13 May

Five steps to scoring a mortgage

General

Posted by: Mike Hattim

Investopedia.com

1. Repair Your Credit and Increase Your Score

To lenders, your credit score represents the likelihood that you will make your mortgage payments in full and on time every month. Therefore, with most loans, the lower your credit score, the higher your interest rate will be to compensate for the increased risk of lending you money. If your credit score is below 620, you will be considered subprime and will have difficulty getting a loan at all, let alone one with favourable terms. On the other hand, if you have a credit score above 800, you’ll easily be able to get the best interest rate available (also known as the par rate). (Find out how your borrowing activities affect your credit rating in The Importance Of Your Credit Rating.)

Measures you can take to improve your credit score relatively quickly include paying down revolving consumer debts, such as credit cards or auto loans, using your debit card instead of your credit cards for future purchases, paying your bills on time every month and correcting any errors on your credit report. However, some flaws, like seriously late payments, collections, charge-offs, bankruptcy and foreclosure, will only be healed with time. (Read How To Dispute Errors On Your Credit Report to find out how to address reporting mistakes.)

In addition to managing your existing credit responsibly, don’t open any new credit accounts. Applying for new credit temporarily lowers your credit score, and having too much available credit is also considered a warning sign. Lenders may be afraid that if you have a lot of available credit, you’ll take advantage of it one day and adversely affect your ability to make your mortgage payments. (For more tips and techniques to help you rebuild your ruined credit rating, read Five Keys To Unlocking A Better Credit Score.)

2. Get a Higher-Paying Job

If lenders say your income isn’t high enough, ask them how much more you need to earn to qualify for the loan amount you want. Then try to find a new job in your existing line of work where you’ll be able to earn that much money.

Because lenders like to see a steady employment history, you’ll have to stay in the same line of work for this strategy to be successful. This can be disappointing news for borrowers, as switching professions entirely might offer the best chances for a salary increase. However, switching companies can also be a good way to get a significant boost in income. Significant raises from existing employers aren’t that common, but a new employer knows he’ll have to offer something special to get you to make the switch. (Read Negotiating For Employment Perks for tips on reaching an agreement with your boss.)

If switching companies right now won’t be enough to get the raise you need, think about things you can do relatively quickly to make yourself more valuable to employers. Is there a continuing education program that you could complete? If you’re a legal secretary, could you become a paralegal? If you’re a receptionist, could you become a secretary? A career counselor or headhunter might be able to give you some guidance specific to your situation about how to improve your marketability and how to reach your income goals. (Read Six Steps To Successfully Switching Financial Careers to learn how to make adjustments without starting over.)

Unfortunately, getting a part-time job on top of your full-time job may not provide what lenders consider qualifying income. The part-time job may be viewed as temporary, and since it will probably take you at least 15 years to pay off your mortgage, lenders are looking for you to have long-term income stability. (Increase Your Disposable Income gives you ideas on how to make more money now, which can make a big difference down the line.)

3. Save Like Crazy

The larger your down payment, the smaller the loan you’ll need. In addition, the lower your loan-to-value ratio (LTV ratio), the less risky lenders will consider you. Both of these factors will make you more likely to qualify for a loan. Be aware that you may have to reach a certain down payment threshold, like 10 per cent or 20 per cent (with 20 per cent being the most conventional), before a larger down payment will help you qualify for a loan. (Learn more in Mortgages: How Much Can You Afford?)

4. Don’t Pay More Than the Bank’s Appraised Value

The bank will not want to lend more than the house is worth because they could be on the losing end of the deal, should you foreclose and owe more than the bank could get for it. A 20 per cent down payment also becomes much less valuable if the house is worth 20 per cent less than the purchase price. Collateral value is important to lenders, so it should be kept in mind when making an offer to purchase a property. (Read 10 Tips For Getting A Fair Price On A Home and learn how to make sure your house is worth the price you pay.)

5. Reduce Your Debt

To a lender, what constitutes excessive debt is not a set number – it’s a total monthly debt payment that is too high for you to be able to afford the monthly mortgage payment you’re asking for. When deciding how much loan you qualify for, lenders will look at what’s called the front-end ratio, or the percentage of your gross monthly income that will be taken up by your house payment (principal, interest, property tax and homeowners insurance), and the back-end ratio, or the percentage of your gross monthly income that will be taken up by the house payment plus your other monthly obligations, such as student loans, credit cards and car payments.

The more debt you’re required to pay off each month, whether it’s “good debt” like a student loan or “bad debt” like a high-interest credit card, the lower the monthly housing payment lenders will decide you can afford, and the lower the purchase price you’ll be able to afford. Decreasing your debt is one of the fastest and most effective ways to increase the size of loan you’re eligible for. (Learn what to watch for before you find yourself drowning in debt in Five Signs That You’re Living Beyond Your Means.)

Playing to Win

Qualifying for a mortgage isn’t always easy. Lenders require all applicants to meet certain financial tests and guidelines and allow a limited amount of flexibility within those rules. If you want to score a mortgage, you’ll have to learn how to play the game, and you’re likely to win if you take the steps outlined here.

12 May

Canadian housing market resilient; U.S. not so lucky

General

Posted by: Mike Hattim

Garry Marr, Financial Post 

Another day of data brought further proof of the resiliency of the Canadian housing market and the current frailty of its U.S. counterpart.

The latest bad news for American housing was a report from real estate company Zillow showing the market might have a ways to go before it bottoms out.

Zillow said existing home prices in the United States fell 3% in the first quarter of 2011 -a pace not seen since 2008, which was the worst point of the housing recession. U.S. prices have dropped 29.5% from their peak in June 2006, the company said.

Negative equity is now a reality for 28.4% of U.S. homeowners, whose mortgages are under water. Foreclosures also began to rise again in the first quarter after falling in late 2010.

In Canada, things got a little better, according to the Canadian Real Estate Association, which was forced to adjust its forecast upward after the sale of some multi-million-dollar homes in the Vancouver area started pushing prices up.

“Multi-million property sales in greater Vancouver have surged unexpectedly,” said the Ottawa-based group, which represents about 100 boards across the country.

The organization said the revelation forced it to improve its forecast for 2011, which now calls for home prices to rise 4% to $352,500. By 2012, the increase will slow to 0.9% or $355,800.

The activity also convinced CREA to update its previous forecast for sales. It now expects 441,100 sales in 2011, a 1.3% decline from a year earlier. It previously had been expecting a 1.6% decline in sales.

“The extent to which highprice sales activity in Vancouver will pitch up the average price locally, for British Columbia and nationally will likely diminish in the next couple of months,” said Gregory Klump, chief economist with CREA.

Still, the overall forecast for Canada remains strong, with no provinces expected to experience a decline in price in 2011. It would continue an incredible run for housing, which has seen prices increase every year since 1998, with the lone exception being 2008, when prices dipped less than 1% nationally.

Sal Guatieri, senior economist with Bank of Montreal, said there is a “world of difference” between the Canadian and U.S. housing markets.

“All things come to an end. At some point, the U.S. market has to bottom. Prices cannot fall forever,” Mr. Guatieri said. “Canadian house prices also cannot continue to rise, at least in some regions, faster than incomes forever.”

For now, strong job growth and low unemployment rates continue to help the Canadian market, he says. But we also benefit from a market not as overburdened by supply.

Canada Mortgage and Housing Corp. released statistics that show construction in Canada continues to slow. It said 179,000 homes were constructed on a seasonally adjusted annualized basis in April.

“That’s more in line with our demographic needs. There is little evidence of overbuilding in Canada’s housing market,” Mr. Guatieri said.

Business author Garth Turner said the intent of the housing industry is to foster an idea that the market is immune to any sort of collapse by using Vancouver sales to boost national statistics. “This mythology of an immune Canadian marketplace is just that: a myth,” he said.

11 May

No new mortgage rule changes: Flaherty

General

Posted by: Mike Hattim

There has already been “some softening” in the Canadian real estate market so there is no need for further tightening of mortgage rules, said Jim Flaherty, the finance minister.

Unlike the United States and Europe, the Canadian housing market has continued to rise after the financial crisis, leading some observers to caution we could be headed for a bubble.

Mr. Flaherty said he’s already intervened to toughen mortgage rules three times in the last few years and there’s no need for further action as conditions in the market are finally moving in the right direction.


In his first major public appearance since the election, at Bloomberg’s Canada Economic Summit in Toronto, Mr. Flaherty also said this country continues to weather the ongoing upheaval in the global economy. He said his number one priority is to deal with the budget — likely in June — in order to continue to implement his government’s economic action plan.

The past few months have seen the emergence of a string of new problems affecting the global economy, ranging from conflicts in the Middle East and North Africa and the rising issues around U.S. government debt.

Mr. Flaherty said the best way to protect Canada is for the government to move as quickly as possible to a balanced budget and to continue to take measures to strengthen the economy, such as maintaining low taxes for businesses and individuals.

Canada already has one of the lowest corporate tax rates of any major developed economy and the Conservatives have vowed to bring it lower still.

In the depths of the crisis Canada’s banks remained strong partly because of steps taken by the government aimed at boosting liquidity such as buying more than $70-billion of home loans from lenders. Ottawa also increased the limit on the volume of mortgages banks could sell into the Canada mortgage bond program.

Critics say that one unintended result was that banks were encouraged to make more home loans, which helped push up prices in the market.

But Mr. Flaherty said he does not believe there were unintended consequences from the government’s emergency support for the banks.

As a result of recent fluctuations in global currency markets the Canadian dollar is now trading at close to its highest level since 2008, creating challenges for many companies, especially manufacturers.

But Mr. Flaherty said the private sector is coping. One of the dangers of intervening, he suggested, is a fluctuating currency, which would be even more problematic.

“What we want to avoid is sudden, jerky movements in the Canadian dollar,” he said.

Mr. Flaherty said his government will present a slightly revamped budget in June. It will be changed to reflect an economic update and may include some items from the election platform, but will be largely the same budget he presented in March, Mr. Flaherty said.

11 May

Why gas prices keep rising even when crude falls

General

Posted by: Mike Hattim

Gasoline prices at the pump in Canada have climbed pretty much all winter, while in the United States they have risen for a remarkable 35 days straight, even as oil prices have see-sawed in recent weeks. Thedisconnect has enraged consumers, as they fork over nearly $4 (U.S.) a gallon or about $1.34 (Canadian) a litre to fill up their vehicles. Blame it on the crack spread, industry experts say.

“People automatically point to crude oil as the reason why the pump price has changed or should change,” said Michael Ervin, a petroleum industry consultant at Kent Marketing Services Ltd. But it’s not always the most important factor. “The increases we’re seeing now are entirely attributable to crack spreads,” he said.

What are crack spreads? The crack spread refers to the difference between the price of crude oil that refiners pay, versus the price of petroleum products such as gasoline that refiners produce and sell.

Why are crack spreads high now? It’s partly a seasonal issue. Demand for gasoline typically surges in the spring and summer, as drivers take to the roads more. The increased demand allows refineries to charge more for gasoline, even as oil prices remain relatively stable.

Which companies are benefiting? The big winners are the refining companies – those like Valero Energy Corp. that transform crude into useable products such as gasoline, diesel and jet fuel. Valero said that it expects a “strong second quarter,” as the company restarts some refineries and captures “outstanding margins” from the gap between sour crude prices and refined products. Canadian companies such as Suncor Energy Inc., and Imperial Oil, with refining arms complementing their oil production businesses, will also receive a boost. Profit tied to strictly to oil production, however, will be unaffected by what consumers pay to fill up their tanks because pump prices are not directly linked to oil prices.

Are there not ample supplies of gasoline? In the United States, draws on gasoline inventories were the highest in 13 years in early April and an unplanned outage at a refinery belonging to Sunoco Inc. in Philadelphia also dented gasoline supplies, according to a note published by UBS Securities. Four per cent of U.S. refining capacity was shut down in Texas City, Tex., including the country’s third-largest refinery. Operations belonging to BP PLC, Valero, and Marathon Oil Corp. have all been hit by power outages and some by subsequent fires, owing to rough weather. Wholesale gasoline prices in the Gulf Coast refined-products market then opened 5 cents (U.S) a gallon (3.78 litres) higher.

 

Can’t refiners just increase gasoline production?  Yes, but that takes time and many have recently switched to the flourishing market for diesel fuel as an alternative. Refineries are selling a great deal of diesel, and new refineries are being tailored to produce the product as consumers shift to the greener fuel. Further, growing Third World economies are powered by diesel, and with demand for that fuel outstripping gasoline, the latter can be in short supply, said Ian MacGregor, chairman of North West Upgrading Inc., a company with plans to build a merchant upgrader that would turn bitumen from the oil sands into diesel fuel. “That’s a new restriction on gasoline supply,” he said.

What are politicians doing about high oil and gasoline prices?

U.S. President Barack Obama, facing discontent south of the border, wants to yank $4-billion in subsidies for energy companies, which are set to roll out rich first-quarter profits. In a letter to congressional leaders Tuesday, Mr. Obama said: “While there is no silver bullet to address rising gas prices in the short term, there are steps we can take to ensure the American people don’t fall victim to skyrocketing gas prices over the long term. One of those steps is to eliminate unwarranted tax breaks to the oil and gas industry and invest that revenue into clean energy to reduce our dependence on foreign oil.” 

10 May

Canada’s economy creating more full-time, and better paying jobs

General

Posted by: Mike Hattim

The Canadian economy is not only creating more jobs, it’s creating better jobs according to one of the country’s major banks.

CIBC’s latest employment quality index shows that 60 per cent of new jobs created over the past year would qualify as high-paying, quality jobs.

The bank says there’s been an increase in full-time and paid employment, as opposed to self-employment, over the past 12 months — helping push the employment quality index up 2.7 per cent.

The sharp improvement has come about because many of the 283,000 jobs created in the past year have been in relatively high-paying sectors, including manufacturing, finance, construction and the public service.

Previously, the new jobs created since the end of the recession in the summer of 2009 have tended to be part-time and in lower-paying service industries.

“This (quality) measure is roughly back to the pre-recession levels,” said economist Benjamin Tal. “This is a much better performance than a similar measure in the U.S., where the quality of employment index continues to soften despite some improvement in the pace of job creation.”

Canada’s employment record since the end of the recession has been among the strongest in the industrialized world with over 500,000 new jobs added since July 2009. That’s about 80,000 more than was lost during the 2008-2009 recession.

By contrast, the United States remains about six million jobs shy of its pre-crisis levels.

But despite the full rebound in the jobs market, the complaint had been that many of those new jobs were not of the same quality as the jobs that vanished. Some economists derided them as service industry McJobs, or part-time, or “forced self-employment” by those who create their own form of employment — usually lower paying — because they can’t find regular work.

Over the past 12 months, that trend has started to reverse. Almost all the new jobs have been in paid employment, not self-employment.

As well, growth in full-time jobs has outnumbered part-time by more than two-to-one, and well-paying jobs in manufacturing, construction, the financial sector and government have outnumbered low-paying jobs three-to-one.

The question is whether the new and better composition of job creation will continue. There is some evidence it might not, says Tal, noting of the 58,000 new jobs added last month, two-thirds were part-time.

“It’s clear that governments will not be hiring in the future and the housing market will not be as strong,” undercutting two of the sectors that have been producing high quality jobs, Tal explained.

However, the export sector, which tends to generate higher-paying jobs, is expected to be a leading engine of growth going forward and may be sufficiently robust to take up the slack.

The improvement in the quality of jobs has been good for the economy, the report states, since higher pay puts more money in the pockets of homeowners to spend on consumer goods.

“The impact of job creation on income growth and thus spending is currently more notable than it was in early 2010,” Tal said, which will put pressure on the Bank of Canada to hike interest rates in the second half of the year.

Canada’s economy also got a thumbs up Monday from the Organization for Economic Co-operation and Development, which forecast Canada would continue to be at the forefront of the global economic recovery.

In its May report on composite leading indicators, the OECD put Canada alongside China as countries with a “regained momentum in economic activity.”

Economies in the U.S., Germany and Russia are improving. Overall, the international think-tank says most European countries will experience a slower or stable expansion. Some, like Italy, Brazil and India are pointing to slower growth relative to their trends. 

9 May

Second home not all about dollars and sense

General

Posted by: Mike Hattim

Earlier this year, we bought a second home in Naples, Florida. This wasn’t a quick decision for my husband and me. We love spending time in that area of Florida and property prices there are at their lowest level since 2002, but I really struggled with whether a second home made financial sense. But, ultimately, home buying can’t just be about the money. Buying a home is also an emotional decision.

I know we are not alone. Many boomers are actively considering buying a second home in the U.S. sunshine belt. A stabilizing global economy, coupled with lower U.S. real estate prices and a strong Canadian dollar are just some of the obvious reasons that it could be a good time to buy.

But, Canadians do need to tread carefully: U.S. property prices are still on a slow downtrend and we just can’t know how close they are to a bottom. As a prospective homeowner, you also need to factor in the cost of maintenance as well as annual property taxes. Plus, in some states like Florida, hurricane insurance is both very important and very costly. Just this past month, regulators approved an average rate hike of 18.8 % for Florida homeowners covered by State Farm!

So why did we do it? As empty-nesters, it really was a lifestyle decision for us. We had already downsized from our family home to a condo in Toronto after our children moved out. It was our plan that many years from now, when we retired, we would look at purchasing a winter home. But, given the current real estate prices and the strong dollar, my husband was keen to buy now. I was not. Actually, I was initially totally against it. I crunched the numbers and from a purely financial standpoint, it made more sense to rent. But, my husband made a compelling argument: buying this home was less about investing in real estate than it was about creating a place for our now-dispersed family to gather for many years to come. I couldn’t argue with that logic.

You can put a price tag on a home, but you can’t put a dollar figure on its emotional value.

But — and this is key– you need to ensure you can truly afford it. If a second home is going to sink you deep in debt, don’t do it. Buying a second home should really only be a consideration when your mortgage on your first home is paid. And, even then, consider a modest investment that will not have a significant impact on your retirement funds.

The home we bought is a nice place that will give us the room to entertain friends and spend time with our kids. But, we chose a view of the golf course over a beach front property to reduce costs. Plus, we also managed to buy the model home, which we’ve leased back to the builder for the next few years. If you can find this type of opportunity, I highly recommend it. It effectively allows you to take advantage of the strong dollar now and enjoy the property later.

If you are thinking seriously about buying a place in the U.S., it is also important to consider your mortgage options. In an ideal situation, you would pay for the entire place in cash. Not only does that ensure you avoid negatively impacting your retirement, but qualifying for a mortgage from a U.S. financial institution may be tricky.

There are also tax implications. Before we bought, we spoke with a tax advisor who specializes in cross border investments to understand the taxes. You might also want to ensure you understand the new U.S. estate tax rules and exemption limits which can impact estate taxes for high net worth Canadians.

So, should you consider buying a second home in the U.S.? My vote is a very qualified yes. This definitely should not be a spur of the moment decision, but if you can afford it, there are certainly lifestyle benefits. Although I was initially against it, I now can’t wait to share a home down south with my family.

6 May

Why I paid $10,000 to break my mortgage – By Bryan Borzykowski

General

Posted by: Mike Hattim

Last September, my wife and I started scouring the city for a new house. We were living in a cozy bungalow, but with a growing kid and another on the way, we decided it was time to move.

Buying a new house is, of course, expensive, so I wanted to do whatever it took to reduce my costs. Most of the fees couldn’t be avoided, but there was one costly payment I desperately wanted to steer clear from: The mortgage penalty charge.

I had just over 12 months left on my five-year mortgage term, which meant that I either had to break my mortgage or stay with my current lender by transferring my mortgage to my new house. The latter option would have allowed me to avoid the fee. However, my lender couldn’t give me the best interest rate.

The new lender, a bank, was offering a variable rate of 2.25 per cent, a much lower rate than my old lender was willing to offer. I calculated that over the term I’d be better off paying the fee and taking the lower rate.

It was going to cost me $10,000 to break my contract. It felt like an unnecessary cost — I paid my lender so much in interest over the four years, why would I have to cough up so much cash?

I asked my broker to see if the lender would wave the fee, even though I was using a new lender for my next house, but they didn’t. Peter Veselinovich, vice-president of banking and mortgage operations at Investors Group, isn’t surprised. “The charge isn’t negotiable,” he says.

While the penalty may seem like an arbitrary sum, it’s not a cash-grab, he says.

The lender takes mortgage funds from money invested in GICs and other products and then it pays investors interest on those investments.

The idea is to match a five-year mortgage with a five-year GIC, so investors can get paid back at the same time as the mortgage comes due.

If a mortgage is broken, the lender needs to come up with money to fill the gap between the investment coming due and the mortgage ending. Hence the fee. The lender then takes that lump sum and invests it, so it can pay investors back when its GIC comes due.

The penalty is calculated two ways: you either pay 90 days of interest or what’s called an interest-rate differential, which is a penalty based on your old rate and a new rate based on a shorter term.

For example, let’s say you wanted to exit your 5 per cent five-year term with three years left to go. The lender would look at the current three-year term rate, which, say, is 3 perr cent, and then charge you interest on the difference, 2 per cent, for 36 months. The sum also depends on how much money you still owe the bank.

However it’s calculated, the payment can be huge.

Darick Battaglia, a mortgage broker and owner of Dominion Lending Centres’ Barrie location, says that while it may seem as though people have to empty their bank account to pay the penalty, ultimately, by paying the lower rate, they’re getting that money back in mortgage savings.

Whether you’re moving houses, or just want to break a mortgage to take advantage of a lower interest rate, people often pay the penalty so they can free up more disposable income.

“It can help people get into a better financial position, because they have more disposable income,” says Battaglia. “They may find that it’s better to invest that money in an RRSP.”

If you’re moving, there are strategies to help reduce the penalty or even not pay it at all.

Almost all mortgages allow people to put a certain percentage of money down on a house every year; I was allowed to pay 20 per cent of my balance every 12 months.

In some cases, lenders will allow you to designate the first 20 per cent — it could be less or more depending on your lender — of the proceeds of a sale of a house towards the prepayment in order to pay down the outstanding balance and so reduce the mortgage penalty.

Investors Group is one institution that allows this, but not all do.

Battaglia has dealt with many lenders who refuse to honor this type of arrangement. They want two checks: one for the prepayment and one to pay off the mortgage.

My own lender refused to let me make one payment; I had to borrow money from my broker, who paid my prepayment three days before closing. I had to pay him back with some of the proceeds of the sale. It was a major hassle. But I did save about $1,500.

Some lenders will eat the fees themselves to retain the business. Again, most want the money. Battaglia says that some banks — he’s seen this happen with Scotiabank and TD — will waive the fee as long as you extend your term. He often uses the penalty as a negotiating tool.

“I’ll tell a lender I’m shopping around and while we’d like to keep a client’s business with your company, what can you do on the penalty?” he says. “A lot of times the penalty gets reduced or it’s paid off by the lender.”

Porting a mortgage to a new house is another way to avoid the fee.

Let’s say you have $100,000 left on a mortgage with a 4 per cent rate, but you need $200,000 more for the new house. The bank will give you the additional money at the new rate, which could be 3 per cent. You’d keep the same term or extend it and now you’d pay a blended rate, in this case 3.5 per cent on $300,000.

“There are no penalty costs, because you’re still honouring the original contract,” says Veselinovich.

Most people will have to open their wallet when they break a mortgage.

Fortunately, you can avoid paying administration fees that the lender will charge you. It’s not necessarily a big cost — Veselinovich says people get charged between $75 and a few hundred dollars — but why pay more money than you have to?

“These fees should be readily negotiable based on your past performance and your relationship with the lender,” he says.

While I did get my penalty reduced by making a prepayment before closing, I still had to write a cheque for about $8,000. It was painful at the time, but now that I’m in my new house, paying a new mortgage at a much lower rate, I don’t think about the penalty anymore.

Now I have to figure out a way to convince Best Buy to give me a deal on TVs.

6 May

Canadian unemployment rate slips to 7.6 per cent as April brings 58,300 job gain

General

Posted by: Mike Hattim

Canada’s economy stepped up a gear in April, pumping out a surprisingly strong 58,300 jobs — almost all of them in the province of Ontario and a big portion of them part-time.

The impressive gain in the headline number was enough to trim the unemployment rate to 7.6 per cent, down 0.1 per cent from the previous month, matching the lowest jobless level since the early months of the recession.

April’s gains bring the year-over-year increase in employment to 283,000.

Although the headline number exaggerates the strength of the labour market, the monthly pick-up was nonetheless impressive.

Economists had expected a more modest 20,000 gain following a weak March, although they left themselves open to an upside surprise for possible one-time hiring for the federal election.

There was little evidence the election was a major factor, however.

Almost all the gains — 54,800 — came in the province of Ontario and most were in the services sector. In particular, finance, insurance, real estate and leasing saw a 19,000 jobs gain, and business, building and other support services chipped in with 17,000 new jobs.

The goods sector saw only a modest 6,600 pick-up, and the key manufacturing and construction sectors were mostly flat.

However, manufacturing and construction have seen increases in employment of 3.3 per cent and 2.7 per cent respectively over the past year.

The weakness in the report is that 41,100 of the new jobs were part time, an indication that Canada’s labour market is still not pumping on all cylinders.

Still April saw one milestone met. The 17,200 increase in full-time work was sufficient for that category to return to the level that existed before the 2008-2009 recession, although total hours worked remains slightly in arrears.

And most of the new jobs were in the employee class, rather than self-employment, as well as in the private sector.

Regionally, the story was all in Ontario, which saw its unemployment rate drop to 7.9 per cent, the lowest since December 2008. The province has seen an increase of 157,000 jobs, or 2.4 per cent, over the past 12 months, all of them full-time in the aggregate.

April was less kind to most of the rest of the country. While Newfoundland and Labrador saw a significant 3,100 jobs increase, six out of 10 provinces experienced an overall drop in employment levels, although all were modest relative to their population.

5 May

Home ownership has its tax breaks

General

Posted by: Mike Hattim

With spring comes the official launch of house hunting season. So, what better time to ensure that you are maximizing the tax benefits associated with home ownership, especially since the 2010 tax return filing deadline is fast approaching.

If you purchased a new home in 2010, don’t forget to claim the relatively new Home Buyers’ Tax Credit. Introduced in 2009, this non-refundable tax credit is based on a $5,000 amount for first-time homebuyers which, at the 15% federal credit rate, is worth $750.

Interestingly, you are considered a first-time homebuyer if neither you nor your spouse or partner owned and lived in another home in the calendar year of purchase or any of the four preceding calendar years. In other words, you could have owned a home previously, but if you sold it and then perhaps rented for four years or so, you still may qualify as a first-time homebuyer for the purpose of claiming the credit if you bought a home in 2010.

Did you use the Home Buyers’ Plan when purchasing your home? Under the HBP, a first-time homebuyer can withdraw up to $25,000 from her RRSP to purchase a home without having to pay tax on that withdrawal. Any funds withdrawn must be repaid over a maximum of 15 years or the amount not repaid in a year is added to the participant’s income for that year.

If you participated in the HBP previously and were required to make a repayment for 2010, be sure to designate a portion of your RRSP contributions as a HBP repayment on Schedule 7 of your personal tax return, under “PART B – Repayments under the HBP…”

You may also be able to get some tax relief from your property taxes, depending on your province of residence. Quebec provides a refund for property tax paid during the year, while both Ontario and Manitoba provide a tax credit for property tax or rent paid during the year.

Still have a mortgage? If so, have you considered whether you could restructure your financial affairs to make your mortgage interest effectively tax deductible?

If you have non-registered investments, consider selling them to pay off your mortgage (non-deductible debt) and then borrowing back the funds for investment purposes (tax-deductible debt). This allows you to effectively write off what otherwise would have been non-deductible personal mortgage interest.

This strategy has often be referred to as the “Singleton Shuffle,” because it was named after Vancouver lawyer John Singleton’s 2001 Supreme Court victory, which upheld the notion that you can rearrange your financial affairs in a tax-efficient manner so as to make your interest on investment loans tax-deductible.

Before doing so, be sure to consider any tax consequences of selling your non-registered investments along with any prepayment fees associated with paying off your mortgage early.

Finally, if you sold your home in 2010, the good news is that the gain is likely tax-free, provided you didn’t also own a second home.

The principal residence exemption (“PRE”), if available, can shelter the gain on a principal residence from capital gains tax. A principal residence can include either your main home or a vacation property, even if it’s not where you primarily live during the year as long as you “ordinarily inhabit” it at some point during the year.

The CRA assumes that if no gain is reported on your return for the year of sale, the PRE has been used to eliminate the gain and therefore, no other property (such as the vacation property) can be designated for the years in which the PRE was presumed to be claimed on the sold property.

As a result, a conscious decision should be made as to whether the gain should be reported, as failure to report jeopardizes claiming the PRE in the future on the sale of your other property for the years in which you owned both properties.

4 May

Home insurance: Claim carefully

General

Posted by: Mike Hattim

Homeowner insurance is a piñata of good things for bad times. The trouble is that once you tap this gift horse, you may not get another crack at it. Insurance companies are not running giveaways after all. They market protection but are ready to take it away or make it a lot more expensive if their clients show a tendency to make claims.

But homeowners need the coverage. Thus the irony of the product: It’s vital to the homeowner’s financial health, but use it too often and the insurer is likely to cut your coverage or to terminate the policy. They can raise rates a little or a lot, even 50% or more. They don’t want serial claims makers, after all.

Homeowners may be tempted to claim for risks for which they are paying; the more bells and whistles, the more temptation. Even the most basic homeowner plans, what the insurance industry calls the standard plan, cover the structure of a house for mayhem from fires, lightening strikes, hits by speeding cars and falling aircraft. Go to the next level, the broad form policy, and the contents of a house are insured for all of that and numerous named perils to contents, such as theft. And the comprehensive policy, the industry’s widest net of hazards, covers the structure of the house and everything that is not specifically excluded. Floods and acts of war are excluded. No policies cover slowly progressive damage, such as termites and other vermin eating up your joists, nor do they cover the cost of maintenance, such as replacing corroding water pipes.

Many modern perils are not covered. If your local nuclear power plant has a meltdown and makes your home too dangerous to live in, your policy won’t cover it. A tsunami is also not covered by conventional policies that exclude both nuclear radiation and flood damage. In effect, a peril that can affect every home in an area is not likely to be covered. A risk that hits one home at a time, such as falling aircraft or a lightening strike, can be covered.

The irony of going up the scale of hazards covered is that, though you pay about 10% to 15% more for every boost in coverage from the standard to the comprehensive plan, making use of such coverage can lead to higher premiums or outright cancellation.

Beware of insuring for benefits that you may not really need. If you claim for “mysterious disappearance,” such as forgetting a watch somewhere while washing your hands, insurers may jack up your rates or lower benefits. If they think that you are the sort of person who is prone to make claims, they can raise your cost for every benefit that you want.

“If you do make small claims, such as the loss of a $700 bicycle when you have a $500 deductible, the insurer is likely to raise your premium and eliminate your claims-free discount,” says Cathie Pottie, a licensed insurance broker in Winnipeg. “The purpose of home insurance is to pay for losses that will seriously strain your budget.”

The general rule is that a single claim won’t flag you as a bad risk, but the second claim will set off alarms, she explains.

If you have a total loss, then the wider the coverage, the greater the chance that most or all of your costs will be covered. But using a policy for small losses is not only an abuse of the idea that insurance is for major losses, it is an invitation for the insurer to raise premium costs or to reduce available benefits.

“One way or another, the insurer is going to get its costs reimbursed by frequent claimers,” says Andy Husband, a licensed insurance agent in Edmonton. “Make two or three claims within a few years, and the insurance company is likely to jack up your rates.”

That is the bottom line of insurance shopping. If you have a mortgage, then chances are that the lender has required you to have at least basic fire and windstorm coverage on the structure. But the homeowner with no mortgage who has not bought coverage is at risk. For that owner, a large loss could be catastrophic.

Thus the balance between insuring for small stuff, such as damage to your drapes caused by water spilling from clogged downspouts — likely covered by a comprehensive policy — that you could pay for out of pocket, and the incineration of your whole house and everything in it, which you could not cover.

Homeowners concerned that they may set themselves up for policy cancellation can raise their own deductibles. One can save 10% to 13% of the cost of a policy with a $1,000 deductible instead of a $500 deductible. That reduces the temptation to make minor claims. And if you do have a claim that you can afford to cover out of pocket, it can be a good idea to discuss it with your insurance agent, Ms. Pottie adds.

It is important to read home insurance policies carefully, for there is no uniform policy that every company uses. Yet the differences between types of coverage and each company’s special features is vital.

“Unlike auto insurance, which is compulsory in every province, homeowner policies are optional except for covering the financial interests of lenders,” explains Pete Karageorgos, manager of consumer and industry relations for the Insurance Bureau of Canada for Ontario. “The wording of policies varies from one company to another, so it pays to shop the market.”