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When looking for the right mortgage, those interested also come across insurance companies that offer cheap loans, but also here applies – not only the interest rate has to be right, but the entire contract terms.

Buying or building a home is still high on many people’s wish lists. In addition to the general need to live in your own four walls or to do something for your retirement, tangible economic aspects also play a role: rents are still rising, and prices for houses or apartments are rising – building interest on the other but are still very low.

Long runtimes offer planning security

The right financing or mortgage lending for the house there are not only banks. More and more insurance companies have entered the market and, according to current media reports, are also offering attractive conditions – especially for long-term financing with a term of 15 years or more. Besides, insurance companies sometimes offer longer terms than are available from many banks. Up to 30 years are even possible.

The entire contractual framework has to be right

However, the interest rate and long term should not be the only criteria when looking for the right financing. Anyone who relies on long-term planning security for their financing must generally also keep the following points in mind:

  • POSSIBLE LOAN AMOUNT: When comparing offers, interested parties should always pay attention to the possible loan amount. In the case of long-term loans, for example, insurance companies sometimes only finance 60 per cent of the mortgage lending value of the property. Consequence: You need more equity.
  • REMAIN FLEXIBLE AS POSSIBLE: Whether the loan comes from an insurance company, bank or building society – the loan agreements should allow outstanding repayments and changes in repayment rates. Because what you save on interest should be invested as directly as possible in a higher repayment to drive debt relief more quickly. Necessary: “This flexibility in the repayment can have a direct influence on the interest rates in individual cases,” Unger points out. Comparison is, therefore, also a must here.
  • DISCHARGE YOUR DEBT FASTER: Anyone who has additional income – for example, bonuses from the employer or an inheritance – can use this for outstanding repayments. In this way, the loan is also paid off faster, and you also save interest.
  • BUYING A HOUSE IN THE FUTURE: If you don’t want to build or buy for a few years, you should secure the low-interest rates with a home loan and savings contract. Customers initially pay monthly instalments or more flexible special payments into this. Later you have the option of a building society loan at an interest rate that has already been agreed today – favourable.

A secure foundation for your own home

However, it is not easy, especially for laypeople, to keep track of the massive range of financing options or to correctly decipher every clause in the contracts. In this way, together with the customer, they put the house purchase on a secure foundation.

Your fixed interest rate for the mortgage loan is about to expire? These options are available for low-interest follow-up financing. Anyone who bought their house around eight to nine years ago is likely to be dealing a little more intensively with mortgage rates. Follow-up financing is pending. And for most of them, that’s every reason to celebrate. Interest rates have been at a historically low level for years. Ten years ago, buyers had to accept rates of around 4.6 per cent. Debit interest rates below two per cent are possible today.

Who can reschedule now?

In any case, property owners, whose fixed interest rate is about to expire, have to look around. But borrowers with terms of over ten years also have the chance to get rid of the more expensive loan earlier. In general, the following applies: after ten years from the full payment of the construction loan, it can be terminated.

What connection options are there?

The borrowers can extend their loan with the previous bank (prolongation) or switch to another provider (rescheduling). As a rule, the conditions at the house bank are not the worst, because they will have a great interest in keeping customers – especially if they have always reliably met their loan obligations without any disruption.

Nevertheless, it always makes sense to also look around the competition. Switching to another bank is relatively uncomplicated: the new lender replaces the loan and receives the land charge as security in return. For this, there are notary and land registry fees. Some credit institutions even cover these fees when new customers come to them. A competitive offer can also improve your negotiating position with the current lender.

When is a forward loan an option?

This is interesting for everyone who cannot get out of their existing contract yet but does not want to miss the current interest rate level. Forward loans can be taken out one to five years before they are used. Bank and customer agree on the terms for the follow-up loan today.

As a rule, commitment interest does not accrue until payment is made. The credit institutions pay for their interest rate guarantee with a slight interest rate premium. Rule of thumb: the longer the agreed forward phase, the higher the interest premium. In recent years, market experts have observed that the premium was 0.03 percentage points per month until the old loan was redeemed.

Is a home loan and savings contract also worthwhile?

This variant is interesting for security-oriented borrowers if the fixed interest rate has been in effect for more than five years.

TIP: Increase repayment after rescheduling! What borrowers save in interest by rescheduling should invest in higher repayments from the outset. This way, you can pay off your loan even faster. In other words: if you were able to shoulder the previous instalment level well, leave it the same.

Who can reschedule now?

In any case, property owners, whose fixed interest rate is about to expire, have to look around. But borrowers with terms of over ten years also have the chance to get rid of the more expensive loan earlier. In general, the following applies: after ten years from the full payment of the construction loan, it can be terminated.

What connection options are there?

The borrowers can extend their loan with the previous bank (prolongation) or switch to another provider (rescheduling). As a rule, the conditions at the house bank are not the worst, because they will have a great interest in keeping customers – especially if they have always reliably met their loan obligations without any disruption.

Nevertheless, it always makes sense to also look around the competition. Switching to another bank is relatively uncomplicated: the new lender replaces the loan and receives the land charge as security in return. For this, there are notary and land registry fees. Some credit institutions even cover these fees when new customers come to them. A competitive offer can also improve your negotiating position with the current lender.

When is a forward loan an option?

This is interesting for everyone who cannot get out of their existing contract yet but does not want to miss the current interest rate level. Forward loans can be taken out one to five years before they are used. Bank and customer agree on the terms for the follow-up loan today.

As a rule, commitment interest does not accrue until payment is made. The credit institutions pay for their interest rate guarantee with a slight interest rate premium. Rule of thumb: the longer the agreed forward phase, the higher the interest premium. In recent years, market experts have observed that the premium was 0.03 percentage points per month until the old loan was redeemed.

Is a home loan and savings contract also worthwhile?

This variant is interesting for security-oriented borrowers if the fixed interest rate has been in effect for more than five years.

TIP: Increase repayment after rescheduling! What borrowers save in interest by rescheduling should invest in higher repayments from the outset. This way, you can pay off your loan even faster. In other words: if you were able to shoulder the previous instalment level well, leave it the same.

Advantages and risks associated with the establishment of an LLC in the USA for non-US residents, paying attention to the hypothesis of tax inversion.

US LLCs can be one of the best legal corporate vehicles for non-US entrepreneurs to run their business. They allow access to all the benefits of an advanced jurisdiction such as the US (e.g. banking services, payment processing and good international reputation) while maintaining a low tax rate and manageable levels of bureaucracy and accounting.

Of course, you have to pay attention to the tax regulations that tie you to your country of tax residence. This is because in some countries of the world, especially in Europe, there are important provisions to avoid distorting phenomena related to corporate foreign investment. For this reason, I recommend that you read this article very carefully and consult with your trusted chartered accountant before planning anything.

The following article will tell you everything you need to know, to decide if an LLC is a good option for you, how you can open it quickly and cheaply, and everything else you need to pay attention to during execution.

The advantages of the United States as a jurisdiction

There are many good reasons to operate through a company registered in the United States.

Among these are:

  • Excellent international reputation;
  • Low costs of opening and annual management of a company;
  • Easy access to a good banking and payment facility;
  • Possibility to get to zero taxation.

It is quite funny to think that an American LLC is actually more interesting as a vehicle for your business when you are not a US citizen. This may actually be one of the best examples of how to flag theory can be used optimally.

LLCs are easy and inexpensive to incorporate. You can have everything up and running within a week, and for less than $ 500 if you choose to do some of the work yourself. The advice we can give you is to always use the help of a valid and trained US tax advisor on the subject.

The reputation

The United States continues to be one of the leading economies in the world. Therefore, the companies registered here enjoy a high level of trust around the world. Your customers will have no problem deducting invoices from your company, which is not the case in many low-tax offshore jurisdictions.

Installation and maintenance costs of an llc

Thousands of LLCs are incorporated every day in the United States. As such, there is a competitive accounting consulting industry that aims to acquire your business, and most LLC related services can be obtained at very affordable rates.

Tax law for non-resident owners of a LLC in the USA

The tax implications of owning and operating an American LLC are clearly one of the most important questions we need to shed some light on. This is also one of the most often misunderstood questions in US international taxation.

The United States may be one of the largest tax havens in the world. A US-based LLC opened by a non-US citizen or non-resident can allow for completely tax-free earnings.

This type of optimization can be applied in many different business models. For example, we can mention some very frequent ones:

  • Consulting and other personal services;
  • Sale of digital products (info-products);
  • Amazon FBA;
  • Freelance;
  • Etc.

The single-member LLC

An LLC is a pass-through entity or a “transparent” tax entity. This means that the LLC is not taxed directly. On the contrary, the company’s tax obligations pass to the owners (members) of the LLC. They then report them on their personal tax returns to be made in the United States.

In cases where there are no tax obligations on the part of the United States and where the owner is a tax resident abroad or a resident in a country with a territorial tax system, there will be no tax to pay.

In order to determine the appropriate taxation by the United States, we examine the IRS taxation of non-resident aliens.

An American LLC must meet three criteria in order not to be subject to United States federal income tax. These are the following:

  1. Be 100% owned by non-US tax residents (individuals or entities);
  2. They have no presence in the United States or personal economic substance in the United States;
  3. The company’s income does not have to be generated by the United States.

Who is considered a non-resident alien?

You are considered a non-resident alien (“Non-Resident Alien”) if you are not in one of the following cases:

  • An American citizen;
  • A permanent resident of the United States (aka “green card holder”), or
  • You have lived in the United States long enough to pass the “substantial presence test”.

If any of the above three categories are matched, any income generated by an LLC you own must automatically be subject to US tax.

What constitutes the US economic presence or substance (nexus)?

Here’s how the tied mechanism works:

  1. As a Non Resident Alien, you are subject to US corporate income tax if you are “engaged in a business or trade in the United States”, abbreviated to “ETBUS”.
  2. You are ETBUS only if two things are true:
  3. You have at least one “employee agent” in the United States. Employee agents are employees or companies that work almost exclusively for you. IS
  4. That employee agent does something substantial to promote your business in the United States. Purely administrative work is not included in this rule.
  5. Finally, suppose you can benefit from an applicable tax treaty. In that case, you are subject to US tax only if (in addition to being ETBUS) you operate in the United States through a “permanent establishment” (such as an office or other fixed place of business).

If you do not meet these conditions, you are not (automatically) subject to US tax on your business.

Even if the LLC generates income in the United States by offering services or selling products in the United States, that income is not taxed in the United States.

Determination of the source of income

Type of entryLinking Policy
Personal servicesWhere they are loaned
Sale of purchased inventoryWhere they are sold
InterestsPayer’s residence
DividendsResidence of the company
Rental or sale of real estateLocation of the property
Patents, Copyrights, etc.Where the property is used

Example n. 1: consulting agency with no employee office in the united states

A social media marketing agency is doing work for US clients. The owner is located in Panama, with some additional employees in the Philippines. It has no US offices or sales agents. All sales are made via telephone or automated sales systems.

The company opens an American LLC to bill its customers and receive USD payments to a US bank account. US customers have no problem claiming the services as a business expense. Since the work is done overseas and the owners are non-US citizens / residents, the income is not taxed in the United States.

Example n. 2: foreign fulfillment by the amazon seller (fba)

A foreign entrepreneur uses the Amazon market to sell products in the United States. He is using the “Amazon FBA” service to fulfill his orders. All marketing and shopping are handled online by the non-US citizen, who splits his time between Thailand, Bali and Colombia.

Its supplier ships the products directly to Amazon’s warehouses, where Amazon employees repackage them and ship them to customers throughout the United States.

Amazon acts as an independent agent with millions of other customers. Amazon does not primarily work for the foreign entrepreneur. Therefore, the foreign entrepreneur is not “engaged in a commercial or commercial activity in the United States”. It is therefore not subject to revenue from the sale of products in the United States.

Accounting and accounting for US companies

Regarding the accounting obligations with the LLC, there are no particular accounting obligations. Basically, from a practical point of view you only have to do it:

Request and keep invoices and / or receipts for each purchase;

Submit active invoices;

Prepare complete monthly VAT reports.

All you need is a simple profit and loss account, which shows your incoming and outgoing payments. You can do this by having simple account statements and screenshots from payment platforms like Paypal, Stripe, Clickbank, Digistore, and others.

Since you will have no tax obligations, when you run your LLC as a transparent entity, you won’t have to worry about fulfilling any particular accounting obligations. Basically, with a little attention and caution you can manage everything better.

What is the best state used to open an llc?

You can choose from any of the 50 US states when you register your LLC. As a non-resident with an LLC treated as a transparent entity, some of the differences between states become less important. Differences in state tax rates don’t matter, for example, since you’ll aim not to be required to pay them (all while complying with U.S. tax law).

However, there are still some criteria you can take into consideration when choosing which state to incorporate your LLC into. In particular you can take into consideration:

LLC Formation Cost: This is a one-time commission paid to the state to form your LLC;

Annual Franchise Tax: An ongoing commission paid to the state to keep your LLC in good standing and in good standing. Failure to pay this fee will usually result in the state terminating your LLC.

Anonymity: A limited number of states offer anonymous LLCs. Here the owners of the LLC are not made public;

Other Laws and Regulations: Some states have more advantageous business laws than others. Wyoming makes it very difficult, for example, to sue companies, which makes it a very attractive place for a non-resident LLC.

What is the best status for an anonymous llc?

There are only four states that allow anonymous LLCs. Therefore your options for these are limited. However, these states are also among the states with the simplest and cheapest incorporation processes.

Wyoming, Delaware, and New Mexico allow you to form LLCs, keeping your name out of public records. Keep in mind that these LLCs are obviously not 100% anonymous. The registered agent must always know who is behind an LLC and disclose this information to the state upon request.

Delaware does not require a list of the names of LLC members and managers. Requires a registered agent to be listed, as well as the incorporator / organizer. To maintain complete privacy it is necessary to hire third party suppliers for these services;

New Mexico does not collect information on LLC members / managers. There is also a complete lack of annual reports, commissions or fees. Similar to Delaware, you will need third party vendors to maintain complete privacy;

Nevada and Wyoming both allow “appointment services”. When using such services, a nominee will appear in the public records, rather than the real owners.

Amazon is in its second year of negative taxation obtained through billionaire investments, but also through the wise use of tax havens for the leasing of group companies.

Amazon, the huge E-commerce company is often accused of not paying taxes or paying very little.

According to an analysis by the Institute for Taxation and Economic Policy (ITEP), (one of the leading tax justice groups in the United States), last year Amazon obtained a tax relief of 129 million dollars, the equivalent of a ‘ negative federal tax rate of one percent.

For Amazon it is the second consecutive year of negative taxes.

It appears that Amazon is trying to get US locations to offer him the largest subsidy packages to try to force it to locate its second headquarters there.

How is Amazon running away from taxes? a recent public document says that:

“We have tax benefits related to stock-based excess deductibles and accelerated depreciation deductions used to reduce US taxable income [e]. . . As of December 31, 2018, our federal net operating loss carry forward was approximately $ 627 million and we had approximately $ 1.4 billion of federal tax credits potentially available to offset future tax liabilities. “

The company does nothing illegal, but it is very good at exploiting the permissive US legislation and the holes in the European one (in which the web tax is discussed), so as to pay very few taxes without committing crimes.

Lack of transparency in tax data

The first thing to keep in mind is that Amazon does not publish its full US tax return. For this reason, we cannot know exactly how many taxes he pays, where and why. Only a few tax statements are included in the financial statements intended for shareholders: useful for getting an idea, but they are not the actual tax return.

Amazon’s 2018 data is sobering. As you can see from the graph below, compared to 11 billion dollars of taxable income in the US, the value of the taxes due “current provision“ is negative for 129 million dollars. This item includes the provisions for future tax payments.

What does all this mean?

Well, substantially Amazon in 2018 did not pay a single dollar of tax, but rather received a credit from the US tax system (from the IRS) a tax credit of 129 million dollars.

The important observation that we can draw from this data is that Amazon accumulates a lot of tax credits that allow it to cover the taxes on its income. For example deductible losses, or tax credits related to investments. The aspect that should be of interest is that this company, thanks also to its high margins, invests a lot of resources in investment and this allows it to be able to reduce its tax burden. For this reason, he has been in a credit position against the US tax system for two years.

What this figure shows is that Amazon accumulates a lot of tax credits that allow it to not pay taxes, such as deductible losses or credits due to investments, and that it does so faster than it accumulates taxable profits. This allows the company to be in a “credit” position against the US tax system.

The complex tax system of amazon

Amazon has long been criticized, along with all the other large companies on the web, for the complex tax planning schemes used. These are schemes, more or less known, created (by exploiting the regulatory requirements in international taxation) to minimize the taxes due.

In particular, US companies use tax planning schemes especially to try to reduce taxes due in the European Union.

For example, when Jeff Bezos was looking for a location for his online bookstore, Amazon.com, in 1994, his first choice was a Native American reservation. This would have brought him major tax breaks, but then the California government blocked everything.

The next stop was Seattle, the company’s first headquarters, which Bezos chose because the state of Whashington had a small population. At the time, only those retailers with a physical presence in one state paid sales tax, so a home state with a small population meant the lowest possible tax burden. Sales made in other more populous states would not be taxed.

In particular, the elaborate tax scheme used by Amazon in Europe in recent years has Luxembourg at its center. This country is at the center of a large part of the tax planning schemes of many multinationals that use it as a holding company, or as the final recipient of the activities, in the form of a non-commercial entity.

All this, not to mention the fact that Luxembourg is one of the financial centers that guarantee banking secrecy, this is also one of the elements that make this country very attractive for multinationals. Amazon first arrived in Luxembourg in 2003 and within a few months obtained a confidential agreement with the country’s tax authorities.

Amazon tax planning

Amazon’s tax strategy in Europe has always been based on putting Luxembourg at the center of the group’s European operations. Although the group’s tax planning system is extremely complicated, this essentially involves the following interaction between the entities present in Luxembourg and those residing in the United States:

  1. Amazon Europe Holding Technologies SCS (AEHT) is a Luxembourg company that has the legal right to use Amazon’s intellectual property or IP outside the United States. As this is a special type of entity called a “non-resident partnership”, any monies received from other Amazon group companies in exchange for the right to use such IP are exempt from tax in Luxembourg;
  2. Amazon EU Sarl, entity that manages Amazon’s European businesses. This company pays AEHT hundreds of millions of euros in “copyrights” for the intellectual property of intangibles exploited by the operating companies. The cost of the royalties is deductible from the income and goes to lower the taxable income of this company (and therefore its effective taxation);
  3. The third point of the strategy involves the transfer of fees from AEHT to the US company of Amazon. This is for fees related to the right to license such IP in Europe.

Over time, European governments have argued that the rents between the two Luxembourg companies were too high, and tax-free. At the same time, the US government argued that the royalties returned to the US parent company were too low. Basically, the goal of Amazon’s tax planning has always been to reduce the group’s overall tax burden. However, this strategy, which has lasted until now, is likely to change in the near future. Let’s try to reason together on the reasons.

Monopoly increases, taxes decrease

Amazon has a market capitalization of $ 800 billion, making it the second most valuable company in the world, right behind Apple, with $ 805 billion.

Like most of the largest multinationals, it operates under a monopoly (or rather oligopoly) regime. It is useless to go around it:

Amazon is, the largest monopolist in the world.

It controls much of the infrastructure on which its competitors sell their products or use cloud computing services.

Acquisition of amazon market shares and strong investments

This position of power allows it to kill or injure its competitors on market power that has nothing to do with real economic productivity, innovation or entrepreneurship.

Many players in the digital economy have to pay a private “Amazon tax” to stay in business. Furthermore, Amazon could use its existing enormous market power to force consumers and others to pay higher prices.

However, anyone who has ordered cheap things on Amazon will feel that they obviously didn’t. This is because over the years Amazon has historically preferred to build higher market shares by keeping its prices relatively low.

Theoretically, this low-cost sales strategy may have reduced his profits. However, low profits and high investments have had the advantage (for Amazon) of cutting its taxes.

The other advantage, along with the tax benefit, is that its low prices have helped to kill its competitors and suppliers, allowing it to build not just market share, but market power.

Amazon was once tasked with getting close and buying competitors. It is no coincidence that nearly all of the richest people in the world are monopolists who got rich by exercising power over the markets.

Analysts have long argued that Amazon’s strategy was to build market power for a while, then afterwards, once it accumulated enough to have to start worrying about a democratic response, to start flexing its muscles and collect profits.

But perhaps his search for loopholes and lobbying will continue to contain tax revenues. We will see it in the next few years. What do you think about it? Share your opinion in the comments if you want. Otherwise, contact me for advice!

United States: a guide to the tax regime. How does the US tax regime work? If you are about to move to the USA and want to know more about the tax regime applicable to individuals or companies, in this article, you will find all the information you need.

If you are thinking of moving to the United States, or are curious to know how taxation in the United States works, in this article we will see what are the features related to the taxation of individuals and companies.

In the United States, any person who produces or sells goods or services, and likewise, anyone who is a member of a partnership is subject to a tax regime. Taxation in the United States occurs at both the state, local and federal levels.

Taxation is calculated, as in Italy, on an annual basis, according to the chosen solar or fiscal calendar.

In the case of the individual entrepreneur (Sole Proprietor), the tax period for keeping the accounts linked to the company must coincide with the individual one. Almost all taxes that a business pays to state and local governments are deductible from income for federal tax purposes.

Now let’s see in greater detail how the tax levy on individuals and individual and collective entrepreneurs takes place.

The United States and the tax system: general framework

The Federal Constitution of the United States of America establishes, in article 6, its supremacy over the laws of individual states and, with regard to tax matters, prohibits the introduction, by any single state, of taxes that go against the principles general taxation on imports and exports, as well as regulatory provisions that introduce discrimination in trade between the different Federal States and of these with foreign countries.

The United States tax regime hinges on a system with three levels of taxation:

-Federal

-State

-Local.

Taking into account the aforementioned limits, the state tax administrations manage local taxes and those on consumption, which are fixed by the individual national congresses, by virtue of the provisions declined by the individual constitutions.

The Internal Revenue Code (IRC) is the legislative text that since 1954 brings together all the Tax Acts (tax laws) approved by Congress after being examined first by the House of Representatives, and eventually amended by the Senate, and then promulgated by the President ( the last profound version of the IRC dates back to 27 September 1986 with the Tax Reform Act drafted under the government of the then President Ronald Reagan).

In addition to this code, the Regulations (i.e. the ministerial administrative regulations) and the Revenue Rulings and the Letter Rulings (which are responses published by the Internal Revenue Service, the American Tax Administration) take on relevance, taking a position on the interpretation of certain laws and regulations following particular questions received from the taxpayer, and which play a fundamental role in this sense in the interpretative process of jurisprudential rulings.

In the next article, we will explain personal income tax, the income tax of legal persons, state and local taxes.

Use Tools to Diversify Portfolio! Like everything else today, the diversification of investments can be made easier with the help of electronic tools. This is helpful insofar as the theories of economists like Markowitz are often based on very concrete (but unfortunately also complicated) mathematical formulas. To apply these correctly and, above all, to check them again and again, is usually hardly possible for private investors.

So if you would like to review your decisions frequently or generally need a decision-making aid for the right diversification, tools can be a useful aid. Some tools can even automatically adjust the portfolio.

Here, however, the investor should never lose his sense of proportion – if you don’t know what you are doing, you should rather make a less frequent and more thorough manual adjustment to your investment.

The fact that large banks and investors only use computers to decide where to invest should not mislead private investors into letting their investments be managed in the same way, because big banks can deal with losses differently and compensate them with hedging transactions.

In addition, there are completely different fees for trading securities for private investors – too frequent adjustment can therefore significantly reduce the return.

Use Tools to Diversify Portfolio!
Corporate business workers shoot

Diversification and ETFs

So-called ETFs, or exchange-traded funds, have been very popular for some time. The investor does not invest in individual values ​​of companies or the development of raw materials, but simply in the value development of a stock market index itself.

Everyone knows the daily “water level reports” in the stock market news about the current DAX score. At the end of the year, investors usually pat each other on the shoulder because the stock index has once again gained a significant percentage. The problem for individual investors is to find out which values ​​will rise exactly because the stock market index only shows the average of the stock values ​​determined.

This is where the principle of ETFs intervenes quite simply: You only invest in the development of the selected stock market index. If the DAX rises by five percentage in this example, the related ETF also rises by the same value. Compared to other funds that manage a certain equity portfolio in a representative way, the expensive administrative effort of the fund manager is eliminated.

As the considerations on correlation show, one should not only rely on one specific index with ETFs. Therefore, investors should always keep an eye on global diversification and inquire about different asset classes at the ETF.

For example, it might make sense to add a DAX ETF in the equity securities segment to your portfolio and at the same time, an ETF with Chinese commodities or US government bonds.

If you want to diversify, you can do this at all levels, only the scale changes depending on the investment method. The larger the scale, the easier the distribution. In this way, you can surely decide more quickly between the ETFs of different stock market indices than between many individual securities that you analyze yourself in painstaking detail.

Over the past few weeks, Canadian banks have provided individuals with mortgages, personal loans, etc. He allows him to postpone his terms. While these supportive measures may not have a direct impact on your credit score, they are still not without consequences. Please read the lines below before taking this opportunity to delay your refunds.

Tightening Insured Loan Conditions and Delaying Loan Maturities: Consequences

Recently, CMHC has tightened conditions for access to insured mortgage loans. Banks have also taken measures to reduce financial pressure on Canadian households. That is, a mortgage loan, a personal loan, possibility to postpone monthly payments, etc.

While the initiative is commendable, it is not without consequences for borrowers who decide to use it. Of course, your credit score will only be marginally affected by such a delay. That is, the increase in mortgage balance due to these delays. However, there are effects that go well beyond the credit rating. For example, “a natural disaster affected or declared” will be added to your file. And this will affect your future loan applications.

*Postponement of maturity = more difficult access to credit

Even if your credit rating is intact, this mention will stain your file. Banks will take this into account in the event of:

  • Refinancing Request
  • New Mortgage
  • From Mortgage Renewal

Which means that the lending institution will be stricter with you. This postponement can block a request for refinancing. Some banks even ask for a return to normal for at least 2 months before offering the possibility to their customers to refinance. In other words, you have to prove that your financial situation is stable again before you can do anything.

This is all the more true if your profession is one of the employment sectors considered risky. For example, a well-known banking institution in Quebec has already announced that it has started to restrict access to credit in employment sectors deemed to be at risk.

In short, it is said that some economic sectors are more vulnerable than others in the face of the pandemic.

This fragility leads to the need to evaluate the economic expectations of these people in the medium term.

Indeed, given the exceptional situation we find ourselves in, the income of the previous 2 years cannot be used as a reference for future income.

Professions subject to such strengthening of credit conditions:

The Bank provides a non-exhaustive list of these risk sectors. Not surprisingly, there are service-oriented professions such as transportation, entertainment, tourism, catering and hospitality. From now on, banks will be conducting a more detailed analysis of the income and liquidity sources of these prospective borrowers. While we continue to take into account the consumer loan behavior before the crisis we are experiencing.

New construction title insurance: advice from your mortgage brokerEvery self-respecting young couple dreams of moving in together. If possible, via a new real estate purchase. And when it’s a new build, it’s even better, the dream comes true. However, this type of real estate purchase presents pitfalls that should be mastered before committing. Few know about title insurance. Indeed, there may be mortgages lifted on the property. And if the promoter does not meet his financial obligations, we come knocking at the door of the new owners!

*Example of a new construction purchase that turns into a nightmare without title insurance

This kind of case is not frequent, but it does happen, and instead, when you do not expect it. You buy a new condo with your savings. As you live your daily life and have no overdue repayments, you find an usher on your doorstep one fine day. This tells you that the promoter has due invoices for materials, that he did not pay subcontractors. There is also a mortgage hanging over your condo.

mortgage broker

You obviously want to defend yourself, but it is expensive. Lawyer fees, bills from subcontractors to pay out of your pocket when you have already paid the price of the condo… These hassles last for years, without having any guarantee that the sad affair will end in a neutral way for your finances. In some cases, these unfair charges can amount to tens of thousands of dollars. Is this unfair? Yes. Is there a way to protect yourself? Yes, it is called title insurance.

What is that?

In the world of notaries, the title is the document that establishes the ownership of the real estate. Title insurance, therefore, covers this property right. In other words, it is a protection in case of dispute or concerns related to your title deed.

Title insurance protects you against the scenario explained above, but many other issues related to your property. For example, in case:

  • Of forgery of your title by a third
  • If someone encroaches on your land
  • When your property does not comply with zoning rules
  • Bondage

Why title insurance? In short, almost every time there is a problem with your title deed, insurance kicks in. Title insurance is attractive for the purchase of new construction, but also of an existing house. You only country it once for protection that lasts as long as you own the property. Usually, title insurance is taken out when the purchase or refinancing contract is signed. But it is also possible to contract such protection later (a few months, a few years later, etc.).

Mortgage penalties: the small mortgage clause that can cost you dearly. Find the best mortgage rate. This is often the obsession of borrowers when they knock on the doors of banks. Unfortunately, behind an attractive rate sometimes hide clauses which are much less attractive. In some cases, these potentially costly details are not even offset by a favorable rate. Mortgage penalties can cost a fortune. Today we invite you to navigate the murky waters of mortgage breach fees.

Determine the best mortgage rate.

Mortgage prepayment: an application that can be expensive

Prepayment of a mortgage loan can happen because there is a large amount of unexpected inflow of money. Often times, however, mortgage breach is forced by adverse conditions. Divorce, job loss, financial difficulties … In one of these unfortunate contexts, you will have to pay your mortgage before the deadline.

And it’s often when they are faced with a fait accompli that borrowers understand the dangers of mortgage penalties. If we haven’t been careful with what we sign, they cost thousands of dollars. Fees regularly exceed the 5-figure mark. They may have been criticized for years, nothing changes. Every year, many Canadians make their unpleasant acquaintance.

How much do mortgage penalties cost?

It all depends on the signed contract. It is possible to prepay, and without charge, 15 to 25% of the original loan amount in many cases. But if you want to repay the full amount, you will have to pay the penalties provided for in the contract.

In the event of a variable rate, the penalty is often three months’ interest. This remains acceptable. But in the case of a fixed rate, the mortgage breaking costs will amount to the shortfall represented by the difference between the rate at the beginning of the loan and that which would be possible to obtain at the time of repayment unless this amount is less than three months of interest. In short, it is the higher of the two that is taken into account.

Calculating the penalty based on the three months of interest is simple. You have to consult your amortization table and add the three months of interest concerned. Calculating the differential is much more complicated.

Mortgage penalties

Mortgage penalties based on the rate differential: the calculation

In the event of a mortgage penalty based on the rate differential, you must calculate the difference between the rate you were granted and the rate you could benefit from today. Banks often take the posted rate into account, without the discount, when calculating, which is why the penalty fees can blithely exceed $ 10,000.

How to minimize mortgage breakage costs?

It’s simple: just don’t sign a mortgage loan that includes mortgage breach clauses that are close to abuse. They are mainly present on fixed-rate mortgages. But it is possible to find such credits with reasonable breakage fees. Lesser-known lenders often offer them. Your mortgage broker will help you identify them.

As for variable-rate mortgages, the penalty is limited to 3 months of interest. Either way, it’s much less than the cost of paying off a fixed-rate mortgage.

You can also prefer a contract that allows the transfer of the mortgage without charge. Certainly, the rate will be a little higher. But you will have the flexibility that could ultimately save you a lot of money.

Another solution is to sign a mortgage for three years, instead of the usual five years. This is all the more advisable if your chances of moving in the short term are real.

The mortgage broker, your most valuable ally in reducing mortgage penalties

Choosing the right mortgage is complex. Each case is different; we must consider each borrower’s specific situation to make the right choice. Thanks to his knowledge of the market, the mortgage broker will be able to direct you towards the most attractive solutions for you. After identifying your needs, he will help you choose the right alternative.

Some financial institutions set up real traps for their customers. Restrictions on free early repayments, prohibition on reselling the property below market value or a related buyer, exorbitant penalty fees. They use a lead product to lure you in, without explaining the deadly little details to you. in your contract. Your mortgage broker will help you avoid these pitfalls. Contact us for any information on mortgage penalties, rate guarantees, or other, without obligation. We work in the Montreal and Brossard regions.

Lower your mortgage payment with a mortgage renewal. Did you know that it is possible to renegotiate your mortgage loan during the term by renewing your mortgage before the term? Doing so saves money. You can make money, sometimes a lot. Here’s how to take advantage of lower rates to lower your mortgage payments.

Mortgage renewal: a practical example of lower interest rates

Take the example of Sarah and Paul to illustrate the value of mortgage renewal:

  • They bought their house in October 2016
  • The term of their mortgage is in 2021
  • Their current mortgage is $ 467,000 at 2.69%,
  • Their payment is $ 2,136.00 / Month.

Today, anticipating the renewal, Sarah and Paul get a fixed rate of 1.84% over five years. Their monthly payment drops to $ 1,716.00 / month.

Or $ 420.00 in monthly savings

The potential savings they can achieve over five years is, therefore, $ 25,200.00

Customers know that interest rates are historically low; they don’t want to risk waiting for fear that they will go back up to the deadline at the end of 2021.

This is an advantageous situation: the new loan’s interest is lower than the prepayment penalty.

When can I save on my mortgage

Several factors go into determining whether you will be able to save on your mortgage with a renewal. Among the criteria that weigh are the remaining term, the bank, the initial rate, and the penalties of the contract.

We are at your disposal to advise you on the best strategy to adopt. We will be able to quickly confirm whether it is in your interest to anticipate the date of your renewal.

Ideally, when you call, you should have the following information on hand:

  • Your mortgage balance
  • Your monthly payment
  • Your interest rate
  • The amount of the penalty to be paid (which you will get by contacting your bank.
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