The most expensive thing you will ever buy, or devote your money to on an ongoing basis is your home. So, when you have a big expense, the smart thing to do is seek out tax incentives.  And trust me, they’re out there!

Perhaps they’re not as numerous and as generous as those south of the border, but there are tax programs that can benefit you right now.

First Timers

First-Time Home Buyers’ (FTHB) Tax Credit

Introduced in 2009, this tax credit helps out new home buyers at tax time. If this is the first home purchased by you or your spouse (or the first home either of you have owned over the last four years — a boon to those who have taken a break from ownership and were renting for a few years), you can claim a $5,000 non-refundable income tax credit on your return the year you buy. That amounts to about $750 in savings (the tax credit is multiplied by the lowest personal income tax rate for the year, which is 15%). The credit is also applicable for anyone with a disability, or who is buying a home for someone with a disability.

To do: Get more information from Revenue Canada, talk to an accountant to be sure you’re filling out your tax forms properly. You don’t need to file any proof of purchase at tax time, but you must keep this information on file in case it’s requested later.

Home Buyers’ Plan

This program has been in place for years. When you purchase your first home, you can borrow, tax free, money from your own registered retirement savings plan (RRSP) for your down payment. What’s new here is that the limit has been increased to $25,000 — which is helpful considering the price of an average house in Canada today and new limits on how much you need for a down payment. You have fifteen years to repay that amount (and you do really want to get on that, as those retirement savings won’t grow until they are savings!).

To do: Consult with Revenue Canada to be sure you fully understand the rules. Get yourself on a repayment plan through your bank or financial advisor to beat that 15 year deadline to avoid extra fees and/or compromising your retirement plans. (You can find out more helpful information about being a first-time homebuyer from the Canadian Mortgage and Housing Corporation (CMHC).)

Any Home Owner

While mortgages are not tax deductible in Canada, property taxes are in some provinces, including Quebec, Ontario and Manitoba. You may need to do further research to find out the specific details. But in Ontario where I live, low and middle income people can apply for the Ontario Energy and Property Tax Credit.

To do: Do further research regarding the rules in your province. You don’t need your tax receipt when you file, but keep it to fill out the tax form properly and keep it on hand if the government asks for it later.

Working at Home

If you run a business of any kind out of your home, there are numerous household expenses that become tax deductions. If you have a home office and make any kind of freelance income, if you run a home daycare or anything like that, you may qualify. You can write off not only your home office or work expenses, but your utilities, renovation costs (if they relate to the business) and home insurance.

To do: Work with an accountant to determine which expenses are valid, and what percentage of these expenses can be written off (for instance, you don’t write off your entire heating bill, but a selected percentage, usually related to the amount of space your home business takes up).

Renovators

The ecoENERGY Retrofit program through the federal government allows those who have already registered to get up to $5,000 back on energy-saving home renovations. The program is ideally suited for people who have an older home that needs work and are planning some significant upgrades. For instance, the program gives you up to $690 back for a new furnace, $4,375 for a geothermal system, $375 for a new wood-burning stove, $375 for an on-demand water heater, $750 for ceiling insulation and $1,250 for basement insulation.

It was recently announced that the program is accepting no new applicants. Those who have already registered and have had an energy audit have until just March 31, 2012 to get the work done — although you can still get your final audit done later, by June.

To do: If you’re already in the program, check the Natural Resources Canada web site for more information. Even if you can’t get in on these great rebates, it’s still smart to get an energy audit of your home (and some provinces offer you money back after you pay the $300 or so to get the audit). Some provinces and even private retailers are still running programs to encourage eco-friendly home renovations. Even if you can’t get money back, you save when your home is running efficiently!

Don’t Miss Out on Tax Incentives

Keep your eyes open for tax incentives and rebates that suit your particular situation. Having a medical condition or a disability, owning two homes or having other circumstances can change your options for saving money, or taking advantage of certain programs. Keep in touch with a good accountant, listen up during budget time (both provincial and federal) and keep all receipts related to your home.

January is turning into one of the hottest months ever for real estate sales. Realtors say they have never experienced such a busy January.

What’s Behind the Boom?

Its being fueled by BMO’s move earlier this month to lower its five year fixed rate to 2.99 per cent. That’s the lowest posted rate from a major bank in Canadian history. The other banks have followed offering their own version of fixed rates below prime.  This historic event is pushing home buyers back into the market.

Royal LePage, which franchises brokerages across the country, recently forecast the Canadian real estate market will rise 2.8 per cent in 2012. That is slower compared to 2011, when the market rose 4.8 per cent.  But that forecast did not know banks were going to move fixed rates as low as they have.

Real Estate Poised to Heat Up

In my opinion, 2012 could be one of the hottest years for real estate.  The mini boom the country is experiencing now will only grow as we move into the busiest real estate season. March is traditionally the month when inventory of homes for sale increases and more buyers are out looking for a place to buy that will close during the summer months.

Canada’s Excellent Track Record is Paying Off

Why are mortgage rates so low in Canada? Our country’s reputation is driving international demand for bonds from Canada’s biggest banks. Foreign investors are fleeing to safety in Canada.  In the case of BMO, it was able to sell $1.5 billion worth of five-year bonds at a rate of 2.544 per cent, this month.  Making it easy for them to offer consumers the historically low-posted fixed rate. The lower the yield the better the signal that investors have confidence in a lender’s ability to live up to the terms of the loan.

These bond sales are moving through the system and pushing mortgage rates to record lows. It means homeowners can benefit from even cheaper money as more foreign investment moves into Canadian bank bonds.  With the Europe debt problems still spiraling out of control and the U.S.economy still on shaky ground the push for Canadian bonds could continue for the long run.

A Warning About Cheap Money

But as it’s been for three years, lower rates threaten to move Canadians into dangerously high debt levels. Many may be unable to afford their homes down the road. Anyone out shopping for a home should continue to calculate their own affordability at least 2 percentage points higher than what they are being offered.

The BMO special rate offer has now ended but fixed rates still remain unbelievably low at close to 3 per cent. Variable mortgage rates continue to be offered below prime and that means anyone searching for a new mortgage can explore this option. Low rates won’t last forever, but they seem to be here to stay for 2012. And the Canadian market stands to gain from it in a big way.

CIBC had no choice but to follow suit and join the other 4 major banks in their recent rate discounts.  Now all 5 major banks are offering great pricing to the Canadian mortgage market, only further benefiting consumers and helping to retain their rate savvy customers.

Here are the features for their new posted rates:
-          10% prepayment
-          Increase payments by 100%
-          Amortization of up to 30 years
-          Rate hold for 60 days

All of the above listed features are available for both the four year 2.99% and the seven year 3.99% newly released rates.

You can view all of CIBC mortgage rates here or compare the best mortgage rates near you.

If one goes, they all go!  After Friday’s rate announcements from BMO, TD and RBC, Scotiabank joined the battle by also offering a four year fixed special at 2.99% in addition to the 2.89% three year fixed special that they have previously announced.

The features for these special rates:
-          15% prepayment
-          Increase payments by 15%
-          Amortization is to be negotiated with the agent
-          Rate hold for 120 days

You can view all of Scotiabank mortgage rates here or compare the best mortgage rates in the market here.

Royal Bank (RBC) joined the mortgage rate wars by announcing two discounted special rates:

4 year fixed mortgage rate: 2.99%
7 year fixed mortgage rate: 3.99%

This follows similar moves by other banks as BMO Bank of Montreal and TD Bank dropped their fixed mortgage rates last week as well. The banks are finally responding to the drop in bond yields over the past few months, as they had delayed in lowering their fixed rate products resulting in higher spreads (and more profits) over the past few months.

You can view all RBC Royal Bank mortgage rates here or compare the best mortgage rates in the market here.

In the red corner… currently weighing in just under the Canadian Prime lending rate at Prime – 0.25%… the 5 year variable rate. And in the blue corner… currently weighing in around 2.99% (new rate advertised January 13, 2012)… the 5 year fixed rate. LET’S GET READY TO RUMBLE!!!!

This will be a good fight over the next few months; but many Canadian’s are putting their money on fixed mortgage rates.

This Week – The Fixed vs Variable Debate Heats Up

Variable rate mortgages have typically been a better choice for Canadians over the last 25 years. However, with the spread between the two rates currently around 0.24%, consumers are finding it harder and harder to gamble and are turning to lenders and brokers for a fixed rate.

This trend is especially pronounced today after TD changed their special 4 year fixed rate to 2.99% in order to compete with BMO’s 5 year fixed rate, also at 2.99%. But just like any good deal, these rates won’t last forever! TD’s rate is valid until February 29th and BMO’s will only last until January 25^th.

Who will Come Out on Top?

Here’s a comparison of fixed vs variable mortgage rates over the last 25 years from FirstLine Mortgages:

Note: when you visit your bank they will typically discount the posted rate, (or at least they should) so the green line shown should be a little lower across the board

Over the last 25 years, the Bank of Canada has:

• Made changes to the prime lending rate an average of 6 times each year
• Each change to the rate has been by either 0.25% or 0.50%
• Year over year the prime lending rate has fluctuated by 1.23%

So, what you really need to ask yourself in the next few weeks if you are currently looking for a mortgage is … “Do I think that over the next 5 years, the prime lending rate is going to increase by more than 0.24%?” If the past is any indication of the future, it is more likely than not that it will. What does that mean? You would be better off going with a fixed mortgage rate!

Econ 101: Since the downturn of the market in 08/09, the Canadian economy has been moving in the right direction; however the global economy has really been holding us back from our full potential. If Canada was an island economy (meaning it was unaffected by global economies), We would likely see a rise in interest rates.  Unfortunately if we increase rates too soon our exports become more expensive relative to other competitors in the global market and that would be bad news for Canada.

Final Thoughts for the Week

Weigh out your options and play around on a mortgage calculator to see what your mortgage payment would look like if the prime rate would increase vs. what they would be at current fixed rates, you may be surprised! Ask your broker what your options are if rates do increase and you have a variable mortgage, can you lock in? And finally, stop searching for Prime – 0.90%… it doesn’t exist!!

Bank of Montreal (BMO) shocked the mortgage market by dropping its Low Rate 5 year fixed mortgage to 2.99% effective today, January 14, 2012.  It is a limited time offer that is available only until January 25, 2012.

This is the all time lowest fixed mortgage rate we’ve seen offered by a big bank, and is a fundamental shift in strategy in the market as big banks look to take market share by enticing customers with lower mortgage rates versus selling customers on their personal advice and the benefits of having all their products with one company.

TD mortgage rates also dropped today as they lowered their special discounted rate on the 4 year fixed product to 2.99% as well.  Expect more of the banks to follow suit in the next few days.

2.99% 5 year fixed mortgage rates were offered by mortgage brokers late in 2010 but they have never publicly been offered by a major bank like BMO.  ‘Publicly offered’ is the operative term here as bank mortgage specialists and the branches do have discretion to drop rates for certain clients.

These lower fixed mortgage rates have been expected as the benchmark government bond yields have headed lower in the past few months, and even dropped almost 3.4% today (Jan 13, 2012), while the banks have held their mortgage rates steady.  This has given them a nice spread between the two, increasing profit margins.  Our Mortgage Rate Outlook Panel of experts thought we would see this mortgage rate trend for lower rate fixed products this month and they proved to be correct.

Here are details for the BMO Low-Rate Mortgage:

• 5 year fixed term
• Only 10/10 pre-payment privileges (vs 20/20 on other BMO products)
• Maximum amortization period: 25 years
• You can’t refinance or switch to another mortgage lender before the 5 year period is over
• Not available on non-owner-occupied rental property
• You can see all BMO Bank of Montreal Mortgage Rates here.

This is a low rate product that could work for those that are certain on what the next 5 years will bring, but as most Canadians typically transact on their mortgage every 3 years or so, this may not make sense for most home owners.  If you’re looking for more flexibility, you may want to compare this against the best mortgage rates in your province to see what other offers are available that may be better suited to your own situation.

On January 14, 2012 TD announced a special discount fixed mortgage rate of 2.99% for their four year fixed mortgage product. This followed their announcement of a special six, and seven year fixed rate of 3.79%, and 3.99% respectfully.

The 2.99% rate is available on new mortgage applications made until February 29th, 2012. The mortgage must be funded by April 30th, 2012 and other terms and conditions apply.

This change is consistent with what our Panel of mortgage experts predicted in the January 2012 Mortgage Rate Outlook.  The consensus was that fixed rates would dip slightly during the month as lenders focus on building their pipeline for 2012.

You can view all TD mortgages rates here.

This begs the question…is it time to lock in at a fixed rate?

Increasingly Canadians looking to buy a house are seeking more information from the professional helping to secure their mortgage. They look to their mortgage expert for good financial advice, guidance and some level of consultation on what most likely is the biggest investment of their lives.

The Role of Mortgage Professionals

A survey by Maritz Research Canada conducted for the Canadian Association of Accredited Mortgage Professionals (CAAMP), shows mortgage brokers in particular are expected to provide clients with options and support through the complicated mortgage process. There’s also an expectation clients will be offered competitive mortgage products, recommendations on product details and lenders, and in general a high level of customer service.

Mortgage experts are now on the front line when giving advice to new homeowners on how much they should borrow and at what rate. They’re committed to getting the best rate and product possible for the mortgage term a homeowner is seeking.

Here’s the Good News

Canadian home prices have held up surprisingly well despite the economic issues that have plagued the world in the last 3 years. The Canadian housing markets remains stronger compared to the U.S and appears to be a far better investment than the stock market. On top of this, Canadians have roughly 68 per cent equity in their home, compared with 43 per cent  in the U.S. an indication our housing market remains much stronger.

In the same survey Canadians admit they could handle a $200 a month increase on their mortgage payment if interest rates were to rise. If that’s the case then we should be putting more money towards our mortgage right now.  It will lower our principal and our loan will be much smaller when rates rise. Don’t borrow money in anticipation of making higher payments in the future. Ask your mortgage professional how bigger payments will reduce your amortization. You will be pleasantly surprised.

This is My Concern

Interest rates still remain historically low, making it easier and more comfortable for Canadians to borrow more money then they should. Canada’s rules are not as lax as the U.S. when it comes to lending, especially after new stricter guidelines were brought in by Finance Minister Jim Flaherty in 2010.  But that doesn’t mean homeowners aren’t full of false confidence they can borrow more than they can manage.

Before you meet with your mortgage broker or the mortgage specialist at the bank understand based on your financial situation how much you want to borrow. Remember when you borrow money you’re buying the right to pay that money back in a per-determined amount of time.  Don’t get pushed out of your comfort zone when it comes to your mortgage.

We’re quickly moving into the busiest time for mortgages in Canada. Springtime is when real estate sales ramp up as homeowners try to buy a home they can move into during the easy summer months.

It is easy to convince yourself to borrow more to get into a “dream home.” This is especially true for buyers who previously lost out on a home because they were out bid by another buyer. Remember if that dream home is out of your budget it can quickly becoming a nightmare if house prices fall even slightly and when interest rates start to rise.

Do Your Own Research First

My advice is to decide how much you can afford to borrow before you meet with your mortgage professional. Remember nobody cares about your money as much as you do.  Getting better service and good advice is imperative, but do your own research to make sure the mortgage amount is best for you.

Mortgage professionals are there to guide you through this complicated process and give you the best advice they can, but ultimately the decision about how much you want to borrow (after you know the amount you can qualify for) is up to you.

Here are RateSupermarket.ca’s Top Tips for Dealing With Debt:

1 .Set a budget

The first step is to get a handle on how much debt you have.  Find those credit card and loan statements to get an idea of the outstanding balances and the interest rates each of them are charging.  This will help you get an understanding of how much you owe and will make it much easier to set a budget.

A few tips to set a budget include:

• Review your total after tax income
• Breakdown and analyze what your spending your money on each month
• Try and cut out any unnecessary costs and stop impulse purchases when you’re out grocery shopping or at the mall
• This will give you a good idea how much you have left over at the end of the month to put towards paying off your debt
• Or the monthly shortfall, where it’s back to the drawing board and trying to reduce costs even more
• There are fantastic free budgeting tools out there to help you like Mint.com

Once you have a budget you’re in a great position to put a plan in place to begin reducing your debt.

2. Tackle highest interest debt first

A great place to start tackling your debt is to begin with those charging you the highest interest, which is typically your credit cards.  They charge huge amounts of interest, up to 29%, and can take years to pay off if you only pay the minimum amount.

Did you know that if you have a $1,000 credit card balance and only made the minimum payment each month, it would take you almost 10 years to pay it off! You’d also end up paying over $1,000 interest!  So try and avoid paying only the minimum amounts each month if you can.

3. Review biggest debt

The next step would be to review your biggest debt which for many Canadians is your mortgage.  With all the excitement that comes with buying a property and turning it into your dream home, many people are happy to not think about their mortgage again. It’s easy to view it as a monthly expense, rather than a large debt that should be actively managed to try and pay down as quickly as possible.

A few quick wins to reduce your mortgage debt include making sure you compare mortgage rates before you purchase or refinance, move to accelerated payments and take advantage of your mortgage lenders prepayment options.   These steps can reduce the number of years and interest you’ll pay over the life of your mortgage.  Visit our Learn section to find out more details on how to pay off your mortgage faster.

4. Be a smart shopper

It’s a very competitive market and there are many companies competing for your business other than your current bank or credit union.  If you’re looking to renew or refinance your mortgage, or shopping for a new credit card, be sure to compare the market and find the best offers.

Take advantage of some of the great offers to save money.  For example, if you have credit card debt, why not take advantage of a low balance transfer credit card? We’ve found a 0% balance transfer credit card from MBNA that enables you to move an outstanding balance from another card and pay 0% interest for 10 months.  During this initial period all payments go towards the balance rather than interest.  Please note that the interest rate jumps to 19.99% after the 10 month period, so it’s important to take advantage of the low rate right from the start.

5. Get expert advice

If you’d like help managing your debt, you can always consult a financial planner or adviser.  There are also credit counseling agencies you can speak to, and many are not for profit organizations, that specialize in helping people manage their debt.  A quick online search can help find a local credit councilor near you.

These tips can help you start dealing with your debt in 2012 and begin building your savings for the future.