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My Mortgage Questions : Sorry, no TL;DR

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  • Jan 20th, 2014 5:07 pm
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[OP]
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My Mortgage Questions : Sorry, no TL;DR

Hello;

Current situation - Bought house 3 years ago and am currently being offered a promotion at work. Promotion comes with a transfer and all expenses paid move. Company will cover off costs of selling house less legal expenses and will allow me to pick my realtor ect... This leads to the following :

Current Mortgage - $320,000 mortgage / 30 years (3 years in) / 2.4% / Bi-weekly payments / Portable | Home Valued at $460,000 : 1 appraisal I paid ($469,000) for and 1 realtor walk thru ($455,000) | Houses selling inside 14 days in my area, only 2 currently on the market.

New home - Looking @ $255,000 - $310,000

So here are the questions as this is my first home sale...

1. So I understand that my mortgage is portable but I may be confused as to exactly what this means. I have a Prepayment Privilege of 15% a year; $56,000 according to my mortgage statement I just received. So I can only port lower without penalty as long as my new mortgage is at least $264,000? If this is right it makes looking for a house pretty easy as I am looking between $264,000 and $320,000.

2. Do I owe taxes on the sale of my home? I do not believe I do BUT I took advantage of the first time home buyers program so I am not sure. Best case scenario if I sell for $460,000 I walk away with $140,000 as that's the difference between my current mortgage and my sale price. The difference between my current mortgage and the price of my new home is counted as a prepayment on my mortgage when ported right? I can't believe the government isn't going to be coming after a piece or that $140,000 profit...

3. I took $21,000 out of my RRSP's as part of my original purchase. This year I received my first notice that I owe money back into my RRSP. Luckly I have been making monthly contributions back into my RRPS so I have re payed this years bill and then some BUT I still owe $18,500 back to my RRSP's. Do I need to pay that back since I sold the house?

4. This is a bit of a different question... So if I do walk away with $140,000 I was mulling over in my head how to best utilize that money towards my mortgage without penalty. Hears what I have come up with. Put $31,000 in my TFSA and $31,000 in my wife's TFSA. Purchase stable stocks with 5% - 7% yearly dividends. Increase my mortgage payments by the value of the dividends. According to my mortgage I can; once per calender year increase my regular mortgage payments as long as I do not increase in excess of 100%. So my payments are $712 for Principal and interest every 2 weeks. I could increase it by $175 using the dividends from my TSFA. Seems like a great way to work the system, I am borrowing money at 2.4% and gaining 5% - 7% dividends to pay down the mortgage instead of getting penalized if I make a lump sum payment. If I ladder an additional $25,000 in Bonds for my Wife and Myself ($5000 for 1 year, $5000 for 2 years, $5000 for 3 years, $5000 for 4 years & $5000 for 5 years) then we can each add an additional $5000+ each year to our TSFA's and keep increasing our mortgage payments. This seems like the best plan I can come up with for the proceeds of the sale...

Thanks for any feedback.

Kr0z
9 replies
[OP]
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Forgot to mention : We do plan on paying off our consumer debt with the proceeds of the sale as well. No sense paying between 7% (LOC) and 20%(Credit Cards) interest if we don't have to. Current debt load is $11,000 combined between Credit card, LOC and 1 car loan.
Penalty Box
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Can you list some stable stocks that pay 5-7% dividends?
[OP]
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techcrium wrote:
Jan 18th, 2014 11:45 am
Can you list some stable stocks that pay 5-7% dividends?
Really? Break out a screener...

Bell Aliant Inc - Market Cap : $6.1 Billion, Revenue $2.8 Billion, Debt Ratio 42%, Dividend Yield 7.14% : Has been paying me a dividend since I bought it in 2008, increased it in 2011 when they transitioned from an income trust & a P/E of 9!
AT&T - Market Cap : $177.5 Billion, Revenue $128.2 Billion, Debt Ratio 46%, Dividend Yield 5.46% : Dividend increase every year for the past 10 years.
Liquor Stores NA - Market Cap : $336.3 Million, Revenue $647.8 Million, Dividend Yield 7.42% : Liquor sells in good markets and bad.
Health Care REIT, Inc. - Market Cap $16.8 Billion, Revenue $2.6 Billion, Dividend Yield 5.5% : Dont know much, poped on my screener.
SeaDrill LTD. - Market Cap $18.8 Billion, Revenue $5 Billion, Dividend Yield 9.47% : Dont Know much, poped on my screener.
TransAlta Corp - 8.2 - Market Cap $3.8 Billion, Revenue $2.4 Billion, Dividend Yield 8.17% : Just announced a JV to build a new natural gas pipeline. Target or $16, currently $14.
Crescent Point Energy - Market Cap $15.5 Billion, Revenue 2,5 Billion, Dividend Yield 7% : 1 Hold, 18 Buys and 1 Strong buys with a target of $46. Currently $39.
Dundee Real Estate - Market Cap $3 Billion, Revenue $669 Million, Dividend Yield 7.7% : Payout Ratio of 52%, Currently 2 Holds, 2 Buys and 2 strong buys with a target of $38. Currently $29.
H&R Reit - Market Cap $5.7 Billion, Revenue $1.1 Billion, Dividend Yield 6.4% : Payout Ratio 52%, Debt to Capital of 52%, Currently 2 Holds, 5 Buys and 2 Strong Buys & a target of about $25. Currently $21.

And that was with 20 minutes of looking? Again I am NOT looking for capital appreciation in TSFA, I am looking for Dividends and capital preservation.
[OP]
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Nothing? Should I ask question 4 over in Investing?
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kr0zet wrote:
Jan 20th, 2014 1:39 pm
Nothing? Should I ask question 4 over in Investing?
To the best of my knowledge (I hesitate to jump in because there's people on her much more knowledgeable than myself)...

1. You should be able to port to a smaller mortgage on a less expensive property by using some of your prepayment. However, I think you still need to have no more than a 95% loan-to-value on the new home if CMHC insured, or 80% LTV if not. In the worst case, if you have to lower below that threshold, the penalty amount would be prorated based on the amount you're reducing the mortgage.

2. If a home is your primary residence for a year or more, there's no tax implications from any capital gains.

3. Your HBP repayment is separate from whether you still have the house. It's just a one-time privilege the government grants you, and you can repay it all in the first repayment year, or take the full 15. Note, your repayment has nothing to do with you making the contributions to your RRSP (though you do need to contribute at least the amount you designate as repayment). Your repayment amount is the portion of your contributions that you designate as HBP repayment on your annual income tax filing. So when filing for 2013, if you've contributed $x,xxx to your RRSP you can designate all of that as your HBP repayment, or just the minimum amount they ask for. That part's entirely up to you, and what makes sense to do can vary greatly depending on your income level and personal situation.
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kr0zet wrote:
Jan 18th, 2014 11:18 am
4. This is a bit of a different question... So if I do walk away with $140,000 I was mulling over in my head how to best utilize that money towards my mortgage without penalty. Hears what I have come up with. Put $31,000 in my TFSA and $31,000 in my wife's TFSA. Purchase stable stocks with 5% - 7% yearly dividends. Increase my mortgage payments by the value of the dividends. According to my mortgage I can; once per calender year increase my regular mortgage payments as long as I do not increase in excess of 100%. So my payments are $712 for Principal and interest every 2 weeks. I could increase it by $175 using the dividends from my TSFA. Seems like a great way to work the system, I am borrowing money at 2.4% and gaining 5% - 7% dividends to pay down the mortgage instead of getting penalized if I make a lump sum payment. If I ladder an additional $25,000 in Bonds for my Wife and Myself ($5000 for 1 year, $5000 for 2 years, $5000 for 3 years, $5000 for 4 years & $5000 for 5 years) then we can each add an additional $5000+ each year to our TSFA's and keep increasing our mortgage payments. This seems like the best plan I can come up with for the proceeds of the sale...
I should add, I like this plan. Capping your TFSAs would be awesome, and being able to structure it so you have your contributions set aside in a fixed-term investment for the next 5 years is awesome. Just note that if you do need to limit the LTV on your new property to a lower percentage, and/or pay a partial penalty, that will eat into some funds.
[OP]
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Mike15 wrote:
Jan 20th, 2014 3:19 pm
To the best of my knowledge (I hesitate to jump in because there's people on her much more knowledgeable than myself)...

1. You should be able to port to a smaller mortgage on a less expensive property by using some of your prepayment. However, I think you still need to have no more than a 95% loan-to-value on the new home if CMHC insured, or 80% LTV if not. In the worst case, if you have to lower below that threshold, the penalty amount would be prorated based on the amount you're reducing the mortgage.

2. If a home is your primary residence for a year or more, there's no tax implications from any capital gains.

3. Your HBP repayment is separate from whether you still have the house. It's just a one-time privilege the government grants you, and you can repay it all in the first repayment year, or take the full 15. Note, your repayment has nothing to do with you making the contributions to your RRSP (though you do need to contribute at least the amount you designate as repayment). Your repayment amount is the portion of your contributions that you designate as HBP repayment on your annual income tax filing. So when filing for 2013, if you've contributed $x,xxx to your RRSP you can designate all of that as your HBP repayment, or just the minimum amount they ask for. That part's entirely up to you, and what makes sense to do can vary greatly depending on your income level and personal situation.

I didn't know that I could contribute to my response while owing to my hbp... I thought everything I contributed went to repaying until it was repayed.

Thanks for that information!
[OP]
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Response = rrsp...
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techcrium wrote:
Jan 18th, 2014 11:45 am
Can you list some stable stocks that pay 5-7% dividends?
A good chunk of the market these days. Dividend yield really isn't the metric to be looking at, earnings yield is.
TodayHello wrote:
Oct 16th, 2012 9:06 pm
...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...

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