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  Canada Immigration Forum > About Canada > Real Estate & Mortgages > Getting a mortgage thru a consultant versus directly thru a bank
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Getting a mortgage thru a consultant versus directly thru a bank




investpro
Senior Desi
Member since: Nov 06




Posts: 1628
Location: carl sagan's universe


Hi Pramod,

I canadian desied smith manoeuvre and in your own words.

http://www.canadiandesi.com/read.php?TID=12113&page=2

You have previously not too long ago claimed this is risky and one should proceed only after thoroughly understanding the scene.


 
Post ID: 92245 28-12-06 14:31:12
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Pramod Chopra
Senior Desi
Member since: Sep 03




Posts: 1284
Location: Pickering, ON


Quote:
Originally posted by investpro

Hi Pramod,

The Smith Manoeuvre is an excellent way of making the interest on the mortgage tax deductible- not the mortgage itself. I am sure you know that, though perhaps you haven't expressed it well in your post.


For a first time home buyer, all the information regarding a smith manoeuvre is a bit too much to swallow, thus I personally shy away from getting the person involved in it until he/she has actually taken the mortgage, then down the line, say a year later drop by and get the person into the swing of things. By explaining the Smith Manoeuvre right from the get-go in my experience turns the client away.

But hey you're right, The Smith Manoeuvre is excellent, I just didn't want to bog navin2004 down with too much info as it seems he is a 1st time homebuyer and a plain vanilla mortgage is the way he should go. Get that out of the way and then go on to more creative financial techniques.





It does not only make the interest tax deductible but slowly and steadily converts the the whole mortgage in to a tax deductible mortgage and gets you free refunds from CRA year after year. However, it can not be explained all in this forum by way of postings but on a one to one basis, the benefits can be explained completely.

For doing 'Smith Manoeuvre' there should be a good coordination between the mortgage professional and the investment professional to get the maximum benefit. I am not only a mortgage professional with AMP designation but also a financial planner and hence I am in a better position to understand the total financial situation of my clients, their short term and long term needs, risk tolerance, objectives and goals and only then if it suits my clients, I explain them this in detail and take steps to go for it. However, I must warn that it is not for every one. I mentioned about it in this post as the member has more than 25% down payment and other funds for emergencies and if a person has this much funds available, he/she should be having a good income thus making him/her a prime candidate for writing off the interest against his/her other income.

Any one interested to know more about it can contact me for a 'no obligation' personal meeting.






-----------------------------------------------------------------


Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada



 
Post ID: 92260 28-12-06 18:31:21
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Pramod Chopra
Senior Desi
Member since: Sep 03




Posts: 1284
Location: Pickering, ON


Quote:
Originally posted by investpro

Hi Pramod,

I canadian desied smith manoeuvre and in your own words.

http://www.canadiandesi.com/read.php?TID=12113&page=2

You have previously not too long ago claimed this is risky and one should proceed only after thoroughly understanding the scene.




See my earlier post.

I still maintain as stated earlier that it is NOT for every one and one should consult his/her financial planner before attempting it.

I clearly mentioned that 'if a client of mine' has this much funds available and has good income then I would know every thing about my client and then I would advise him/her of doing this as I would be handling and taking care of both the mortgage and the investment.



-----------------------------------------------------------------


Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada



 
Post ID: 92261 28-12-06 18:37:06
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investpro
Senior Desi
Member since: Nov 06




Posts: 1628
Location: carl sagan's universe


Hi Pramod,

The Smith Manoeuvre cannot be slowly converted into a tax deductible mortgage, unless of course, your meaning is something else. For me it means both the principal and interest has to be tax deductible. Part of the principal may be tax deductible if you use your home as a SOHO.

I am also both a mortgage and investment professional. But then it is known that two with the same designations may differ in their viewpoints.So best not to split hairs.

I am sure you know that one of the biggest Smith Manoeuvre engineers in the GTA isn't even a mortgage consultant. He's a CFP who works in conjunction with a mortgage consultant.

You are right, the Smith Manoeuvre is complex and one needs to know the full history of the client (if that is possible- something always crawls out of the woodwork in time) before even suggesting it to him/her, which is why I didn't even mention it, though I have worked several clients through it.


For those interested, read the book: The Smith Manoeuvre by Fraser Smith:

Also sold under the title: Is your mortgage tax deductible?







 
Last edited by: investpro on 28-12-06 21:48:29
Post ID: 92269 28-12-06 21:46:54
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jayaram
Senior Desi
Member since: Jun 04




Posts: 298
Location: Calgary


I know only two mortgage brokers you can rely on. One is Invis and other Mortage intelligence. There are others.

At any cost dont go with Xeed . These are for people who have low credit score.


 
Post ID: 92293 29-12-06 02:01:32
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Pramod Chopra
Senior Desi
Member since: Sep 03




Posts: 1284
Location: Pickering, ON


Quote:
Originally posted by jayaram

I know only two mortgage brokers you can rely on. One is Invis and other Mortage intelligence. There are others.

At any cost dont go with Xeed . These are for people who have low credit score.



Mr. Jayaram,

You are confusing a mortgage brokering house with a lender.

Both Invis and Mortgage Intelligence like Mortgage Alliance (the company I work with) are mortgage brokerage houses having mortgage agents working under license with them while Xceed is an alternate lender which provides mortgages through mortgage brokers.

A mortgage broker / agent would approach to 'A' lenders like the big banks for clients with good credit and verifiable income or 'alternate lenders' like Xceed, Home Trust and the like with credit and or income issues as the case may be.

In layman language Invis, Mortgage Intelligence and Mortgage Alliance have mortgage agents working under their license similar to Real Estate Agents working under license of any real estate company such as Century 21, ReMax or Royal Lepage etc.

I admit that there are always good and bad real estate agents with any of these companies and similarly there could be good or bad mortgage agents with either Invis, M.I. or Mortgage Alliance and hence you can not generalize any statement.


-----------------------------------------------------------------


Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada



 
Post ID: 92316 29-12-06 11:28:36
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jayaram
Senior Desi
Member since: Jun 04




Posts: 298
Location: Calgary


Dear Promod

I know the difference. All I was telling mortgage agents may try to push Xeed mortgage for those who have low credit score and people should avoid them. I should have explained more clearly.

I have dealt with many mortgage agents. They will say everything is approved just to get the business( Like most real agent who want to sell your house and promise lot of thing, then take the listing and do nothing, while others RE agents work hard get the buyer) but when time comes to close, you dont want to run around.

Yes there are good mortgage agents, but there are like a diamond


 
Post ID: 92329 29-12-06 13:28:34
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navin2004
Senior Desi
Member since: Jan 04




Posts: 102
Location: Toronto

Smith Manouvre
Jayaram, Ivestpro and Pramod,

Thanks for bringing this topic about Smith Manouvre. Though I had not heard of this term, but my colleague who works with a Financial Planner did mention about having set things up such a way that he could claim a deduction for the mortgage interest.
He explained to me how it works and that's what the post here(in the link investpro pasted) also explain.

I am curious and interested in doing this as coming from having worked in US for sometime, I did not like the idea that in Canada that you cannot deduct the mortgage interest from your income here for tax purposes.

Canada has several wrong legislations in my mind, that stiffle the growth. The mortgage interest deduction is probably one of the biggest reason why people choose to be a home buyer in US.
Also another law is charging sales tax on internet purchase, that in my opinion the cause for poor internet commerce in Canada. Anyway that's a side topic.

Pramod, I will get in touch with you to explore. Though I have said I have 1 year of living expenses, I guard that savings with big care, as I have a wife and son that depend on me and this savings is my only hope. Jobs might be secure for today, but who knows about tommorrow.


 
Post ID: 92335 29-12-06 15:23:38
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investpro
Senior Desi
Member since: Nov 06




Posts: 1628
Location: carl sagan's universe


For those interested in The Smith Maneuver (SM), here is a primer- very basic.

Let us say you take a 25 year mortgage for $200,000 at 5.1% on monthly payments.The amortizations for the first year are as follows.

1 01/29/2007 1,167 337 831 199,663
2 02/28/2007 1,167 338 829 199,325
3 03/28/2007 1,167 339 828 198,986
4 04/28/2007 1,167 341 827 198,645
5 05/28/2007 1,167 342 825 198,303
6 06/28/2007 1,167 344 824 197,959
7 07/28/2007 1,167 345 822 197,614
8 08/28/2007 1,167 347 821 197,268
9 09/28/2007 1,167 348 819 196,920
10 10/28/2007 1,167 349 818 196,570
11 11/28/2007 1,167 351 817 196,219
12 12/28/2007 1,167 352 815 195,867

When you pay the first installment of $1,167- $337 is the principal and $831 is the interest.
1. Asa this is paid, the bank advances you a secured line of credit (LOC) at prime equal to the principal - $337. This is then invested.
2. When the 2nd payment is made, the principal is $338. Your line of credit is increased by this amount to $337 + $338 = $675.The new amount of $338 is again invested.
3. And so on continuously for the length of your mortgage. Your LOC keeps increasing accordingly and so does the book value of your investments
4. Let us say that at the end of the year you have a LOC of $4,133 invested in say mutual funds. This over the long run of 25 years should give you a positive return based on historical performance.
5. On the LOC of $4,133 you will pay a certain amount of interest. Let us say that amount is $200. If you are in the 40% bracket you will get back $80 from the CRA. If further it is invested in a labor-sponsored fund (LSIF) you will get a further tax break.This latter tax break of LSIFs will be phased out by 2011.
6. Every year this effect is compounded as the principal part of your mortgage payment increases and the LOC increases accordingly and your investments increase and the interest you pay on the increasing LOC goes up and the tax returns from the CRA goes up. At the end of the situation you will have a hefty LOC invested in investment vehicles and you will keep on getting tax refunds from the CRA on the interest you pay as long as you carry this loan.
In theory it is very very cool, provided you have the necessary amount to keep making the interest payments on the LOC. There are currently investments that give you a monthly dividend to help you pay the interest.

It is really a neat manner of paying down your mortgage loan and building your savings. Those who have availed of it are really content, esp in light of the fact that global markets, incl Canada, are smoking.

There you guys have it in a nutshell.

There are plenty of add-ons and enhancements.

Just FYI, if investments are made into segregated funds, gains can be locked in, but keep in mind these management expenses ratios are higher than normal mutual funds.

There are also guaranteed returns mutual funds as well that automatically lock in your gains every month with the MER decreasing over time. Extremely few in the Canadian market though. I can only think of 4, but there may be more.

If any body wishes to add, correct or make any comments on the basic outline, please feel free to do so.

Perhaps the mods of the forum would wish to make the explanation of the Smith Manoeuvre a permanent feature. If so, I can give a more complete rundown of it as I have done several such presentations with graphs and the like. Other planners on the forum may wish to modify until we have a flawless version. I have also engineered several such deals, even for people who have only paid 10% of their mortgage.




 
Last edited by: investpro on 29-12-06 22:56:13
Post ID: 92355 29-12-06 22:37:36
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investpro
Senior Desi
Member since: Nov 06




Posts: 1628
Location: carl sagan's universe


Hi,

Somebody sent me a msg regarding the term "collateral mortgage"

Here is the equiv should anybody wish to know.

Collateral Mortgage - Provides security over real estate when loans are provided for purposes other than, or in addition to, the purchase of the land. This type of mortgage often secures a revolving loan. Also sometimes referred to as a Home Equity Loan or an Equity Take Out Mortgage.



 
Post ID: 92695 05-01-07 00:57:00
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Contributors:
Desi # 1(2)  investpro(10)  jayaram(2)  kanjis(1)  navin2004(6)  Pramod Chopra(4)  Rajeev Narula(1)  
reachash(1)  regar(1)  vimpatel(2)  
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