I came to live in Toronto a month after Lehman Brothers collapsed. It was the winter of 2009. Since then, I have been hearing a voice in my ears: Toronto’s housing prices are too high and the real estate market is about to collapse. The first house I bought in Toronto was in 2007. After buying it, everyone who knew me said that I bought it at a high price. More than 10 years have passed, and I have yet to see neither the highest point nor the crash. I have always scorned the bubble theory and crash theory, but some people have always believed it. After coming to Canada, I quickly started working on real estate. I searched closely to find out who is so afraid of the real estate market crash, and who is so looking forward to the bursting of the housing price bubble?
Foreign think tanks outside Canada, editors who write press releases, economists like Xie Guozhong, and people who have been troubled by the current uncertainty and have been reluctant to buy a house are all looking forward to a fall in housing prices. In short, these people have nothing to do with real estate. People who are afraid of falling real estate prices are mostly homeowners with large mortgage amounts and a high ratio of loan balance to house price. Families with a large owner-occupied loan balance and monthly payments that lower their living standards are called house slave . Whether in Canada or China, the economic situation of house slaves is very fragile. Once an accident occurs to their income or body, it will lead to the collapse of the family's financial situation, and even the middle class will be reduced to poverty. If a house slave wants to turn over, he must speed up the repayment of his mortgage loan.
Some people joke that even with a monthly salary of RMB 15,000, there is no "freedom of cherries". They dare not buy cherries and eat them casually, and can only "lock in their desires with the salary." Then "mortgage freedom" is even more difficult. Many people have never paid off their mortgages in their entire lives. The black slaves have been liberated, but the house slaves are still fighting for it. Is there any shortcut to pay off the mortgage as soon as possible? The most romantic thing is to pay off the mortgage overnight and become a house slave and sing. Every year, I personally help clients complete this most romantic thing and witness their mortgage freedom. Let’s analyze a small case from this year, hoping to inspire the house slaves.
01 A long-planned loan allowed the house slave to transfer the entire mortgage loan to the tenant at once
Brief introduction to the case: There are a total of 3 properties under the client's name, 1 for self-occupation and 2 for rent. The family income is 80,000, and the balance of the owner-occupancy is 300,000. Five months before the loan application, plan together with the client how to transfer all the owner-occupied mortgage to the tenant for payment. House A is a self-occupied house, and our goal is to pay off the balance of the owner-occupied loan by adding a mortgage loan to the investment house. House B is an investment house with an available credit limit of 200,000. House C is an investment house, and the loan will mature in 5 months, with a balance of 200,000.
Implementation steps: In the first step, after 4 months, withdraw 100,000 cash from the credit line of investment house B and put it in a personal account, and convert the 100,000 withdrawal into a loan with an amortization period of 30 years to reduce the monthly payment as much as possible. The second step is to apply for an additional mortgage on house C in 5 months. The loan amount is 400,000 dollars. Use the new 200,000 dollars loan from house C, plus the 100,000 dollars deposit in the account, to pay off the 300,000 dollars loan on house A in one go.
The result achieved: the balance of house A loan is 0. The debt of House B is the original loan balance plus a new loan of 100,000. The loan balance of House C is 400,000.
A local in Canada has written a book on how to pay off your mortgage within 5 years. I think it's really cruel to live frugally. It's already very difficult to be a house slave, so why bother pushing yourself so hard? By adding a mortgage to invest in a house, you can get rid of the owner's housing debt overnight. As long as there are no tax avoidance controls and you are not afraid of bank fines, in addition to the owner's house, you also have two sets of investment houses. Many people can do this. In the above case, it will take at least 15 years for a family with an annual income of 80,000 dollars to pay off the balance of the mortgage of 300,000 dollars. Every year, some of my friends in the financial business group come up with the idea of using the above-mentioned surgical method to achieve "mortgage freedom." If you have a mortgage on your home, you cannot retire. It was only after I paid off my mortgage that I had time to do my favorite things - reading and writing. So I think, The day you pay off your mortgage is a milestone in your new life , I hope I can help more friends start a new life journey.
02 Everything comes from algorithms
How is all of the above achieved? Everything starts with algorithms. Borrowing capacity depends on income, with the maximum borrowing capacity being 5 times the household's annual income. If you buy a new home, add a mortgage to your home, or already have a home but the house you want to buy is for self-occupation, you can borrow a loan amount of up to 5 times your annual income. The algorithm for borrowing capacity for investment properties has changed. The borrowing capacity for an investment property is equal to the annual household income 5 Reduce the mortgage balance by multiple times.
In the above case, the purpose of the additional mortgage on investment house C, I wrote, is to use the "new money" from the additional mortgage, plus deposits, to pay off the mortgage, so the 300,000 loan for house A is not considered when calculating the debt. Therefore, the loan amount for House C can only reach 400,000, that is, 5 times the annual income of 80,000.
Where did the debt of existing investment house B go? The B20 does not clearly require banks to calculate rental income from existing investment properties. Therefore, the calculation methods of each bank are completely different. When our bank looks at the rental income of existing investment properties, it uses the direct deduction/offset method of rental income. For example, the monthly payment of the original loan of House B, plus the monthly payment of the new 100,000 loan, is 1,800 per month. The rental income of House B is 2,400/month, the property tax is 300/month, and the heating fee is 100/month. When calculating the debt of House B using the direct reduction/offset method, the rental income is 85% (assuming a vacancy rate of 15%), minus the monthly property tax and heating fee: 2400 X 0.85 – 1800 -300 -100 =160. What does 160 mean? That is, when the borrower holds property B, the borrower's income is reduced by 160 dollars per month. When calculating the borrowing capacity of house C, 1,920 dollars (160 dollars x 12) is subtracted from the borrower's annual income of 80,000 dollars. Judging from the results of this direct deduction/offset algorithm, although holding property B only uses 85% of the rental income, the impact on the borrowing ability is minimal.
Understanding the algorithms of different banks is the key to the liberation of housing slaves. Find a bank that can help you get out of trouble, so you don't have to scrimp to pay off your mortgage faster.
Extending the above algorithm a step further, when the owner-occupier loan debt is 0, the theoretical value of each investment house purchased in the future can be borrowed 5 times of the annual income. Imagine it, wouldn’t it be nice?
03 wipe out debt VS Tax avoidance, which one is more important?
According to the regulations of the tax bureau, the "new money" of 100,000 dollars withdrawn from investment house B was not used for investment purposes, but was used to pay off the home, so the interest on the new loan of 100,000 dollars cannot be used for tax deduction. The "new money" of 200,000 dollars from the additional mortgage on C investment house was not used for investment, but was used directly to repay the owner's house, and the interest cannot be used for tax deduction. This is completely unacceptable to many tax avoidance controllers.
There is an epidemic in the Chinese community - tax avoidance. Some people will do anything to avoid paying taxes or pay less. People who make tax avoidance their life goal live miserable lives. The interest on the above-mentioned 300,000 dollars loan is not tax-deductible, but without the mortgage, the door to buying an investment house is open in the future. Real estate investment enjoys tax benefits in Canada because landlords buy properties to rent out to solve social housing problems. Therefore, loan interest, property taxes, CONDO management fees, etc. are all tax deduction items. The net profit after deducting the above expenses from the gross rent is taxable income.
For people who set tax avoidance as their life goal, all other activities are not as important as tax avoidance. This is a disease that cannot be stopped. Charlie Munger has a heart-wrenching message in "Poor Charlie's Guide" for those who are addicted to tax avoidance. "Speaking of the mistakes I have seen in business in my life, excessive pursuit of tax avoidance is a common reason for people to do stupid things. I have seen some people do big mistakes for tax avoidance. Although Buffett and I are not oil diggers, we pay all the taxes we should pay. , we are living quite well now. If someone sells you a tax avoidance package, don't buy it. "Poor Charlie's Almanac is a life manual that I have recommended many times and is full of worldly wisdom. It is the most classic contemporary book on universal wisdom written by Charlie Munger after Benjamin Franklin's Poor Charlie's Almanac. I recommend that every reader of mine get a copy. At the same time, I also recommend everyone to read Benjamin Franklin’s autobiography, which is full of philosophy of life. Among the Chinese books is "The Capital of Success", which is a very popular booklet that extracts the most classic content from Franklin's autobiography. If you want to live poorer, more clumsy, more helpless, more stupid, and more annoying than others, just do the opposite according to the experience in "Poor Charlie's Almanac".
Henry Ford famously said, "You want to know how people living on government relief fare? Go see the Indians." What I want to say is "You want to know how the most serious tax avoiders fare? Go look at the people who work in cash."
04 Conservative treatment or major surgery?
The way to make money on your own and work hard to repay the mortgage is to take conservative treatment. Do not buy RRSP, TFSA and other tax-shield investments every year, and live frugally. This can have a certain effect, otherwise it will not achieve much. Compared with the surgical method of shifting the burden of owner-occupied mortgages to the tenants, conservative treatment is much slower, and it is likely that you will not be able to retire at the retirement age.
Surgical approach, and the discomfort caused by episodes of avoidance syndrome must be endured. It is advisable to take a broad view and make a choice between limited disappointment and loss and long-term hope and gain. As for the surgical method, in addition to the above case, I have previously introduced another method of borrowing private loans to make a big move, that is, using the investment house as collateral, borrowing a private loan to pay off the home, and after releasing the borrowing capacity, then mortgage the property with the private loan, and replace the private loan with a bank loan.
The first premise of the surgical method: you have an investment property, but you don’t have the cash to accelerate the repayment of your home. If you don’t have an investment house, haha, just pay it back slowly.
in "We are forced to invest in order to balance our lifetime income"The 6-episode video lecture on Youtube details a method of continuously buying your own home, adding mortgage to the original home, and then buying a new home. If you buy more than 3 properties, you can perform surgical operations. Many people like to become fat in one bite, but it is difficult to lose weight if you become fat in one bite. The option of not buying a home for many years, waiting for many years to save a down payment, and then having the home in one step cannot be performed surgically. For example, if your family income is 130,000, you can actually buy a CONDO to live in a few years ago, and then switch to a TOWN HOUSE, and then to a HOUSE. Each time before changing to a main house, you have to increase the mortgage on the original main house. The final HOUSE loan amount is not high. Then, you can find an investment house loan when the maturity of the main house loan is closest to that of the main house loan, kill the mortgage of the main house, and transfer the loan to a CONDO and TOWN HOUSE . If this family has been delaying buying a house, has been saving money, and finally bought a house directly with a loan of 650,000, then there will be no other choice but to save money to replace the 650,000 loan.
The second premise of the surgical method is: buy your own home early, and get in the car as soon as you can get into the car. When changing your home, remember to "not sell" the original home, increase the mortgage on the original home, and take all the cash out of the house to make the down payment for the next home. The lower the loan amount for the new home, the better.
Not selling is the biggest principle in real estate investment. As long as you change your home, you must first remortgage the original home. Only in this way can you keep the balance of your mortgage lower and lower as you buy. Eventually, you will find a critical point, and you can completely pay off your mortgage by cashing out the two previous homes, that is, your current investment home.
05 Banks don’t welcome the foolish loyalty of mortgage customers
Many people feel that they are lifelong customers of a certain bank and should receive preferential treatment. wrong. In the mortgage business, banks do not give preferential treatment to old customers. First of all, no matter how old you are, even if you have been a customer of a certain bank for generations, when applying for a loan, you must use the B20 standard for loan approval. There will be no backdoors, so don’t be sentimental or disappointed. Secondly, when refinancing a mortgage, the bank where the original loan was located will hardly give any interest rate discounts and will not waive handling fees because the loan balance will increase less after the remortgage.
When applying for additional mortgage, it is best to choose a bank other than the original bank. You can get certain fee reductions and the interest rates are also more favorable. Because for new banks, the full amount of the loan is considered new business, so of course it is welcome.
When it comes to loan business, don’t be foolhardy, learn more about the policies of each bank, and spread multiple investment mortgages in different banks. Don’t waste any opportunity when your loan comes due, Ask around, whether you can increase your mortgage, how much you can borrow, what the interest rate is, and whether there are any fee exemptions. Such trouble is not disloyal, but it is more conducive to getting rid of the situation of house slaves. It turns out that when the bank renews the contract, it will give you a more favorable interest rate to keep you, but when you want to increase your mortgage, other banks will treat you better.
Conclusion
Try not to take out loans for consumption, but take out loans for investment. mortgage is an unavoidable consumer debt and the largest consumer debt. If you don’t pay it off, you won’t be able to retire. Transferring a mortgage to an investment property means converting consumer debt into an investment loan. It is worth paying a small price in the conversion process.
People with tax avoidance addiction need treatment, otherwise they will ruin their lives. Tax avoidance is a foreign disease. We Chinese didn't have this problem before we went abroad. When we went abroad, we followed the locals and learned how the locals cursed the tax bureau. It's enough to get rid of the anger by scolding, but don't take it seriously. You still have to pay the taxes that should be paid. Canada is a mature country. If you pay less money to the tax bureau, there will be karma, otherwise everyone will work in cash.
In an era of low interest rates, people need to master the skills of borrowing money. People who know how to borrow money are the darlings of the times. With the right time and place, they can pay off their mortgage overnight, and not in a dream. Planning your own mortgage is an important homework. A good plan can be done in advance. 15 Pay off your mortgage early.
Learn to take advantage of the competition between banks, don't be foolish and loyal, and keep transferring loans between banks, you will get twice the result with half the effort. Don’t waste any opportunity when your loan comes due , adding a mortgage to another bank can not only extend the repayment period to 30 years, improve cash flow, obtain competitive interest rates, but also have the opportunity to choose a mortgage product that is more suitable for current needs.
Some people missed the night to rush to the exam hall, and some resigned from their jobs and returned to their hometowns. Families going up the mountain hope to borrow the maximum mortgage amount and live in an ideal house; families going down the mountain hope to pay off their mortgages as soon as possible so that they can retire with peace of mind. All good things come with a price. In the past 10 years of my career, I have accompanied many families going up the mountain, and I have also helped many families who want to go down the mountain. Families that are willing to pay for good things achieve their goals fastest.
