11779 replies to this topic

[spanky123]

There’s no reason not to mortgage your home. Interest rates are far lower than inflation. By keeping equity in your home and not borrowing against it, you’re losing money these days.

 

Sure but unless you do it exactly the right way, the interest on your mortgage isn't tax deductible while you pay tax on your gains.

[spanky123]

as many have mentioned selling and gaining a profit ONLY works IF you can find someplace new to live that will cost you less... and unless your significantly downsizing that will be rare.... also consider any loans or lines of credit you take out on your home do have to be paid back... most often with interest.. and anyone holding a mortgage (or ever had one) will tell you HUGE amounts of money go into interest payments every year money that does not go towards value of the home but lines the pockets of the bank holding the loan...you could almost call the interest fees people being penalized for wanting to own a home and having a mortgage (for not being wealthy enough to buy a home outright)

 

You are right. For most people who purchase a home, there is no 'windfall' until years later when the mortgage is paid and they plan to retire and downsize. As I have said before, you could have a similar outcome by renting the entire time and investing your savings. Of course nobody who gains taking that approach is denigrated. The problem though is that many people who rent don't save or invest their money. Instead they make the choice to have vacations with friends and families, entertain, and have a social life - all of the things that most young homeowners can only dream about.

 

Home ownership is a forced savings plan and something that the Government heavily relies upon. If it was not for those savings then they would be paying billions a year more in OAS and other benefits.

[Mike K.]

The equity for many younger homeowners is also locked, as in the bank won’t HELOC against it unless you have the income to carry the debt obligations of borrowing from it.

So the equity is there, but the bank won’t let you have it. If they do let you have it, they only let you tap into a portion of it, up to 80%, and that’s only if your income is high enough to service it. Easier said than done when 1/3 of your pre-tax earnings are going to the mortgage and insurance, another 1/4 to a car loan, and 1/5 to servicing other debt like a LOC to pay for the roof that was just replaced, and which will pay for the new deck next year because the boards are rotting this fall. Then you have to pay taxes, save, eat, clothe your kids etc.

Now of all of my friends who own homes who also qualify for the HELOC, only the older folks do, who are in their 50s and 60s. They tend to have higher incomes and less debt overall, so banks extend the HELOC.

So if we introduce taxes for unrealized equity that would be a death blow to younger homeowners, already stretched but they did it to own a home. Taxing them would be extremely counterproductive.

Further, I have yet to encounter anyone in my social circle who sells and moves -down- a rung on the ladder. In your 20-50s it is virtually 100% moving up, meaning you take 100% of the equity and transfer it to the next purchase. Only empty nesters downsize, that’s why the luxury condo market formed to try to capture their entire equity when they downsized, as in they sell their $1.3 million house, and buy a $1.3 million pre-sale townhouse.

[spanky123]

^ Once you hit 55 you are probably deferring your property tax so the HELOC may still not be an option.

[kitty surprise]

There’s no reason not to mortgage your home. Interest rates are far lower than inflation. By keeping equity in your home and not borrowing against it, you’re losing money these days.

It's evident these punitive measures are based on broad assumptions about homeowners that simply aren't true.

Not all of us are clever enough to game the system or find every loophole. We're just average people paying our bills.

[Mike K.]

In some cases, absolutely. And that tax deferral will go to the municipality, plus interest, once the home is sold. For low-income seniors it’s a lifeline but they will see a large portion of their equity go towards property taxes.

Buts that’s not all. The seniors living industry has cropped up to take advantage of Mrs. Jones’ equity, and charges $3,500/month for room, board and services. If you have $500,000 in the bank from your home sale (after paying your deferred taxes, after giving your kids some money to help them buy a home, and settling other debts) you better hope you can make that last for a decade, maybe more.

[sebberry]

Fortunately longevity doesn't seem to run in my family so I'm not worried about retirement.

[Mike K.]

I’ve calculated up all of the big ticket improvements I have to make to my house over the next three years. The total is $100,000-$125,000. I’m one of those cases that won’t use a HELOC because a) I don’t want to pay the several thousand dollars to open it (yes, there are fees associated with a HELOC), and b), I have enough LOC to tap into if I have to for now, but obviously at a much higher interest rate but no upfront costs the HELOC brings. Also, the HELOC I will qualify for is already available to me via my LOCs so the bank said tapping into the equity is not my best route from a dollars and cents perspective.

One day, if I’m fortunate and can move up the rung, every penny of equity will go towards another purchase, for which I will pay a considerable amount of property transfer tax to the province (you can bet the province is feeling the property transfer tax income loss from so few sales in 2021).

I almost feel like we need to have a public forum teaching people who’ve never owned real-estate what the truth is behind real-estate ownership, and what is and isn’t possible in real life vs internet conservations and the assumptions they are predicated on.

Hmmm…

[spanky123]

It's evident these punitive measures are based on broad assumptions about homeowners that simply aren't true.

Not all of us are clever enough to game the system or find every loophole. We're just average people paying our bills.

 

It is simple math for politicians. 60% of people rent in the CoV so creating class conflict makes political sense. Telling people that homeowners are getting rich at their expense and that you will level the field by taxing them to death sounds pretty good to a lot of people struggling to get by. 

 

I sounded the same alarm when the message was to tax the "billionaires" to have them pay for Canada's debt. Be careful what you wish for as the gravy train never stops once it has started. Now homeowners and small business owners are the wealthy elite who must pay, but tomorrow it will also include the tech worker and consultants who are driving up rental prices and who don't pay their fair share of taxes because they act as contractors. 

[Nparker]

No one is as good at manifesting an "us & them" scenario as the "Together Victoria" contingent. Never was a political organization more ironically named.

ps: back on topic again   

[spanky123]

In some cases, absolutely. And that tax deferral will go to the municipality, plus interest, once the home is sold. 

 

True but the interest rate charged is far below market. At the moment I think that it is something like 0.7%. If you have a need to borrow money then it is likely the cheapest loan you will ever get and in line with what M3M said, it is fairly trivial to get a better ROI on that money even after you pay tax on the income.

[Mike K.]

How much ROI do you get with 5% taxable return on that $5k in tax you deferred? That amount too is trivial. And that tax you’ll eventually pay, it won’t care if the market happened to turn and you sold your home for $1.2M instead of the $1.5 million it was worth three years prior. Markets are not always rising, and we saw what happened in Victoria 2008-2014.

What will be rising are interest rates this decade. We’ve sort of forgotten what it’s like to pay a mortgage at 5%, or 7%, but that’s coming and perhaps far sooner than we might imagine. When I bought my home the bank gave me a 3.8% mortgage, so I’m mentally adjusted to that higher rate, sort of, but still not a 7% mortgage. This fall I blended down but I’m still a lot higher than people who bought this year and last with 1.5% or 2% mortgages. Imagine what a 200% mortgage increase will mean to their pocket book?

[spanky123]

Well if you have a nice place and are in your 70's you may very well have deferred $150K to $200K by now. At a 6% return when you are only paying 0.7% interest that covers a nice vacation.

[Mike K.]

But we're back to hypotheticals once again.

 

Why don't we just say these system scheming seniors get 1000% returns and live on island paradises in the south Pacific with their $200k that they turn into $2 million every year?

[Awaiting Juno]

Where's the off topic stamp?

 

At any rate: anyone else worried about the planned property tax increase in 2023? This year's is moderate, but next year's is a bit steep....

[Nparker]

...anyone else worried about the planned property tax increase in 2023? This year's is moderate, but next year's is a bit steep....

I worry about my CoV property tax increase every year. Several times in the past decade, it has borne little relation to the increase in my assessed property value (i.e. well above assessment increase). The city has to find a way to pay for those poets laureate somehow I guess.

[JohnsonStBridge]

The return on a property tax deferral doesn't need to be taxable if you have available TFSA contribution space or put it towards a life insurance policy. A 5% return on $5K in annual cash flow over 2 decades is a $60K return. Maybe Mike thinks that is trivial to his pocketbook but I would take that handout from the government any day.

[Mike K.]

The return on a property tax deferral doesn't need to be taxable if you have available TFSA contribution space or put it towards a life insurance policy. A 5% return on $5K in annual cash flow over 2 decades is a $60K return. Maybe Mike thinks that is trivial to his pocketbook but I would take that handout from the government any day.

 

What if you lose 80% of that annual no-tax cash flow because the mutual fund your advisor suggested tanked in year 14 out of your 20-year investment plan, and never recovered by year 20? And now you have to pay the City back the taxes you owe, from money that you don't have that was supposed to net you a $60k tax-free profit? But that's not all. The year you have to move to a retirement home and sell your house, the real-estate market tanks because of a financial crisis, and you sold your home for $300k less than you would have sold it for just one year prior. Now you don't know if you'll afford your seniors home payments beyond six years of residing there. Now what? Can you reach out to the good people in the City of Victoria for some unrealized equity tax reimbursements?

 

See, everything's easy when you're playing with hypotheticals, or finding creative ways to do things with other people's money. Real life is not that easy. The people who are outside of the housing market trying to buy in realize that every day, and they come up with all sorts of scenarios dreaming up how easy it would be if they just owned a home. Those who own a home keep asking themselves where they'll get the money to pay for ever-rising property taxes, maintenance costs, electricity costs, gas costs, insurance costs, rising mortgage rates and all of the special levies tacked on to residential property taxes, while their incomes remain stagnant or rise at a fraction of inflation.

 

The grass is always greener on the other side.

[FogPub]

Not sure a single citation is enough to refute a policy reform. Our Rhodo project in Gonzales took a $3.2m SF property and built 22 townhouses, 2 x $325k, 14 x $850k, 5 x $1.1m, 1 x $1.4m

 

All while providing new warranty housing, underground parking, higher efficiency, in a compact neighbourhood full of amenities and transportation options.

 

This is good urbanism and how our city needs to grow

Buying a property for $3.2m and selling it for a total of about $19m only serves to tell me someone made a lot of money in there somewhere...

 

Well, at least two of the units were vaguely affordable.

[yellow_baron]

The staff report back on the 'reconciliation payments' (assuming that they'd been implemented 20 years ago):

 

 

 

https://pub-victoria...ocumentId=74824

Edited by yellow_baron, 09 December 2021 - 01:58 PM.