Make Your Mortgage Interest 100% Tax Deductible.

Most business owners have non-deductible mortgages owing on their primary residences. Meanwhile, they own their businesses outright. This means that they are throwing away after-tax dollars paying their non-deductible mortgage interest.

Savii Financial Concepts offers a unique tax strategy called the IMPACT plan that immediately and effectively reallocates your capital to optimize your tax efficiency.

Big businesses have the resources to hire professionals to do their tax planning. The IMPACT plan enables you to do the same kind of planning at a level that suits your personal and business tax needs.

Ordinarily, you would have to pay a team of tax professionals tens of thousands of dollars to assemble a plan of this value. The IMPACT plan is available at no upfront cost to you, and could enable you to deduct $20,000, $30,000, even upwards of $40,000 in your very first year.

The Supreme Court of Canada has recently re-stated that:

“It has long been a principle of tax law that taxpayers may order their affairs so as to minimize the amount of tax payable”
“There is no reason why a taxpayer may not arrange his or her affairs so as to finance personal assets out of equity and income earning assets out of debt.”

– Supreme Court of Canada [2009] 1 S.C.R.3 Lipson v. Canada

The IMPACT plan provides 3 basic steps that enable you to invest in your own company while deducting 100% of the interest off this new loan at no upfront cost to you. Investment loans are deductible under Section 20(1)(c) of the federal Income Tax Act.

This table shows you how much you can deduct in your first year alone:

Stop Spending After-Tax Dollars Paying Your Interest

The IMPACT plan has 3 basic stages with tremendous benefits. Your tax deductions are for 100% of your mortgage interest, effective immediately.

You are investing into your own business. Your plan will be individually crafted and built specifically for you by one of the leading tax law firms in the country, Shea Nerland Calnan LLP. Shea Nerland Calnan LLP is a premier business law firm with tax planning as a focus practice area.

The 3 Stage Plan

Stage 1

You work with an IMPACT consultant to plan an investment into your own business before you purchase your next home, or refinance your mortgage. This investment into your business utilizes the full proceeds of your new loan and allows you to deduct 100% of the interest off this new investment loan.

Stage 2

Your corporate entity utilizes this new capital to benefit the corporation and its shareholders. Some clients use this opportunity to finance growth, purchase equipment, or invest, through their corporations, into any market that will provide the best return for their risk tolerance.

Stage 3

You eliminate any existing non-deductible debts you may hold. This can include a previous non-deductible mortgage, large credit card or personal line of credit. Alternately, funds can be used to close the purchase of a new home…

Contact Us Today: We’ll show you the difference between owning your job and using your business to create wealth.

What is the RRSP Meltdown Strategy?

This strategy will enable you to withdraw income from your RRSP’s tax free. Typically, when you withdraw from your RRSP you are required to pay tax on the withdrawal at your marginal tax rate. With the RRSP meltdown strategy however, there will be no taxes owing.

The strategy is quite simple really, and works by first of all setting up a personal investment loan. The loan is then structured in such a way as to make the interest payments equal to the tax you would pay on your RRSP withdrawals.

Since the interest on the investment loan is tax deductible, the income tax payable on the RRSP withdrawal is canceled out. This will result in zero taxes owing on the money you withdraw from your RRSP. The investment loan could be used to purchase a segregated fund contract or perhaps a selection of guaranteed income funds which in and of themselves are also highly tax efficient.

Let’s Look at an Example:

Mr. Jones is 50 years old and is planning to retire at the age of 65. His RRSP currently holds $400,000 in GIC’s earning a rate of 3% annually. By the time he is ready for retirement his account balance will have grown to $623,187.00.

To maintain his current lifestyle Mr. Jones calculates that he will need to withdraw $50,000 a year from his RRSP after age 65. Assuming a 30% marginal tax rate, he would realize a net net income of only $35,000, and his entire RRSP savings would be depleted by the time he reached the age of 80.

But just prior to his retirement, Mr. Jones decides to borrow $400,000 to purchase a segregated fund contract. It is an interest only loan at a rate of 3.75%, which creates for him an annual loan payment of $15,000. ( $400,000 x 3.75% = $15,000 )

In the same year Mr. Jones withdraws $50,000 from his RRSP’s at a marginal tax rate of 30%, so his tax liability is $15,000. ( $50,000 x 30% = $15,000 )

However, because the $15,000 loan payment is fully tax deductible the income tax payable on his RRSP withdrawal is entirely offset resulting in $0 tax owing!

In the Meantime…

The $400,000 that Mr. Jones borrowed was used to purchase a guaranteed income fund that has been compounding annually at a rate of 6%. By his 80th birthday his RRSP balance will be zero but the guaranteed income fund will have more than doubled to $958,623.

Mr. Jones now decides to pay back the investment loan leaving him with an account balance of $558,623 but still earning 6% a year. As he begins to draw money from the account he soon realizes that he no longer needs $50,000 per year.

Because his investment is no longer in a registered account the withdrawals are considered capital gains which are taxed at 1/2 the marginal tax rate. ( 30% ÷ 2 = 15% ) He now need only to withdraw $41,200 a year to realize the same $35,000 net income as before. ( $41,200 – 15% = $35,020 )

Mr. Jones will have extended his retirement lifestyle an additional 20 years and will surpass the age of 100 before his guaranteed investment fund is depleted. If Mr. Jones were to pass away before that time, the entire balance of his investment portfolio could be passed on to his beneficiaries tax free!

Conclusion

An RRSP Meltdown Strategy can be very beneficial to those who are closing in on retirement and need to begin strategizing their RRSP withdrawals. It is a great way to convert your existing RRSP into a more tax efficient non-registered income producing portfolio tax free. Contact an advisor today to learn more about the RRSP Meltdown Strategy and how it can work for you.

When taking on a mortgage to purchase a home, the amount of interest paid on that loan can be as much or more than the actual cost of the house itself. But it doesn’t have to be that way.

An all-in-one account is a revolutionary new concept to financial management that could save significant time and money over traditional financing. It is more than just a line of credit secured against property as is the case with many banks. It is an all-in-one flexible mortgage account that can help to save thousands of dollars in interest charges, simplify finances, and pay off debts many years earlier.

Most Canadians have learned to manage their financial affairs by doing two things:

• Depositing their income and other short-term assets into chequing and savings accounts.
• Borrowing when necessary, through mortgages, lines of credit, personal loans, and credit cards.

Sounds simple enough. Unfortunately, most financial institutions pay little or no interest on their customer’s deposits, while at the same time charging high interest rates on the money they lend out. Wouldn’t it make more sense if deposits and borrowings were combined? Why not have every dollar earned go towards paying down debt until those monies need to be spent?

An all-in-one account does exactly that – and more! It brings mortgage, savings and income together into one multi-purpose “borrowing and chequing” account. Any income deposited to the account instantly reduces the amount borrowed. As bills and other expenses are paid throughout the month, the amounts owed will slowly increase again, but the overall savings could amount to thousands of dollars. With an all-in-one account, every day that even a dollar of income stays in the account, there is less debt and so therefore less interest to pay.

An all-in-one account combines all debts, savings, borrowings, and income into a single personal borrowing and chequing account, including:

• ongoing sources of income
• chequing and savings account balances
• mortgage payments
• lines of credit
• credit card debt
• car loans / lease payments
• personal loans

The concept of having an all-in-one account makes perfect sense: it brings all banking needs together to simplify finances so that income and savings can work harder to reduce debt faster.

Debt Consolidation

An all-in-one provider will usually lend up to 80% of the appraised value on an existing home. This money could be used to pay off the balance of an existing mortgage, personal lines of credit, and any other outstanding debts. Pay just one low interest rate on every dollar borrowed.

Put Savings to Work

Frustrated because of earning little or no interest on chequing accounts, savings balances and short-term investments? An all-in-one account can help to put that money to work. It applies those balances against borrowings, instantly reducing total debt… and saving a person much more in interest costs than they would likely ever make in interest earnings! And what’s more, those monies can be taken back out whenever needed (up to the borrowing limit).

Put Income to Work

By adding regular income to an all-in-one account, a further reduction in debt is triggered the instant the deposit is made. One’s income immediately begins working to reduce loan interest costs until it is needed for monthly expenses. With even just one extra dollar of income in the account, debt is reduced faster and so there is less interest to pay.

An all-in-one account could save Canadian families thousands of dollars in interest costs and help them become debt-free years sooner as compared to the old way of banking.

Read what Canadians are saying about how an all-in-one approach has changed the way they bank.

Interested to learn more? Just complete the information request form and your query will be forwarded to a qualified banking consultant who will be able to answer all of your questions.

Important notice: Savii Financial Concepts is not a mortgage broker and does not in any way solicit mortgage business. The content of the posted article is intended strictly for educational purposes. Any and all inquiries relating to all-in-one banking and/or conventional mortgages will be directed immediately to a qualified banking consultant.

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The Purpose of Life Insurance

Not everyone needs life insurance. If you are a single person and have no dependents, it may not be worth the expense. If, however, you have anyone who financially depends on you (even partially), life insurance may be appropriate for you.

Ask yourself this one question: ” Would my death leave anyone to suffer financial hardship?” If the answer is “yes”, then it’s probably a good idea to invest in some form of life insurance.

A well structured policy can provide you with peace of mind, knowing that your loved ones will be taken care of in the event of your death.

It can protect your family from risk exposures such as repayment of debts, provide income for your surviving spouse, put your children through college or university, leave a charitable legacy, pay for funeral expenses, etc.

Originally life insurance was designed to protect the income of young families during the wealth accumulation phase of life, but today it is used for many other reasons including wealth preservation and estate tax planning.

Life insurance protection is also important if you are a business owner or a key person in someone else’s business, where your death (or your partner’s death) might wreak financial havoc.

Life insurance protection comes in many forms, and not all policies are created equal, as you will soon discover. While the death benefit amounts may be the same, the costs, structure, durations, etc. can vary tremendously between the different types of policies.

The Amount of Coverage Needed

Your need for life insurance will depend on your personal circumstances, including your current income, your current expenses, your current savings and your family’s goals.

A general rule of thumb is to purchase enough life insurance to cover 6 to 10 times your gross annual income, but that is just a rough guide.

Your particular family however may need more or less coverage than that, but before making any final decisions you should map out the details of what you have versus what goals you’d like for your family once you are gone, keeping in mind that their security can often carry a higher price tag than originally thought.

If you have any outstanding debts make sure the coverage is enough to pay them off in full. This includes car loans, mortgages, credit cards, personal loans, business loans, etc. You may also want to think about allowing for a little extra to take care of any interest charges.

The Duration of the Coverage

Many insurance consumers only need to replace their income until they’ve reached retirement age, have accumulated a fair amount of wealth, or their dependents are old enough to take care of themselves.

When evaluating life insurance policies for you and your family, you must carefully consider the purchase of temporary ( Term life ) insurance versus permanent coverage. ( Whole life; Universal life )

The way that temporary and permanent policies are structured and how death benefits are determined differ greatly. There is also vast differences in the cost of insurance and in the duration of the life insurance protection.

It is not uncommon for individuals to buy term insurance as a temporary risk protection and then invest the savings ( the difference between the cost of term and what they would have paid for permanent coverage ) into an alternative investment, such as segregated funds or retirement plans.

Online insurance quotes from Canada’s best providers instantly, free of charge with no strings attached.

• Term Life Insurance
• Whole Life Insurance
• Universal Life Insurance

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Add Value to an Existing RESP

This article is going to teach you how to increase the potential value of your existing group RESP without having to invest any additional funds. The technique is called a “Plan Conversion” and for it to be effective you would need to have made steady RESP contributions for a period of at least 7 1/2 years or more. But before I go on to explain the details and benefits, we need to lay down some groundwork first.

If you’ve been contributing to a group RESP plan for your child’s education, it’s probable that you set up either a monthly or an annual contribution schedule. If your child was less than a year old when the plan was started, then your contribution period will cover about 18 years until the plan reaches maturity.

The money you’ve been contributing to the RESP will also have been combined together with the monies from other parents contributing for their children into one large investment or pooled account. Typically the investments held in such an account are guaranteed securities, long term federal and provincial government bonds, principal guaranteed bank notes, and guaranteed investment certificates.

After maturity, an eligible student is entitled to draw money from the pool, the amount being determined by the number of shares or units that a plan holds. The units attached to an account are factored in from the beginning, but can be modified later either by changing the contribution method or the contribution amount. Initially when calculating the number of units on a plan, the following factors would have been taken into consideration:

• Age of the child
• Deposit method ( monthly, annually, etc. )
• Contribution schedule ( 5yr, 10 yr, etc. )
• Optional deposit insurance ( death and disability coverage )

Calculation of Units

Let’s look at an example, but for the sake of simplicity we’re going to round off some of the numbers. A popular group plan, Heritage Education Funds offers units of their investment pool ( about $2 Billion ) at a cost of $5 per month over an 18 year period to parents with children under a year old.

In other words if you only contributed $5 per month over an 18 year period your total contribution would be equal to equal $1080 ( $5 x 216 months ) and your account would hold 1 unit.

On the other hand, if your RESP contributions were $100 each month then your account would hold 20 units ( $100 ÷ $5 ) and your total contributions would amount to $21,600. ( $100 x 216 months )

Seems simple enough, but what do you think would change if you had invested the entire $21,600 into the RESP right from day one and not bothered with a monthly contribution at all?

On a one time deposit paid in advance, Heritage Education Funds offers units of their investment pool to parents with children under a year old at a rate of $437 per unit. Therefore an RESP account with an investment of $21,600 paid up front would hold almost 50 units. ( $21,600 ÷ $437 ) That’s 30 units more than the monthly deposit schedule, yet the total contributions to the RESP are exactly the same. Why such a difference?

Power of Compounding Interest

Let’s step away from RESP’s all together for a moment and take a look at a simple formula called:

It states that if you have an investment generating an annual return of 10% then your money will double every 7.2 years. If the annual return is higher then it will double in less than 10 years and if return is lower than it will take longer than 10 years to double.

If you invested $100 every month over 18 years with a steady annual return of 6% your total investment would equal $21,600 ( $100 x 216 months ) but your account balance would have grown to $38,000. That’s a total return of $16,400 on your investment.

But what if you had taken the same $21,600 and invested the entire amount right from day one?
Using the same annual return of 6% your account balance would have grown to nearly $62,000!
That’s $24,000 more than in the previous example, yet the total amount invested remains the same.

The difference in the 2nd example is that you have the full earning power of the investment working for you right from day one, whereas in the 1st example it takes 18 years before you reach the full earning power of your investment. So what has all of this got to do with optimizing group RESP’s you ask?

Group RESP Plan Conversion

Most group RESP companies have an option that allows you to convert a plan from one deposit method to another, this is simply called a “Plan Conversion.” You probably won’t find much information written on this subject in the prospectus, but it can effectively increase the potential value of your RESP.

Let’s say you’ve been contributing $100 monthly to a group RESP for a 7 1/2 years,( 90 months ) and your account holds 20 units. Your total contributions up to this point would therefore be equal to $9000.

Suppose for a moment that instead of contributing the $100 every month you had just made a one time contribution of $9000 at the very start. If the unit rate for a single deposit was $437 then your account would still hold 20 units ( $9000 ÷ 437 )

Now I know what you’re thinking …..”The reason you started the monthly contribution in the first place is because you didn’t have the $9000 to make a one time contribution.” The truth is that neither do most young families when they’re just starting out, but that’s o.k.

A “Plan Conversion” allows you to take advantage of the lost earning power on the $9000, by converting your existing plan from a monthly ( or annual ) deposit into a lump sum or single deposit account.

After conversion your account should still hold the same 20 units that you started with, while at the same time freeing up $100 per month. If you are happy with your current RESP provider you could reinvest the $100 by starting a new plan, and if not then simply invest the money somewhere else.

If you were to start a new plan the units rates would have increased according to the age of the child, but at age 8 let’s say, you could probably expect another 6 units or so. If you add that to your existing 20 units you now have a total of about 26 units which increases the overall value of your RESP by 30%!

Before going ahead with a plan conversion first ask your RESP provider for a plan adjustment quotation. This will show you the exact number of units your plan will hold after conversion, and may also indicate a small transfer of funds from principal to interest. This will account for potential interest the investment pool would have earned on your remaining deposits, but should be relatively insignificant compared to the financial benefits you receive.

Contact us today to find out more about RESP plan conversions.

Read more on the topic: RESP Investment Basics

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Other People’s Money

Most people will have heard of the expression OPM. It’s a commonly used abbreviation for the phrase, ”Other People’s Money.“ If you have ever had occasion to take out a loan from the bank then you have already had some experience and benefited from the use of someone else’s money. OPM is the key ingredient when it comes to leveraged investing.

A bank is usually willing to lend out money as long as the borrower meets the bank’s lending criteria and agrees to pay back the loan plus specific interest charges over a set period of time. A loan can be secured or unsecured depending on it’s use, the size of the loan, and the banks assessment of the borrowers ability to repay the loan.

If a loan is being used to fund a private business venture it is called a business loan. When a loan is used to purchase a home or property it is called a mortgage loan. If a loan is used for investment purposes it is called an investment loan.

Business loans are used primarily to cover the capital cost of starting up new businesses. The loan might be used for the purchase of equipment or machinery, put toward leasehold improvements, the hiring and training of staff, paying for franchising fees, etc.

A business loan could also be used to purchase inventory and to maintain cash flows for companies during slower selling seasons. A lender will usually require a down payment of between 10% to 30% along with a detailed business plan before considering a loan application.

A business person who understands the concept of leveraging realizes that ten pairs of hands can accomplish much more than a single pair of hands. The employee working with two hands has limited earning potential while the business owner multiplies that earning power by hiring ten employees to help run the business. The business person has learned how to leverage both resources and manpower.

A mortgage loan is only necessary if the buyer doesn’t have enough cash to cover the full selling price. If the selling price happens to be $400,000 then the purchaser has 4 different options.

1.) Withdraw the $400,000 from a savings account and pay cash.

2.) Wait until there is enough money in the savings account and then pay cash.

3.) Convince a rich relative to purchase the property on their behalf.

4.) Give the bank a down payment and take out a mortgage for the remaining balance.

The first scenario is unlikely because the average Canadian doesn’t have $400,000 sitting in a savings account. The second is just as unlikely because even if one managed to squirrel away $20,000 a year, it would take 20 years to come up with the $400,000.

If that same property was even listed on the market at that time it’s value would have probably doubled to at least $800,000. And the rich relative scenario well………..if you have one then go for it.

The reality is that most Canadians are going to walk into a bank and apply for a mortgage loan. The bank will require a minimum down payment of 5%, so on a $400,000 property the buyer will need to come up with a minimum of $20,000 and the bank will finance the rest. In effect what the buyer is doing is leveraging the $20,000 into $400,000.

Leverage by definition is using the proceeds of a loan to invest with the intent of earning a greater rate of return than the interest cost on the loan itself.

If the real estate prices were to rise every year by an average rate of 7%, then in 10 years time the value of the property will have increased to $786,860.

At a 5% mortgage rate monthly payments on the property would be about $2200 per month, so the total cost of servicing the mortgage over 10 years would have been ($2200 X 12) x 10 = $264,000. Lastly the amount left owing on the mortgage would be $280,425.

If the homeowner was to sell the property after the 10 years the following scenario would unfold.

That represents a 78% return on the investment using other peoples’ money and the power of leverage.

The rationale behind an investment loan is really no different than for a mortgage loan. It provides the investor an opportunity to maximize profits by taking a small amount of money and leveraging it into a much larger amount of money. Let’s take a look at an example of 2 different investment strategies:

1. ) Mr. Smith withdraws $5000 out of his personal savings account and invests it in a mutual fund. He is hoping for a return of at least 10% on his investment and is willing to take some risk. He chooses an aggressive stock fund, the market does well and he realizes his gain of 10%.

2. ) Mr. Jones decides to use OPM as his investment strategy and takes out an investment loan for $100,000. He calculates that the borrowing cost of the loan will be $4000. Because Mr. Jones is a much more conservative investor he wants to minimize his level of risk. So the investment he selects is a balanced growth segregated fund which earns him a modest return of 6%.

Mr. Smith invested $5000 of his own money in a riskier fund than Mr. Jones and made a profit of $500.

Mr. Jones spends $4000 to leverage $100,000 at lesser risk than Mr. Smith and made a profit of $2000.

Mr. Jones realized an overall return of 400% more than Mr. Smith.

That is the power of leveraging an investment by using other peoples money. Oh, and did we forget to mention that Mr. Jones can also write off the $4000 cost of borrowing against personal income taxes? The $4000 write off would reduce Mr. Jone’s income taxes in exactly the same way as if the $4000 was contributed to an RRSP!

Contact us today and learn how a Borrow to Invest strategy can create wealth for you.

Order the booklet “Dispelling the Myths of Borrowing to Invest by Talbot Stevens ( Author ).”

Read more about:Segregated Fund Investments

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What Are Segregated Funds?

Segregated funds or seg funds are essentially mutual funds that have been wrapped in a blanket of guarantees, benefits, and features. Investors are not issued units or shares as in a mutual fund but rather become holders of a segregated fund contract.

Contracts can be registered or non-registered depending whether they are held inside of an RRSP or outside. As required by law, the funds are completely isolated and held outside of the provider’s general investment fund, hence the name segregated funds.

Guarantees, Benefits, and Features

Segregated funds combines the growth potential of mutual funds with the additional security of an insurance policy. The insurance company provides 5 key elements that remove the majority of risk for the investor. It is the combination of these 5 elements and the duration of the segregated fund contract that make them a perfect fit in our B2I or Borrow to Invest strategy. These elements include:

75% Principal Guarantee

A typical seg fund contract is held for 10 years although certain conditions allow funds can be withdrawn sooner. As markets move up and down so does the value of a segregated fund.

This same principal will apply to funds held in a stock or mutual fund portfolio.The difference being that stocks and mutual funds have no guarantees whereas segregated fund contracts have a built-in 75% maturity guarantee. So let’s look at example of how this might apply in real life.

1. ) Mr. Smith invests $100,000 with his broker in couple of small cap stocks and an aggressive growth mutual fund. His plan is to hold the investment for 10 years before cashing out and putting the funds toward a major renovation on the family home. His portfolio performs very well over the next few years but in the 8th year the markets collapse and his share values are cut in half. The value of his portfolio drops from $100,000 down to $50,000. Not willing to risk any more losses he decides to cash in the portfolio and is left with $50,000.

2. ) Mr. Jones invests $100,000 into a segregated fund contract that matures after 10 years. During the first 8 years the funds performed very well and he was able to draw out about $30,000 in profits, but in the 8th year the markets suffer a complete meltdown. The losses amount to 80% so the value of the seg fund is reduced to $20,000 and never has time to recover. But because of the maturity guarantee Mr. Jones still receives $75,000 when the contract is cashed in.

Both Mr. Smith and Mr. Jones experienced a dramatic downturn in the financial markets. In Mr. Smith’s case the downturn was 50% and he lost 1/2 of his investment. In Mr. Jones case the downturn was even more severe causing an 80% loss of his investment, but due to the maturity guarantee he still walked away with $75,000. Plus he was able to withdraw $30,000 in profits over the first few years so he actually came out ahead by $5000.

Death Benefit Guarantee

If the holder of a segregated fund contract should pass away while the contract is still in effect, then the designated beneficiary would receive a minimum of 100% of the original investment.

Let’s assume that there is $100,000 invested in a seg fund, the markets crash and the investment drops to $10,000. The investor forgets there is a 75% maturity guarantee, panics needlessly causing his blood pressure to soar, and triggers a fatal heart attack.

Even though the value of the seg fund is now $10,000, the designated beneficiary will still receive $100,000. On the other hand, what if the investment increases in value to $150,000 and the investor unable to contain the excitement suffers a fatal stroke?

Then the designated beneficiary would receive the full value of the account which is now $150,000.

Exemption From Probate

Probate is the legal process of administering the estate of a deceased person by resolving all claims and distributing the deceased person’s property under the valid will. A surrogate court decides the validity of a testator’s will.

A probate interprets the instructions of the deceased, decides the executor as the personal representative of the estate, and adjudicates the interests of heirs and other parties who may have claims against the estate.

The cost to administer the estate of a deceased person can add up to several thousands of dollars and may include executor fees, probate fees, legal fees, and accounting fees.

In the case of a segregated fund, if a beneficiary has been named then the entire investment will pass directly on to the beneficiary and bypass probate. The seg fund is not subjected to any probate or executor’s fees and neither can it be contested as part of the will.

Protection From Creditors

Granted certain qualifications are met, segregated fund investments may be protected from seizure from creditors. This is an important feature for business owners or professionals whose assets may have a high exposure to creditors.

Unless it can be proven that the seg fund was purchased to deliberately avoid potential known creditor actions it is fully protected. This may also include seizure from Revenue Canada.

Reset Option

The reset option is a feature that allows the contract holder to lock in any investment gains on the account. The investor is allowed to take advantage of this feature up to a maximum of twice per year.

Again using an example of a $100,000 contract, if the investment were to increase to $130,000 then the contract holder could exercise the reset option and lock in the $130,000.

Now the maturity guarantee increases to 75% of $130,000 which translates into  $97,500 and the total death benefit guarantee for the beneficiary increases to $130,000. How good is that?

For more information about the benefits and features of segregated funds contact us today.

• Manulife GIF Select
• Equitable Pivotal Solutions
• IA Pacific Ecoflex / Ecoflextra
• Canada Life Generations II Series
• RBC Guaranteed Investment Funds
• Guaranteed Income For Life Investments

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What is Mortgage Insurance

If you are an existing homeowner paying down a mortgage you probably already have some type of mortgage insurance coverage. If you are just starting out and are in the process of purchasing your first home, then you will likely be requiring mortgage protection in the very near future.

Mortgage insurance is a life insurance policy offered by banks and other lending institutions. It is designed to pay off the the balance of a mortgage should the mortgage holder pass away before the mortgage has been paid out.

Without exception the beneficiary of the policy will always be the bank or lending institution. More than 90% of all Canadian home owners purchase mortgage insurance from their lender at the time the mortgage documents are signed. If you happen to be one of those people, then you will have paid on average 40% more for an insurance policy that benefits only the lender instead of you and your family.

The table below shows the cost of typical mortgage insurance offered by one of Canada’s top 5 banks as compared to our 10 Year Term insurance. The rates shown are standard rates for a non smoking male on a $250,000 mortgage. Preferred rates will be even lower. Contact us for a free quote today.

What are the Benefits?

Standard Mortgage Insurance

If a person owes $250,000 on a mortgage and dies in a car accident tomorrow, the insurance company would pay back to the lender the $250,000 that was left owing on the mortgage, or would they?

What 90% of Canadians don’t realize is that the underwriting on a typical mortgage insurance claim is done after the fact. In other words, the insurance company will look into the medical history of the deceased to see if there could be any reasons for denying the claim.

If the autopsy revealed that the car accident was caused by an underlying medical condition then there is the possibility of the claim being denied. The surviving spouse who happens to be a stay at home mom and raising 3 kids would then have to find a way to continue paying the mortgage or risk losing the family home. If you don’t think it could ever happen then have a read through the following stories:

Term Life Insurance

The difference with Term Insurance is that the underwriting is done beforehand, therefore the insurance claim cannot be denied later on. If the insured party passes away, then the $250,000 is paid out directly to the beneficiary and not to the lender.

Assuming that the surviving spouse is the beneficiary, then he or she now has the choice of either paying out the mortgage or using the funds in a manner of his or her choosing. Maybe the spouse earns a good income and is content to continue paying down the mortgage every month.

The $250,000 could then be used to renovate the family home or to fund a new business venture. Maybe a college fund for the kids or invested in a retirement plan for the future. The proceeds of the term policy and the disbursement of the funds are always 100% controlled by the beneficiary.

What is the Coverage?

On a conventional mortgage insurance policy the amount of coverage is based solely on the outstanding mortgage balance. If the original mortgage loan was for $250,000, but over years of repayments the balance is reduced to $170,000, then the amount of coverage also decreases to $170,000. The proceeds of the policy are payable to the lender and not to your beneficiary.

Term insurance on the other hand provides the same level of coverage for the entire length of the term and at about 40% of the cost. If someone started out with $250,000 in coverage but over time the mortgage balance diminished to $170,000, the amount of coverage would still remains at $250,000.

Control of the Policy

A standard mortgage insurance policy is owned by the lending institution that issued it. Not only do they fully own and control the policy, they are also the sole beneficiary of the policy. If one were to move a mortgage to another financial institution, the existing mortgage insurance would cease.

In order to remain insured the borrower would need to reapply for coverage but at a potentially higher premium. As a person ages the cost of insurance increases, and if a person happened to be suffering poor health at that time, they could be denied coverage altogether leaving them with no protection at all.

If one were to sell a home or have a property foreclosed on by the bank the mortgage insurance would cease. Any changes to a mortgage document such as refinancing or a change of address, can lead to the collapse of a mortgage insurance agreement held by the lender. Does that give you peace of mind?

Term life insurance gives full control of the policy to the policy holder. It makes no difference as to which financial institution holds the mortgage, and it makes no difference whether a mortgage is moved from one institution to another.

Term insurance always stays with the policy holder and not with the lender so coverage never ceases. The owner of the policy has the freedom to make certain changes along the way. These changes may include the naming of a new beneficiary, renewing for another term, or converting to a more permanent type of insurance without having to go through a medical examination or answer any health questions.

What is the Downside?

The worst case scenario for Term Insurance is that for certain health reasons the applicant might not qualify. Well isn’t that actually better to know beforehand than to have spent thousands of dollars in unnecessary insurance premiums for coverage that would ultimately get denied? Learn to protect your family, your home, your business, and Not your lender ! Contact Savii Financial Concepts today and let us take care of all your mortgage insurance needs.

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Important notice: Our mortgage insurance plan does not replace CMHC mortgage loan insurance, which is the insurance *********************** you are required to buy if the down payment on your home is less than 20%.

Tuition Fees Steadily Increasing Across Canada

During the 1990s, undergraduate tuition fees in Canada increased at an annual average rate of more than 9.6%. In the 1990/1991 and 1991/1992 academic years alone, they went up 15.2% and 16.5%, respectively. Since the year 2000, the increasing cost of education has slowed to an average of 3.8%.

In 1998/1999 the average cost of tuition for an undergraduate student was $3,064, compared to just $1,185 in 1988/1989. On average, undergraduate students paid $4,917 in tuition fees in 2009/2010, compared with $4,747 in 2008/2009.

Canadian full-time students in undergraduate programs faced the same increase in tuition fees (+3.6%) for the 2009/2010 academic year as they did a year earlier.

In comparison, between August 2008 and August 2009, inflation as measured by the Consumer Price Index (CPI) declined 0.8%. During the same 12-month period in the previous year, the CPI rose 3.5%.

Tuition fees increased in all but three provinces this fall. Fees remained unchanged in Newfoundland and Labrador and New Brunswick, while they declined in Nova Scotia (-3.1%) for a second year in a row.

Two provinces ended freezes on tuition fees with increases — Manitoba (+4.3%) and Saskatchewan (+3.4%). Elsewhere, tuition fee increases ranged from 2.0% in British Columbia to 5.0% in Ontario. Ontario’s increase was the limit legislated by the Ontario government.

On average, undergraduate students in Ontario also paid the highest fees in Canada at $5,951. Students in Nova Scotia had the second-highest average tuition fees at $5,696.

Quebec undergrads continued to pay the lowest fees, averaging $2,272, followed by those in Newfoundland and Labrador at $2,619.

Graduate Students Face Greater Increase than Undergrads

At the national level, graduate students faced larger tuition fee increases than undergraduate students.

On average, graduate students paid 4.7% more than in 2008/2009, compared with an increase of 3.6% for undergraduate students. Graduate students paid an average of $6,008 in tuition fees for the current academic year.

Fees for graduate students were up in eight provinces. Fee hikes ranged from 3.4% in Saskatchewan to 5.9% in British Columbia. In Newfoundland and Labrador and New Brunswick, fees for graduate students remained unchanged from 2008/2009.

Undergraduate: Dentistry Students Pay Highest Avg. Fees in Canada

As was the case in 2008/2009, undergraduate students in dentistry paid the highest fees on average ($13,988), nearly three times the average of all undergraduate disciplines, followed by students in medicine ($10,216).

Undergraduate students in veterinary medicine saw the largest increase (+15.6%), and ended up paying $5,110 in the current academic year, followed by architecture and related services programs with a 6.5% rise. Increases in other fields ranged from 1.9% (business, management and public administration) to 5.9% (law).

At the graduate level, the most expensive program was the executive master of business administration (MBA), with tuition of $30,653, and the regular MBA program at $20,564. However, students in the executive MBA program had the smallest increase of all graduate programs from 2008/2009 to 2009/2010 at 2.5%.

The largest increases were recorded in agriculture, natural resources and conservation (+15.7%) and veterinary medicine (+10.9%).

International Students Paying More

Nationally, the average increase for international students in undergraduate programs was 7.1%, and they had average fees of $15,674.

Tuition fees rose for all programs for international undergraduate students except in Newfoundland and Labrador. The increases for the other 9 provinces ranged from 0.4% in Nova Scotia to 18.9% in Alberta. Overall, 4 of the 10 provinces covered by the survey had hikes of more than 12% from 2008/2009.

International full-time students in graduate programs faced an average fee hike of 5.1% in 2009/2010 compared with the previous year.

While fees increased in most provinces, they declined slightly (-1.0%) for international students in Manitoba, and remained unchanged for Newfoundland and Labrador and New Brunswick’s international students.

International full-time students in graduate programs faced the highest increase in Prince Edward Island (+9.0%), followed by those in Québec (+8.2%).

Additional Compulsory Fees on the Rise

The bundle of services included in additional compulsory fees varies from one institution to the next and can change over time. Typically, they include fees for athletics, student health services, student association and other fees that apply to full-time Canadian students.

Nationally, the additional compulsory fees increased 6.8% compared with last year. On average, Canadian undergraduate students paid $749 in additional compulsory fees in 2009/2010, up from $701 a year earlier.

In 2009/2010, additional compulsory fees for undergraduate students ranged from $474 in New Brunswick to $935 in Alberta. Compulsory fees for graduate students ranged from $536 to $987 for the same provinces respectively.

Alberta, with an increase of $222 (+31.1%), posted the highest increase in additional compulsory fees for undergraduate students, while Prince Edward Island had the highest increase for graduate students (+8.9%).

Additional compulsory fees are often excluded from fee regulations and are normally determined in part by provincial departments, institutions and student organizations.Source: Statistics Canada 09.10.20

Preparing Ahead to Meet the Challenge

Based on the current rate that tuition fees are rising, a child born in 2009 can probably expect to pay upwards of 60K to 75K in tuition fees alone by the time they are finished high school.

To help offset the increasing cost of education, the Canadian government allows families to save for their childrens education through a tax sheltered program known as an RESP, or Registered Education Savings Plan.

Not only is the money that is invested inside an RESP allowed to grow tax free, it also attracts contributions from the federal goverment through the Canada Education Savings Grant (CESG) and Canada Learning Bond (CLB) programs.

There are different ways for families to invest money inside an RESP, and different companies that offer RESP’s to the public. Choosing the right RESP can give you the peace of mind of not having to worry about how your children will pay for their education, and take the burden from your children by them not having to worry about paying back thousands of dollars in student loans.

For more information about RESP’s contact a Heritage RESP representative today.

Read more on the topic: RESP Investment Basics

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Benefits of Using RESP Accounts

Because of the escalating cost of tuition fees every year, the government of Canada has provided a means for parents to maximize the growth on their savings and investments through an RESP, or Registered Education Savings Plan. Money invested inside of an RESP will grow at a much faster rate than monies invested outside of an RESP.

The accelerated growth is due to the fact that RESP accounts are tax sheltered, which allows the money inside the RESP to grow tax free for up to 35 years. In addition to the tax shelter benefits, the contributions made to an RESP also attract Government Education Grants called CESG, which is an abbreviation for Canada Education Savings Grant. Lower income families may also qualify to receive Additional CESG and CLB, which are Canada Learning Bonds. At the very least, all families qualify for the Basic CESG which can total up to $7,200 over an 18 year contribution schedule.

Tax Sheltered RESP vs. Non Sheltered Investment

Let’s look at an example of $2000 invested yearly over 18 years with a 6% return compounded annualy. The total amount to be invested therefore = $36,000 ( $2,000 x 18 ) Let’s also assume that the investor is in a 30% income tax bracket.

example a:

This example shows an annual investment of $2000 over 18 years in which the earnings on the investment were deemed to be direct income to the investor. Because the investor is in a 30% tax bracket he must pay taxes on the earnings each year at his marginal tax rate of 30%.

Total Amount Invested = $36,000.00

Total After Tax Return =  $54,437.01

example b:

This next example shows the same $2000 being invested over 18 years except that the investment returns are considered to be capital gains. Therefore the investor is only obligated to pay capital gains tax on one half of the earnings each year, which leaves more money in the investors pocket.

Total Amount Invested = $36,000.00

Total After Tax Return =  $59,689.02

example c:

This third example shows what happens when a $2000 investment over 18 years is tax sheltered inside an RESP. Because the investment is allowed to grow tax free, the investor pays zero tax on the earnings each year resulting in a significant increase to the overall account balance.

Total Amount Invested = $36,000.00

Total After Tax Return =  $65,519.98

example d:

In this last example we see the same $2000 invested over 18 years tax sheltered inside an RESP, but with the $7,200 Canada Education Savings Grant added to the equation. The CESG benefits combined together with the tax benefits have a profound effect on the growth of the account.

Total Amount Invested = $36,000.00
CESG Contributions =      $7,200.00

Total After Tax Return =  $78,623.98

From the examples shown above we can see that the same $36,000 invested inside an RESP has provided an additional $24,186.97 toward a students education. For more information about RESP’s contact a Heritage RESP representative today.

RESP Investment Options

The illustration above clearly shows the benefit of saving for a child’s education inside of an RESP.
The question that remains is what are the investment options, but that will vary depending on the RESP provider and the plan you choose. They may however include such things as mutual funds, stocks, bonds, Guaranteed Investment Certificates, (GIC’s) or regular savings accounts, all of which carry different risks and rates of return.

…Stock Market

Generally speaking stocks carry the highest degree of risk and GIC’s the lowest. The stock market offers no guarantees on investments, and although there is the potential to make great gains, there is also the potential to lose everything. Brokerage fees and commissions are also applicable. Unless you are an experienced investor, or have an advisor or broker that you can trust, it is probably best for the average person to consider a less riskier approach when it comes to RESP’s.

…Mutual Funds

A mutual fund is a grouping stocks and/or other securities managed by a mutual fund company.Shares in the fund are sold to investors who may realize a gain or a loss depending on the performance of the fund. Mutual funds may be less riskier than investing directly into the stock market, but they still hold no guarantees. The fund company will deduct an MER Fee (management expense ratio) of between 2% to 3% a year on average from your account balance to manage the fund.

…Guaranteed Investment Certificate (GIC’s)

By the very name itself, a GIC is a guaranteed investment and can be purchased through any financial institution. Even though a GIC is fully guaranteed, there is still a downside. The risk being that the ever rising cost of education coupled with inflation will erode any potential earnings of a GIC based RESP.

Visit any bank or credit union today and you will discover that the average GIC rate is less than 2%. According to Statistics Canada, the cost of tuition fees for colleges and universities increases every year at an average rate of 3.6%. That means a child born in 2009 who enters university in 2027 will end up paying about $75,000 in tuition fees alone by the time they have completed four years of undergraduate studies.

GIC’s vs. the Rising Cost of Education

A family makes a wise decision to start saving money in an RESP account for their newborn child. Because they are not big risk takers they decide to purchase GIC’s for their child’s RESP. Let’s take a closer look at an RESP invested in GIC’s earning 2% per year.

example:

Yearly Rising Cost of Tuition Fees =   3.6%

GIC Annual Return on Investment  =    2.0%

Adjusted Return on GIC Investment = (-1.6%)

In other words a GIC investment paying 2% per annum adjusted for inflation is actually returning negative -1.6%. If it is the family’s goal to save up $75,000 over the next 18 years the following yearly RESP contributions would be required ($7,200 CESG per/yr has been factored into calculations )

From the table above it is clear to see that a family earning 2% in an RESP would need to invest approximately $20,000 more than a family earning 6% in an RESP to reach a target of $75,000.
You can find out more information about RESP’s by contacting a Heritage RESP representative today.

Read what students are saying about the RESP benefits received through Heritage Education Funds.

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