If you are a self-employed client who owns your own business, you may have chosen to set that business up as a corporation. This means the business operates as essentially its own person. They have income through business revenue and expenses from marketing costs, materials, office space, etc.

When it comes to getting a mortgage, there are a few benefits to putting that mortgage under the corporation instead of your individual self:

1. Corporations tend to pay a lower tax rate than the personal income tax rate and only pay taxes on the net business income.
2. When it comes to qualifying for a mortgage, a lender can look at the business income or the personal income they pay themselves.
3. Adding the net business income or the personal income from year 1 and year 2 and dividing it by two is the income a lender will associate with that borrower. Keep in mind though this will also be affected if there is more than one shareholder.

There are two ways one can go about this type of corporate mortgage, depending on if the corporation is the operating company or acts as the holding company.

Mortgages and Operating Companies

As with any mortgage, there are considerations and more-so when looking to put your mortgage under your corporate umbrella. While you would essentially qualify as though you’re buying a property in your name, your application will be packaged much differently to the lender. You would be instead qualifying as a corporation with a personal guarantee from yourself.

It is also possible to do a mortgage deal under your personal name but utilize both personal and corporate income. Lenders can do this by looking at both personal T1 generals and respective NOA, plus you can qualify by looking at the Net Business Income before taxes as seen on company financials.

When it comes to getting a mortgage under an operating company (versus a holding company), you may encounter limitations with the lenders that provide this type of deal. You would be looking at an Alt A (B Lender) to finance this particular mortgage, which may come with higher interest rates.

Mortgages and Holding Companies

When it comes to getting a mortgage under a holding company, you will find things are a bit easier. Having a mortgage under a holding company, versus the operating company, essentially removes any limitations or liability from the operating company with regards to the mortgage.

However, to be eligible, you must meet the definition of a Personal Holding Company (PHC) or Personal Investment Company (PIC) per the bank. This is typically considered “a Canadian incorporated entity established by an individual or individuals for the purpose of conducting investment activities, which can include holding real estate, and/or investments. Personal Holding or Investment Companies, and the owner of the PHC or PIC must qualify personally, and sign as covenantor”.

Some additional reasons to consider a mortgage under a corporation or holding company include:

1. If your intent is to flip properties rather than hold them as rental revenue, it might make sense to consider holding it through a corporation
2. You have retained corporate profit that can be used to buy a property without withdrawing money personally and incurring personal tax.

The most important thing to note when going this route for a mortgage is that ALL DIRECTORS listed on the corporation MUST also be listed on the mortgage application. For a sole proprietorship, this is easy as there is typically only one director, however on larger corporations this is something to consider.

For some individuals, the benefits might not be enough to convince them to put their property under the corporation but for others, it may be the perfect solution.

To find out how your income would be viewed by a lender if you have your business set-up as a corporation, contact me today.

If you are looking to buy a home or want a current value of your property, you will need an appraisal.

Before banks or lending institutions can consider loaning money for a property, they need to know the current market value of that property. The job of an appraiser is to check the general condition of your home and determine a comparable market value based on other homes in your area.

While you may think “it is what it is”, we actually have a few tips that can help improve your home’s appraisal to ensure you are getting top market value!

1. Clean Up: The appraiser is basing the value of your property on how good it looks. A good rule of thumb is to treat the appraisal like an open house! Clean and declutter every room, vacuum, and scrub to ensure your home is as presentable and appealing as possible.
2. Curb Appeal: First impressions can have a huge impact when it comes to an appraisal. Spending some time ensuring the outside of your property from your driveway entrance to front step is clean and welcoming can make a world of difference.
3. Visibility: The appraiser must be able to see every room of the home, no exceptions. Refusal to allow an appraiser to see any room can cause issues and potentially kill your deal. If there are any issues with any spaces of your home, be sure to take care of them in advance to allow the appraiser full access.
4. Upgrades and Features: Ensuring the appraiser is aware of any upgrades and features can go a long way. Make a list and include everything from plumbing and electrical to new floors, new appliances, etc. This way they have a reference as to what has been updated and how recent or professional that work was done.
5. Be Prudent About Upgrades: While the bathroom and kitchen are popular areas, they are not necessarily the be-all-end-all for getting a higher home value. These renovations can be quite costly so it is a good idea to be prudent about how you spend your money and instead, focus on easy changes such as new paint, new light fixtures or plumbing and updated flooring to avoid breaking the bank while still having your home look fresh.
6. Know Your Neighbourhood: You already know where you live better than the appraiser. Taking a look at similar homes in your neighbourhood and noting what they sold for will give you a ballpark. If your appraisal comes in low, you will be prepared to discuss with the appraiser the examples from your area and why you believe you property is worth more.
7. Be Polite: The appraiser is there to get in and get out. Avoid asking them too many questions or making too many comments and simply be prepared should they have questions. Once they have completed the review of your home, that is a good time to bring up any comments you might have.

Don’t forget to contact me if you have any questions about your existing home or mortgage, or if you are looking to sell and relocate in the future!

When it comes to mortgages, insurance is necessary to protect the lender on these types of loans, which deal in large sums of money. There are three different tiers relating to insurance, which all have different minimum down payment amounts and varying premium insurance fees.

1. Insured mortgages typically have a less than 20% down payment and are insured with mortgage default insurance through one of Canada’s mortgage insurers: CMHC, Sagen or Canada Guaranty. In these cases, the premium is based on a percentage of the loan amount, which is added to the mortgage and paid monthly.
2. Insurable mortgages typically have a 20% or higher down payment and do not require mortgage insurance, though they can qualify for it. In these cases, the homeowner wouldn’t have to pay an insurance premium, but the lender can if they choose to.
3. Uninsurable mortgages do not meet mortgage insurer requirements; some examples of these types of mortgages can include: refinances, mortgages with an amortization longer than 25-years or mortgage files where the real estate is more than $1M in value and/or purchase price. No insurance premium required.

While insured and insurable mortgages are more common and typically more cost-effective when it comes to lending money, therefore clients who opt for these mortgages often get better rates.

When it comes to an uninsurable mortgage, this means that the lender is providing their own funds to the client without the protection of insurance, and have to commit to the loan for the entire term. Due to this, uninsurable mortgages tend to have higher interest rates as they are a higher risk loan.

Typically, uninsurable mortgages require a minimum of 20% down on the loan and are available for up to 30-year amortization. It is also important to note that an uninsurable mortgage will often require a higher Gross Debt Service (GDS) and Total Debt Service (TDS) ratio to indicate that you can carry the loan without high risk.

While some lenders may offer more flexibility when it comes to an uninsurable mortgage, if you are looking to refinance or change to a longer amortization period, it is best to discuss with an expert before making any changes to your mortgage.

As you near retirement age, the years of diligently contributing to RRSPs are about to pay off. Understanding Registered Retirement Income Funds (RRIFs) becomes crucial, especially if you have registered retirement savings or pension plans.

What exactly is a RRIF?

Unlike a Registered Retirement Savings Plan (RRSP), which serves as a retirement savings account where you contribute money, a RRIF allows you to take out a certain amount each year once you reach a certain age.

Now, let’s explore how a RRIF works.

When you turn 71, the money you’ve saved and invested in your RRSP accounts must be moved into a RRIF, an annuity, or withdrawn as a lump sum. If your spouse is younger, you can delay this until their 71st birthday.

What’s the advantage to convert to a RRIF?

A RRIF acts as a tax-deferred retirement income fund, which means any interest or earnings generated within the account won’t be taxed until you withdraw them. However, when you take money out of your RRIF, it becomes taxable income. Each year, you must withdraw a minimum amount from the RRIF.

If you need funds before reaching 71, you can convert your RRSP into a RRIF and start withdrawing money immediately. However, there are some important tax considerations to be aware of:

1. Taxes on Withdrawals: The amounts you withdraw will be taxed, but the tax will be based on the minimum required withdrawal and any additional amount you take out.
2. Minimum Withdrawal: Once your RRSP is converted into a RRIF, you must withdraw a minimum amount each year, determined by the government and based on age. For instance, at 64 years old, you must withdraw 4% of your total investments; at 71, it increases to 5.28%, and at 85, it goes up to 8.51%.
3. Withholding Tax: A withholding tax will apply if you withdraw more than the minimum required amount. The withholding tax rates are 10% for amounts up to $5,000, 20% for between $5,000 and $15,000, and 30% for payments over $15,000.

What if I don’t have enough in my RRIF to generate sufficient retirement income or if I outlive my RRIF?: The Reverse Mortgage Option

A Reverse Mortgage allows you to access tax-free cash from the equity you’ve accumulated in your home. Using this money as retirement income allows you to preserve your investments for an extended period while enjoying an improved cash flow. Additionally, there are no monthly mortgage payments with a Reverse Mortgage, helping you increase your monthly cash flow even more.

Contact me today to discover how a Reverse Mortgage can help you enhance your retirement income.