Discussion on article: 40 Years Amortisation now available with 5% Downpaymnt
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Posted on: 29-09-07 17:52:41
Canada has a "progressive" - or escalating - income tax system. This means the government set up a series of income levels with each level taxed at a higher rate than the one below it. Varying provincial income tax rates greatly complicate this structure, but generally:
Federal tax rates for 2009 are:
15% on the first $38,832 of taxable income, +
22% on the next $38,832 of taxable income (on the portion of taxable income between $38,832 and $77,664), +
26% on the next $48,600 of taxable income (on the portion of taxable income between $77,664 and $126,264), +
29% of taxable income over $126,264.
Ontario 6.05% on the first $36,848 of taxable income, +
9.15% on the next $36,850, +
11.16% on the amount over $73,698
Quote:
Originally posted by johnfca
Your first $6,500 or so of income is tax-free
The next $23,500 or so is taxed at about 25-29% depending on where you live
The next $29,000 or so is taxed at about 38-45%
On income above that level - $59,180 and over -you face tax of as much as 54%
How does your income fall into that lineup? The tax rate for your highest level of income is called your "marginal tax rate." For example, if you have $65,000 of taxable income, your marginal tax rate - the rate for the $5,820 that's over the $59,180 threshold - will be about 50-54% depending on the province you live in.
You might want to look up the CRA website for income tax rates; the rates you've quoted above are quite inaccurate:
http://www.cra-arc.gc.ca/tax/individuals/faq/taxrates-e.html
Quote:"" target="_blank" rel="nofollow">http://www.canadiandesi.ca/article.php?SID=4&AID=202
Originally posted by johnfca
Article is located here:
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First go to: <CanadaMortgage.com>
Then go to differential. In the drop box select: Rent vs Own.
In the price box I filled in $200,000. The price of a home I want to buy. A freehold town house. you do your own maintainance.
Down Payment 5% = $10,000. (Current minimum is 20%)
Rate 5.2%. 5YR variable rate Amortised over a 30 year period.
Insurance fee I marked no. But if paying less than 20% then calculate CMHC insurance fee. (I should have put the right figure).
Taxes : $1800
Other : $75 water $75 Hydro $75 Heating (Natural Gas) = $225
Rent :$1200, annual increment 2%. (Misc) Other 0.5%
To sell that home 2.5% (Sorry about that RE brokers!)
Savings Rates : 4.0% Current interest @ PC Bank or ING.
Margin : income tax 33% (FED & PROV added)
Do your calculations to your hearts content, with different scenerios, value of the house to suit your pockets and the tax base to suit your income and the province you live in.
Heating, water etc has to be obtained from the Real estate broker for the property you are wishing to buy or approximate if newly built. (You got to know all of the expenses before you jump in.)
Please do not forget your current age and the numbr of productive years for yourself. If wife's income gets into play, see what happens then.
There are other calculators for you to use in the same location.
I plugged in few numbers into these calculators and came up with a few figures. The numbers are random ones to see if it is worth buying or stay in the rental mode. More on it if it calls for. Otherwise use these calculators liberally before going headloing into the purchasing of one.
Calculator powered by <CanadaMortgage.com>
If the cost of homes start shooting up , the next generation will see the interest income deductibility when they start earning. (I am a dreamer)
Good Luck.
Freddie
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Rent vs. Own Calculator
Use this calculator to compare options for renting or buying a home. Shows the Break-Even annual increase in a home value.
The Rent vs. Own Calculator determines how much a property must increase in value each year to perform as well as the rental option. Fill in all the fields below and click the "Calculate" button to view the results.
Purchase : Monthly : OWN Monthly : RENT
Price : Taxes : Rent :
Down Pmt : Other : Incr %/yr :
Rate : % Condo Fee : Other :
Mtg. Type: Cdn US OTHER Rates :
Term: 0 yr1 yr2 yr3 yr4 yr5 yr6 yr7 yr8 yr9 yr10 yr11 yr12 yr13 yr14 yr15 yr16 yr17 yr18 yr19 yr20 yr21 yr22 yr23 yr24 yr25 yr26 yr27 yr28 yr29 yr30 yr Amort. 1 yr2 yr3 yr4 yr5 yr6 yr7 yr8 yr9 yr10 yr11 yr12 yr13 yr14 yr15 yr16 yr17 yr18 yr19 yr20 yr21 yr22 yr23 yr24 yr25 yr26 yr27 yr28 yr29 yr30 yr Savings %:
Insur. Fee: Yes No Marg. Tax %:
Home Sales Fee : %
The rental alternative will allow you to save and invest both the downpayment of $ 10,000 and the monthly rental savings, initially at $ 1,896. At the end of the 60 month term your before-tax investment will have grown to $ 124,997, assuming the savings rate of 4 % per annum. After paying annual income taxes at 33 % on the investment interest gain, the investment will have grown to $ 123,609.
In order for the home purchase alternative with a mortgage interest rate of 5.2 % to perform as well as the rental option, the annual rate of property appreciation must be at least 9.29 % . Total property appreciation of 55.9 % together with principal repayment would result in homeowner's equity of $ 131,406 in 60 months, less the 2.5 % cost to market the home of $ 7,797, for a net gain of $ 123,609.
If the home value increased by more than $ 111,883 ( 55.9 % ) in 60 months, purchasing would be a better financial option than renting.
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Canadian Calculation - Compounding Semi-Annually
NOTE: High Ratio mortgage required (down payment less than 25%. Insurance fees should apply. Insurance fees calculated are as set out by Canada Mortgage & Housing Corporation - CMHC).
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RENT OWN
Down Payment (5 %) $ 10,000
First Mortgage Amount (Includes Ins. Fee of $ 6,175) $ 196,175
TOTAL PRICE $ 200,000
Monthly Costs
Mortgage Payment
$ 1,071
Property Taxes $ 1,800
Condo Fees $ 0
Other Costs $ 0 $ 225
Rent Payments
($ 1,200 Month 1 to $ 1,299 Last Month) $ 1,200
Total Monthly Payment varies $ 3,096
Monthly Cash Savings varies
RENTAL cost always lower than Monthly OWNERSHIP cost in example.
Future Value at Term ( 60 months)
Down Payment Saved (@ 4 %)
$ 12,151
Monthly Cash Savings (@ 4 %)
$ 112,846
Taxes assumed to be paid annually (12th period) on interest.
Required Home Price at Term End $ 311,884
Less : Mortgage Balance ( $ 180,478 )
Less : Sales Commission (@ 2.5 %) ( $ 7,797 )
Equity at Term $ 124,997 $ 123,609
Less Income Taxes on gain (@ 33% ) ( $ 1,388 ) $ 0
NET After Taxes $ 123,609 $ 123,609
Required ANNUAL Home Price Increase Rate 9.29 %
Required TOTAL Home Price Increase % (60 months) 55.9 %
Required TOTAL Home Price Increase (60 months) $ 111,883
It is always difficult to forecast home price increases, but if the likely Annual Increase is higher than 55.9 %, then buying a home would be the better option. If home prices do not rise by 55.9 %, then renting would be a better option. Note that other factors with home ownership may impact the financial decision including the potential to borrow funds at lower rates if you own a home.
Input a 0% commission rate if a sales commission is not payable. The savings rate is the percentage return on funds saved. The Mortgage Insurance Fee (Insur. Fee - ie. CMHC) is usually required for down payments less than 25%.
Other factors to consider include heating costs - are they included in rent ? Home Insurance costs may also be factored in as another cost. Additionally, maintenance costs should be considered as part of home ownership and may be added to "other costs".
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