Definitions: Land Transfer Tax

Land transfer tax is a tax that is assessed whenever a transfer of land is registered at Land Titles Office. Land transfer tax is collected by the Land Titles Office on behalf of the Province of Manitoba.

 

While there are some exceptions, essentially this means when a transfer of land occurs, for example, when you buy or sell a home, the ownership of the home will change and a tax must be paid. The tax is calculated based on fair market value and is a sliding scale; meaning that the higher valued homes will have a higher tax bill and lower valued homes will have a lower tax bill. The scale looks like this:

 

To illustrate how the tax is calculated for a home purchase with a price of $250,000.00:

On the first $30,000 of the price:        0% 

On the next $60,000 of the price:       .5%     =  $300

On the next $60,000 of the price:        1%     =  $600

On the next $50,000 of the price:        1.5%  =  $750

Amounts over $200,000                      2%     =  $1,000

                                                                       =  $2,650

 

If you would like to learn more about Land Transfer Tax in Manitoba please visit the provincial website http://www.gov.mb.ca/finance/landtransfertax.html .

 

 

 

 

 

 

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Definitions: Deposit vs. Down Payment

Deposit: money paid in trust by the purchaser when an offer to purchase a home is made.

Down payment: the portion of the home price that is not financed by the mortgage loan.

When you find the home you want to buy you will write an offer to purchase with your realtor. It is common that when you make your offer to purchase you will enclose a deposit cheque. When  your offer to purchase contract is accepted you will take it to your mortgage broker in order to have your mortgage approved. To be approved for a mortgage you must have sufficient funds for your down payment, the minimum down payment is 5% of the price of the home.

 

For example; if you want to purchase the home located at 12345 Smith Street, you will write an offer to purchase offering $200,000.00 and include a deposit cheque of some amount, let's say $4,000.00. If the seller agrees to sell you the home, next you will go to your mortgage broker and request to be fully approved for your mortgage. Assuming you have been pre-approved for a 5% down payment mortgage, your mortgage broker will verify that you have $6,000.00 available for remainder of down payment:

Purchase Price $200,000.00 x 5% down payment = $10,000.00

But you have already paid $4,000.00 for the deposit

 so there is $6,000.00 remaining to be paid.

 

 

 

 

 

 

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Definitions: Fixed vs. Variable

Fixed rate mortgage- a mortgage where the interest rate is fixed/set for a specific length of time.

Variable rate mortgage- a mortgage where the interest rate may change based on other market conditions.

An example of a fixed rate mortgage is a, "5 year fixed rate mortgage at 2.89%". This means that for 5 years your interest rate is guaranteed to be 2.89% regardless of any other market factors. This type of mortgage may be a good choice for someone who likes stability and/or does not want to see a change in their interest rate or payment during their term.

An example of a variable rate mortgage is a, "5 year variable mortgage at Prime minus .5%". This means that your interest rate is dependent on another factor: the Prime lending rate.
Today Prime = 3%. Therefore Prime minus .5%= 2.5%. But if Prime increases, your interest rate will increase, i.e. if Prime increases to 4% your new interest rate will be 3.5% (Prime minus .5% or 4% minus .5%). If your interest rate increases your mortgage payment may or may not increase, depending on the type of variable rate mortgage you choose. This type of mortgage may be a good choice for someone who is comfortable with fluctuation in their rate and/or mortgage payment, and can tolerate adjustments in their personal budget.

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Definitions: Open vs. Closed Mortgage

An OPEN mortgage refers to a mortgage that can be repaid at any time without incurring any penalties.

A CLOSED mortgage refers to a mortgage that cannot be repaid or renegotiated before maturity, except according to it's terms.

What does that mean? When you arrange your mortgage you have to make many decisions on what features are important to you and what kind of mortgage fits you needs best; short or long? Fixed interest or variable interest? Open or closed?

The benefit of an open mortgage is that it is very flexible. If you want the freedom to be able to pay off the mortgage at any time, this would be a good feature for you. I generally recommend an open mortgage for people who need short term solution; if you are planning to sell your home soon, if you are expecting to receive a large sum of money to be applied to your mortgage, or if you are unsure what your plans are and just aren't ready to commit. The downside is that open mortgages tend to have higher interest rates than closed mortgages.

The benefit of a closed mortgage is that the interest rate tends to be lower and can be guaranteed for a longer period of time, for example; a fixed rate, closed mortgage today is under 3%. The downside is if you have a major change in your life and you need/want/are able to pay your mortgage off in full before the end of the term, you may incur penalties to do so.

So how do you choose? Speak to your Mortgage Specialist about your upcoming plans and any life/financial changes you anticipate when determining what kind of mortgage will fit you best.

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Definitions: Term vs. Amortization

Term: the length of time that the mortgage contract conditions, including interest rate, are fixed
Amortization: the length of time over which the mortgage will be repaid in full

The term of the mortgage can be fixed or variable, open or closed, short or long. At the end of the term if you still have a mortgage balance, you will renew and renegotiate your mortgage with the same lender, or choose another lender. For example; many Canadian homeowners select a 5 year fixed rate term because their interest rate and payments will be guaranteed to stay the same for 5 years.

The amortization of the mortgage is the time it would take to pay off the mortgage completely. For example; a traditional mortgage amortization is 25 years.

To use these words together;
I have a 3 year mortgage term and a 21 year mortgage amortization. Which means in 3 years my term will end and I will have to renew my mortgage, and still have 18 years (amortization) left to pay!

http://www.cmhc-schl.gc.ca/en/co/buho/hostst/hostst_011.cfm#T