Category Archives: Educational

What Is Mortgage Insurance And How Does It Work?

 

Mortgage insurance is generally sold by banking representatives at the time of arranging your financing. It is a life insurance product whereby the amount for which your life is insured is roughly equal to the amount of your mortgage. The insurance pays a benefit upon your death—not if you are unemployed or disabled.

When a couple is applying for mortgage insurance, they are usually insured on a joint basis, which means that the policy would pay out a benefit only upon the first spouse’s death. If both spouses were to die at the same time, the insurance policy would still only pay one death benefit. The balance of the outstanding loan is all that is paid.

Further, the death benefit decreases incrementally on a yearly basis, to coincide with the outstanding amount of your mortgage. At your mortgage anniversary—usually every five years—the cost of the insurance will increase.

With mortgage insurance, you are not given a choice regarding the beneficiary. The lender is automatically the beneficiary, not your Estate or surviving spouse.

Lastly, with mortgage insurance you do no medical underwriting or qualifying up front. It is all done when a claim is made which means your claim could be denied when your spouse or family is depending on it.

Does this sound like what you signed up for?

If you choose to purchase your life insurance from an independent insurance advisor, rather than from the lending institution, you can name whomever you want as your beneficiary. Your beneficiary could invest the proceeds and use the growth to continue paying the loan payments if they wish.

Buying your insurance separately from your loan allows your insurance advisor to shop and get you the best rates possible. Your rates for the coverage can be locked in to match the length of your mortgage if you like so you get price stability and certainty. All the qualifying and medical underwriting is done up front so the coverage is there when you need it most.

Interestingly enough, you can usually obtain two individual, single life insurance policies for a husband and wife from an independent insurance advisor for roughly the same price as a mortgage insurance policy. Definitely sounds like much better value for your money, wouldn’t you agree?

National Bank Financial – Wealth Management (NBFWM) is a division of National Bank Financial Inc. (NBF Inc.), as well as a trademark owned by National Bank of Canada (NBC) that is used under licence by NBF Inc. NBF Inc. is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF), and is a subsidiary of NBC, a public company listed on the Toronto Stock Exchange (TSX: NA). © 2020 National Bank Financial. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank Financial. For Internal Use Only.

Tax related matters

Your personal tax return must be filed prior to mid-night of April 30th, 2022 

This Is When Your Tax Slips Will Be Available

This table lists the various Canadian slips and forms that may be needed to prepare your income tax return.  Since these documents reflect the transactions and income recorded during the year, some may not apply to your situation.  Before completing your tax return, please ensure that you have received all your tax slips to avoid having to file an amended return.

Alternative Investment Assets

We love it when prospective clients say, “how come I haven’t heard about this before?

It might be because of product limitations where they deal or it might be that their advisor is not fully licensed in all aspects of the marketplace. Rob carries a license in both the securities market and the insurance market. There are not many products he can’t bring to the table.

As a result, we are not so interested in presenting products, but rather listening to your story and bringing forward product solutions.

In today’s world there are many alternate investment assets that many investors are not aware of, such as tax-advantaged products, or even synthetically structured products that provide all kinds of features.

We seek to methodically bring these to client’s attention depending on a client’s individual needs.

*NOTE: Insurance services are provided by National Bank Financial Services (NBFFS). NBFFS is not a member of Canadian Investor Protection Fund and the products sold or provided by NBFFS are not guaranteed by the Canadian Investor Protection Fund.

How to increase your income

Sometimes people ask, what rate of return can I get? The answer to that question is in part, whether you want your money back? Junk bonds pay higher rates but the name is a hint of a potential outcome.

Assuming you use a normalized benchmark like five or ten year Canada bonds, many Canadians are realizing that current low interest rates offer a negative return, net of inflation and taxes.

So there are two considerations when seeking higher income…

  1. Alternative sources of income.
  2. Alternatives to how you are taxed on that income.

Canadian dividends often pay more than interest and are always taxed more favourably.

Let’s use hypothetical financial institution ABC. Let’s assume your top marginal tax rate is 47.7% (BC)

ABC offers a five year GIC at 1.6%. ABC also offers a dividend to its shareholders (owners) at 4%

As a depositor ABC uses deposits to make money.
As an owner, ABC pays a dividend to its shareholders (owners).

This example is reflective of how things often look with financial companies in this low interest rate environment, but the same comparison could easily be made between Government of Canada bonds and the higher paying dividends available via many Canadian corporations.

Interest and Dividends are also taxed differently.

For a top marginal tax rate investor in British Columbia, Interest is taxed at 47.7%. Dividends are taxed at 31.30%

As a depositor at ABC, the 1.6% interest turns into 0.96% after-tax.
As a shareholder of ABC, the 4% dividend turns into 2.75% after-tax.

There is also a way to potentially increase total income beyond that offered by dividends by using a hedging strategy called covered call writing – see Why Us?

Finally, a big difference between investing in deposits or Government bonds is that deposits and government bonds have certain guarantees pertaining to your capital. Owners of shares in a corporation have NO guarantees pertaining to capital. As a result, we seek to build portfolios that reduce that risk by means of diversifying risk among many individual company shares versus few.

*NOTE: Please consult your tax advisor regarding your particular situation.  National Bank Financial is not a tax advisor and clients should seek professional advice on tax-related matters.  Please note that comments included on this website are not intended to be a definitive analysis of tax law. The comments contained herein are general in nature and professional advice regarding an individual’s particular tax position should be obtained in respect of any person’s specific circumstances.

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