What is the Best Way to Insure Your Mortgage?

What is the Best Way to Insure Your Mortgage?

 

If you have a mortgage it makes good sense to insure it. Owning a debt free home is an objective of any sound financial plan. In addition, making sure your mortgage is paid off in the event of your death will benefit your family greatly.

The question is should you purchase this coverage through your lending institution or from a life insurance company?

It might be convenient when completing the paper work for your new mortgage to just sign one more form, be aware that it might be a costly decision.

 

8 reasons to purchase your mortgage coverage from a life insurance advisor

1) Cost

Term life insurance available from a competitive life insurance company is usually cheaper than mortgage life insurance provided through the lender. This is especially true if you qualify for non-smoker rates.

2) Availability

If you have some health issues, the lenders mortgage insurance may not be available to you. This may not be the case with term life insurance where competitive underwriting and substandard insurance are more readily attainable.

3) Declining coverage

Be aware that the death benefit of creditor/mortgage insurance declines as the mortgage is paid down. Meanwhile, the premium paid or cost of the coverage remains the same.

With term life insurance the death benefit does not decline. You decide how much coverage you want to have. This gives you the flexibility to reduce the amount of coverage and premium when the time is right for you. Or keep it should another need arise or in the event you become uninsurable in the future.

4) Portability

Term Life insurance is not tied to the mortgage giving you flexibility to shift it from one property to the next without having to requalify and possibly pay higher rates.

5) Flexibility

Unlike creditor/mortgage insurance, term life insurance can be for a higher amount than just the mortgage balance so you can protect family income needs and other obligations but pay only one cost-effective premium.

When you pay off your mortgage you will no longer be protected by creditor/mortgage insurance but term life insurance may continue. Also, unlike mortgage insurance, you are able to convert your term life insurance into permanent coverage without a medical.

6) The beneficiary controls the death benefit

With creditor/mortgage insurance there is no choice in what happens to the money when you die. The proceeds simply retire the balance owing on your mortgage and the policy cancels.

With term life insurance your beneficiary decides how to use the insurance proceeds. For example, if the mortgage carries a very low interest rate compared to available fixed income yields, it might be preferable to invest the insurance proceeds rather than to immediately pay off the mortgage.

7) Can your claim be denied?

Often creditor/mortgage insurance coverage is reviewed when a death claim is submitted. Creditor/mortgage insurance allows for the denial of the claim in certain situations even after the coverage has been in effect beyond that 2 year period.

Term life insurance is incontestable after two years except in the event of fraud.

8) Advice

Your bank or mortgage broker can advise you on the best arrangement to fund your mortgage but advice on the most appropriate way to arrange your life insurance is best obtained from a qualified insurance advisor who can implement your life insurance coverage according to your overall requirements.

Your mortgage will probably represent the single largest debt (and asset) you will acquire. Making sure your mortgage doesn’t outlive you is the most prudent thing you can do for your family.

Contact me @ Henley Financial and Wealth Management  if you think it is time to review your current insurance protection.

 

The First RRSP

The First RRSP

The first RRSP — then called a registered retirement annuity — was created by the federal government in 1957. Back then, Canadians could contribute up to 10 per cent of their income to a maximum of $2,500. RRSPs still remain one of the cornerstones of retirement planning for Canadians. In fact, as employer pension plans become increasingly rare, the ability to save inside an RRSP over the course of a career can often make or break your retirement.

The deadline to make RRSP contributions for the 2018 tax year is March 1st, 2019.

If you need help or advice with you tax planning or investments we are always available to help @henleyfinancial.ca

Anyone living in Canada who has earned income has to file a tax return which will create RRSP contribution room. Canadian taxpayers can contribute to their RRSP until December 31st of the year he or she turns 71.

Contribution room is based on 18 percent of your earned income from the previous year, up to a maximum contribution limit of $26,230 for the 2018 tax year. Don’t worry if you’re not able to use up your entire RRSP contribution room in a given year – unused contribution room can be carried-forward indefinitely.

Keep an eye on over-contributions, however, as the taxman levies a stiff 1 percent penalty per month for contributions that exceed your deduction limit. The good news is that the government built-in a safeguard against possible errors and so you can over-contribute a cumulative lifetime total of $2,000 to your RRSP without incurring a penalty tax.

Find out your RRSP deduction limit on your latest notice of assessment clearly stated.

You can claim a tax deduction for the amount you contribute to your RRSP each year, which reduces your taxable income. However, just because you made an RRSP contribution doesn’t mean you have to claim the deduction in that tax year. It might make sense to wait until you are in a higher tax bracket to claim the deduction.

When should you contribute to an RRSP?

When your employer offers a matching program: Some companies offer to match their employees’ RRSP contributions, often adding between 25 cents and $1.50 for every dollar put into the plan. Take advantage of this “free” gift from your employers.

When your income is higher now than it’s expected to be in retirement: RRSPs are meant to work as a tax-deferral strategy, meaning you get a tax-deduction on your contributions today and your investments grow tax-free until it’s time to withdraw the funds in retirement, a time when you’ll hopefully be taxed at a lower rate. So contributing to your RRSP makes more sense during your high-income working years rather than when you’re just starting out in an entry-level position.

A good rule of thumb: Consider what is going to benefit you the most from a tax perspective.

When you want to take advantage of the Home Buyers’ Plan: First-time homebuyers can withdraw up to $25,000 from their RRSP tax-free to put towards a down payment on a home. Would-be buyers can also team up with their spouse or partner to each withdraw $25,000 when they purchase a home together. The withdrawals must be paid back over a period of 15 years – if you do not pay one fifteenth of the borrowed money, the amount owed in that calendar year it will be added to your taxable income for that year.

Unless it’s an emergency then it’s generally a bad idea to withdraw from your RRSP before you retire. You would have to report the amount you take out as income on your tax return. You won’t get back the contribution room that you originally used.

Also, your bank will hold back taxes – 10 percent on withdrawals under $5,000, 20 percent on withdrawals between $5,000 and $15,000, and 30 percent on withdrawals greater than $15,000 – and pay it directly to the government on your behalf. That means if you take out $20,000 from your RRSP, you will end up with $14,000 but you’ll have to add $20,000 to your taxable income at tax time. This is done to insure that you pay enough tax upfront for the withdrawal at the source so that you are not hit with an additional tax bill (assessment) when you file your tax return.

What kind of investments can you hold inside your RRSP?

A common misconception is that you “buy RRSPs” when in fact RRSPs are simply a type of account with some tax-saving attributes. It acts as a container in which to hold all types of instruments, such as a savings account, GICs, stocks, bonds, REITs, and gold, to name a few. You can even hold your mortgage inside your RRSP.

If you hold investments such as cash, bonds, and GICs then it makes sense to keep them sheltered inside an RRSP because interest income is taxed at a higher rate than capital gains and dividends.

For more information regarding investments and RRSP’s contact us at Henley Financial and Wealth Management

 

 

A new year means new financial limits.

A new year means new financial limits.

Here’s a list of data for 2019 

Pension and RRSP contribution limits

  • The new limit for RRSPs for 2019 is 18% of the previous year’s earned income or $26,500 whichever is lower less the Pension Adjustment (PA).
  • The limit for Deferred Profit Sharing Plans is $13,615
  • The limit for Defined Contribution Pensions is $27,230

Remember that contributions made in January and February of 2019 can be used as a tax deduction for the 2018 tax year.

Tax YearIncome fromRRSP Maximum Limit
20192018$26,500
20182017$26,230
20172016$26,010
20162015$25,370
20152014$24,930
20142013$24,270
20132012$23,820
20122011$22,970
20112010$22,450
20102009$22,000
20092008$21,000

TFSA limits

  • The TFSA limit for 2019 is $6,000.
  • The cumulative limit since 2009 is $63,500

TFSA Limits for past years

YearAnnual LimitCumulative Limit
2019$6,000$63,500
2018$5,500$57,500
2017$5,500$52,000
2016$5,500$46,500
2015$10,000$41,000
2014$5,500$31,000
2013$5,500$25,500
2012$5,000$20,000
2011$5,000$15,000
2010$5,000$10,000
2009$5,000$5,000

Canada Pension Plan (CPP)

Lots of changes are happening with CPP but here’s some of the most important planning data.

  • Yearly Maximum Pensionable Earning (YMPE) – $57,400
  • Maximum CPP Retirement Benefit – $1154.58 per month
  • Maximum CPP Disability benefit –  $1362.30 per month
  • Maximum CPP Survivors Benefit
    • Under age 65 – $626.30
    • Over age 65 – $692.75

Reduction of CPP for early benefit – 0.6% for every month prior to age 65.  At age 60, the reduction is 36%.

CPP rates for past years:

YearMonthlyAnnual
2019$1154.58$13,854.96
2018$1134.17$13,610.04
2017$1114.17$13,370.04
2016$1092.50$13,110.00
2015$1065.00$12,780.00
2014$1038.33$12,459.96
2013$1012.50$12,150.00
2012$986.67$11,840.04
2011$960.00$11,520.00
2010$934.17$11,210.04
2009$908.75$10,905.00

Old Age Security (OAS)

  • Maximum OAS – $586.66 per month
  • The OAS Clawback (recovery) starts at $77,580 of income.  At $125,696 of income OAS will be fully clawed back.

OAS rates for past years:

YearMaximum Monthly BenefitMaximum Annual Benefit
2019$601.45$7,217.40
2018$586.66$7,039.92
2017$578.53$6,942.36
2016$570.52$6,846.24
2015$563.74$6,764.88
2014$551.54$6,618.48
2013$546.07$6,552.84
2012$540.12$6,481.44
2011$524.23$6,290.76

New Federal Tax Brackets

For 2018, the tax rates have changed.

Lower Income limitUpper Income limitMarginal Rate Rate
$0.00$12,069.000.00%
$12,069.00$47,630.0015.00%
$47,630.00$95,259.0020.50%
$95,259.00$147,667.0026.00%
$147,667.00$210,371.0029.00%
$210,371.0033.00%

Remember these rates do not include provincial tax. For new provincial rates, visit the CRA site.

2018 Financial Planning Guide: The numbers you need to know

2018 Financial Planning Guide: The numbers you need to know

A new year means new limits and data.  Here’s a list of new financial planning data for 2018 (In case you want to compare this to past years, I’ve included old data as well).

If you need any help with your rrsp deposits or clarification on other retirement issues please do not hesitate to contact Henley Financial and Wealth Management, we are here to ensure your financial success.

Pension and RRSP contribution limits

  • The new limit for RRSPs for 2018 is 18% of the previous year’s earned income or $26,230 whichever is lower less the Pension Adjustment (PA).
  • The limit for Deferred Profit Sharing Plans is $13,250
  • The limit for Defined Contribution Pensions is $26,500

Remember that contributions made in January and February of 2018 can be used as a tax deduction for the 2017 tax year.

Financial Planning CalculationMore articles on RRSPs

TFSA limits

  • The TFSA limit for 2018 is $5,500.
  • The cumulative limit since 2009 is $57,500

TFSA Limits for past years

More articles on the TFSA

Canada Pension Plan (CPP)

Lots of changes are happening with CPP but here’s some of the most important planning data.

  • Yearly Maximum Pensionable Earning (YMPE) – $55,900
  • Maximum CPP Retirement Benefit – $1134.17 per month
  • Maximum CPP Disability benefit –  $1335.83 per month
  • Maximum CPP Survivors Benefit
    • Under age 65 – $614.62
    • Over age 65 – $680.50

Reduction of CPP for early benefit – 0.6% for every month prior to age 65.  At age 60, the reduction is 36%.

CPP rates for past years:

For more information on CPP

Old Age Security (OAS)

  • Maximum OAS – $586.66 per month
  • The OAS Clawback (recovery) starts at $74,788 of income.  At $121,720 of income OAS will be fully clawed back.

OAS rates for past years:

Year Maximum Monthly Benefit Maximum Annual Benefit
2018 $586.66 $7,039.92
2017 $578.53 $6,942.36
2016 $570.52 $6,846.24
2015 $563.74 $6,764.88
2014 $551.54 $6,618.48
2013 $546.07 $6,552.84
2012 $540.12 $6,481.44
2011 $524.23 $6,290.76

For more information on OAS Clawback:

New Federal Tax Brackets

For 2018, the tax rates have changed.

 

Welcome to Mortgage Insurance – Protect yourself not the lender!

Welcome to Mortgage Insurance – Protect yourself not the lender!

Your home is one of the most important purchases you’ll make and protecting it is crucial. Mortgage protection plans offered by your lender are policies that insure your mortgage against the death of the title holder and pays the outstanding balance to the lender to cover the lenders potential loss. When you need protection and security after a death, the lender seem more concerned about their bottom line than your families well-being.

The problem with the lenders (bank, credit union) plans is that you, the homeowner, do not own the actual Insurance Policy. Mortgage insurance from your lender is held by the lender and only paid out to lender, and not to your family, which leaves loved ones with little to no income replacement and no financial security.

An Individual Life Insurance Policy can be up to 40% less than the lenders offerings (depending on age and health) because the lender are the go between to the insurance company. The increased cost is added to the price of the insurance to cover the non licensed brokers fees. So not only is it costly to insure through the lender the actual coverage is not benefiting those who matter most. Individual mortgage insurance keeps your home in your family’s hands and protects the families interests, because your family deserves Financial Security upon death – not your lender. For a comparison of Individual plans versus lender plans and understanding the value of individual mortgage insurance policies versus your lender’s policies, means looking at what each policy can offer you. Please see the table below to see why a lender’s mortgage insurance plan doesn’t offer the freedom and security of insuring yourself individually.

Contact Henley Financial & Wealth Management if you have any questions or need help insuring your home for your families financial security. We are happy to help save you money while creating a positive financial future.

If you are in need of a mortgage please contact  Bayfield Mortgage Professionals a trusted professional and mortgage broker.

Individual Plans Versus Your Lender

 Questions? Individual Insurance Policies Mortgage Loan Insurance from your Lender
Do I own my insurance policy? Yes No, The owner is your lender.
Who can be the beneficiary of the policy? Anyone you choose. Only the lender can receive the benefits from the policy.
When does coverage end? It depends on the term that YOU choose. Coverage ends when the mortgage is paid.
Do I have the same coverage for the life of the policy? Your coverage stays the same throughout the term of the policy. The coverage decreases relative to the value of the remaining loan.
What can your coverage be used for? Any purpose. The benefits are paid as a sum to your beneficiary to be used how they wish. The coverage may only be used to cover the balance on the loan.
Can I get lower rates if I’m a non-smoker/in excellent health? Yes. You usually pay as much as 50% less on your insurance premiums. No, premiums are determined under one rate system.
If I sell my home am I still protected? Yes. Since you are the owner of the policy. No, you will need to obtain a new policy.
Can I convert or renew my policy to change the terms or coverage? Some policies may be renewed or converted to another policy. No, you may not convert nor renew coverage. You may not transfer this coverage into a new policy.

 

 

Start the New Year with a check up!

Looking at your finances and trying to figure out how to deal with multiple goals can be frustrating. We want it all – who doesn’t? But for most of us it’s not that easy. Which goals do you save towards first, second, and so on?

  • How do you prioritize retirement savings, children’s education, a new vehicle and mortgage pay down?
  • How do you pay off debt and still have savings?
  • How do you invest in your future and deal with current obligations?
  • Have you even looked at your Financial Security as it relates to your family?

It’s tough to manage all your short, medium and long-term financial goals at once. On one hand, focusing on just one thing can leave you financially vulnerable in some areas. On the other hand, spreading your finances too thinly in order to focus on all your goals at once can create uncertainty.

Let us help you create a path to success see below our 2018 Financial Check List. If you have any questions, needs or wants, please do not  hesitate to contact us  at Henley Financial and Wealth  Management  

 

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