John and Sharon Cook, (names changed for confidentiality reasons) are a young couple in their early 30s who want to buy their 1st home.
Issues: 1. Not enough down payment for desired goals 2. Some existing credit card debt and student loans. Their bank has told them that with their current financial situation, they only qualify for a purchase price of $200,000.
In step 2 of Compass™ I provide the client with a financial analysis.
While analyzing the Cook’s situation I found out the following: 1. John and Sharon have $10,000 in cash savings. 2. Both have $30,000 in unused RRSP contribution room. 3. They have about $10,000 on a credit card with a minimum payment of $300/mth and $17,000 in student loans with a payment of $150/mth. They are planning on using their savings to pay down their credit card debt. Given their current savings rate they are hoping to be ready in spring 2015.
The Solution: 1. Instead of paying down the credit card debt, I had Sharon take the savings and make an RRSP contribution for $10,000. In addition to this she also takes an RRSP loan for $9,000. 2. I had John take out an RRSP loan for $19,000.
Given the Cook’s marginal tax rates they should receive a tax refund of just over $12,000* which will be used to pay off the credit card and part of the RRSP loan. They can now combine the cash flow from their planned savings to the RRSP loan, along with the $300/mth increased cash flow from the credit card being paid off. After 90 days they can redeem the RRSPs, and use the full amount for a down payment. Given the Cook’s income, they can serivce the loan and the mortgage that supports their target home price.
The Result: By using Compass™ the Cooks are primed and ready to purchase for $540,000. Not only have they increased their purchase price from $200,000, they are able to purchase 9 months sooner!
Clearer Focus, Shortened Time to Purchase, Higher Purchasing Price – That’s what Compass™ can do.
*Tax refund used in this example is estimated and will vary based on the individual circumstances. Clients are advised to speak to a tax advisor prior to making an RRSP contribution.