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The point of creating an offshore company- tax optimization

The offshore company is not just about setting up a company in a foreign country to that of its tax residence. The choice of country is important and depends on the objectives and the expected benefits by setting up your company in the country in question.

The number 1 reason: tax optimization

In the vast majority of cases, the creation of an offshore company has the main objective of tax optimization. This is a form of tax evasion, except that unlike tax evasion, optimization is legal. In fact, it consists of taking advantage of loopholes in the tax system of the country of residence to reduce the amount of the tax burden. Thus, the goal is to install the company in a country where the regulation is much more flexible and where the taxation is very weak, or even null. The term tax haven is often used to describe this type of destination. Benefiting from lower taxes allows the company to retain a larger share of its profits than it can reinvest or share among its shareholders.

Anonymity, secrecy, and discretion

If tax optimization is often sought by the company opening an offshore company, other reasons may be added. Very often, managers and shareholders may also be looking for greater anonymity. It is especially possible to use name ready to formally represent the offshore company. This anonymity is often sought for tax reasons. We must also mention the secrecy and especially banking secrecy. Some offshore destinations allow opening an account by ensuring total banking secrecy. Note also the discretion that allows certain transactions that would be impossible to achieve from the country of tax residence. This discretion also concerns the absence of accounting. Thus, in most offshore destinations, it is not mandatory to make public its accounts. A solution allowing managers to better preserve the confidentiality of their income. In any case, it is essential to approach a firm specializing in the creation of a company outside your tax residence. These taxation experts will save you a lot of time, and most importantly, they will optimize your success rate (creation of a bank account in particular). 

How do I know if they will grant me the mortgage and which one fits my profile?

One of the most common issues, when we consider buying a home, is whether the bank will provide financing. We must bear in mind that banks currently grant mortgages demanding more stringent requirements than in times of the housing bubble.

When will the bank approve our application?

If we want to know which profile is the best one to grant us a mortgage, the most important thing is to meet the following requirements:

  1. To enjoy job stability: we must show that we have a good capacity to pay, that we have a stable employment situation and an indefinite contract. In addition, our income must be equal to or greater than € 2,000. The Bank of Spain recommends not to allocate more than 35% of our income to the payment of the mortgage.

We can use the mortgage simulator with which we can know what the fee will be to pay depending on our payroll.

  1. Have savings: the bank will lend us money if we have an amount of money that represents 35% of the value of the home. A 20% will pay the money that the bank does not finance us and the other 15% will be used to pay the opening costs.
  2. Have a good credit history: if we have outstanding debts we will have very difficult to grant the mortgage since we will not show a guarantee of payment. In addition, if we have not made any payment and appear on some list of defaulters as ASNEF, we must seek financing through private capital.
  3. Having other assets: if we own some property we will always show greater solvency because they can prove that we can face a large payment such as the mortgage.
  4. Have a possible guarantor: the bank may ask us to put up a guarantor because it considers that there may be some type of risk. However, we must know before signing that including an endorsement has very serious consequences, since in case of default this will respond with your present and future assets.

What mortgage should we choose?

When deciding on a mortgage, we must look at the one that best fits our economic profile. In order to determine if we can answer these six questions:

  • Do I want a fixed or variable mortgage? With a fixed-rate mortgage, we will make sure that the payment of the installment will not change in the life of the mortgage loan. However, some entities will require us to be more linked than in variable mortgages and the fee may be higher because the terms tend to be shorter. If we decide to opt for a mortgage referenced to Euribor, we will enjoy reduced rates when this index is low, but we will start to pay more when it increases its value.
  • How long are we going to pay the debt? We must decide what is the repayment term of our mortgage. Currently, there are banks that offer to finance for up to 40 years. We must adopt the term depending on our income since with a variable mortgage the fees will be lower than with a fixed one.
  • What amount will we need? Taking into account the savings and income we have to determine what part of the housing payment we want the bank to finance us. Nowadays, entities offer a maximum of 80% of the lowest value between the purchase and sale valuation. However, it is possible to contract a mortgage loan financed at 100% if we request a mortgage for bank floors.
  • What link do I need? To get an interest under the bank will ask us to hire a series of products, in this case, it is important to know which are necessary and we want to pay, because it may be that the bank requires us a pension plan that we had never raised.
  • Do I plan to amortize the mortgage in the future? If so, we must ensure before signing our contract that this does not include a commission for early repayment, otherwise we must pay for it. In addition, we have to look at hiring a mortgage that is free of commissions or that has the least possible.
  • Do I need to pay the fee in a special way? In the case that we need to request a deficiency at the beginning of the loan to be able to face other payments (works, furniture purchase, etc.) or if we want to pay the fee on a specific day of the month, we must make sure that our Bank is flexible.

I want to cancel the mortgage: how much will I have to pay?

Paying the last installment of the mortgage is one of the most anticipated moments for many families. But once that last monthly payment is paid, we can ask ourselves, and now what? The mortgage does not end with the payment of the last installment, it is the last step: take charge of the cancellation costs. The banks do not usually give many explanations about these costs, the most normal thing is that they ask us for funds and they tell us that “they take care of everything”. In this article, we will explain in detail everything that has to be paid if you want to cancel the mortgage.

What expenses must be paid when canceling the mortgage?

Taking as reference a variable mortgage of 200,000 euros, the expenses would be the following:

EXPENSESCOST
Cancellation fee (0.50%)From 0 to 1,000 euros
Notary90 euros
Property registration24 euros
Agency120 euros
TOTAL TO PAYFrom 234 to 1,234 euros
  • Commission for cancellation. The cost of this commission will depend on the outstanding capital to be amortized. For variable mortgages, this commission is between 0.25% and 0.50%. Also, if the last payment of a fixed rate mortgage is made before the scheduled date, we will have to pay a risk compensation commission by the interest rate.
  • Certificate of zero debt. It is the document that confirms the settlement of our debt with the bank. In principle it is free, but sometimes banks have charged for their processing.
  • Notary fees. Since May 11, 2012, and through Royal Decree-law 18/2012, the fees of notaries have gone up and now they have to charge 90 euros at least.
  • The property registration. These expenses are usually not higher than 24 euros.
  • Manager. The cost for carrying out the process of the manager does not usually lower 120 euros. Rates are not regulated, so they can be much more expensive.

What banks do not say about mortgage cancellation expenses

Below we explain 3 things that we probably did not know about canceling a mortgage:

  • We have the right to manage the cancellation costs ourselves and not have to do the bank. That way we could save some expenses.
  • The prices will change depending on whether it is a mortgage loan (a mortgage) or a mortgage loan, the so-called open mortgages.
  • Before canceling the mortgage, we can ask the bank to break down and specify what they will be and how much they will cost. In this way, we can avoid surprises and we will have control over the expenses before starting the management.

Two ways to not pay the fees for canceling the mortgage

If we want to modify some condition of our mortgage, but we do not want to face all the expenses of canceling the mortgage, we have two options: novation or subrogation.

1. Novation of the mortgage, negotiate with our bank some conditions, will serve us to change:

  • The term of amortization of the mortgage
  • Increase capital
  • Modify the interest
  • Add headlines
  • Remove abusive clauses

2. If the bank has not wanted to modify any of these conditions, we still have another option: mortgage subrogation. If we change the bank mortgage, we can modify:

  • The interest rate and the benchmark
  • Add or remove linked products
  • Remove commissions
  • Remove abusive clauses such as the floor clause

Mortgage calculator – How much will you pay each month?

If you want to calculate the mortgage and know your monthly payment, you should know that the mortgage loan is not only made up of interest but also you must add insurance, opening costs and commissions, among others. Fill in the following personalized form and discover, for free and at the moment, how much you will pay each month and in total to the bank for the mortgage.

Mortgage calculator: What factors does it include?

The use of a mortgage calculator will allow us to simulate the payment we will make each month taking into account a series of variables. Once we have the result we can know the real cost that will be in our family economy and go to the bank to apply for financing.

  • Interest rate: in a variable mortgage is the result of adding the index to which the mortgages are referenced (Euribor or IRPH) plus a differential (different in each bank). Therefore, the mortgage share will be lower the lower the differential. For a fixed mortgage loan the interest rate is the same throughout your life. The mortgage calculator, however, performs the calculation on the monthly fee considering a fixed interest, that is, the same interest during the years the loan lasts. In this way, if we want to calculate the mortgage rate it is better considering an average of the Euribor, for example at 3% (so we can predict if we can make the payment when the index increases since it are currently at a minimum).
  • Capital: this is the amount of money that the bank will loan us. Nowadays banks finance a maximum of 80% of the lowest value existing between appraisal and sale. To get 100% financing we have two options: sign a mortgage for bank floors or have a financial profile above the average, with very high payment guarantees.
  • Term: is the period during which we will have to amortize the debt. Currently, the average term that entities are offering for variable mortgages is 30 years and 20 years for fixed loans. Fixed-rate mortgages have a fixed-term first term (between 3 and 10 years approximately) and then a variable one, up to a maximum term of 30 years.
  • Commissions: depending on the financial institution we can be charged more or fewer commissions when hiring the mortgage. Therefore, the mortgage calculator will help us discover the cost of the opening commission in case your mortgage has it. The entities that include this commission set it at around 1%. In such a way that in the mortgage calculator we must include the percentage and the minimum amount if it is specified.
  • Related products: normally, with the hiring of the mortgage, a series of linked products will be added that the entity will demand to offer us a lower interest. The link can be insurance (life, home or unemployment) pension plans, credit or debit cards, in addition to direct payroll and receipts. If we have any of these links we must include the prices in the mortgage calculator to tell us what the final price would be.

Limitations of the mortgage calculator

Although the mortgage fee calculator gives us a fairly accurate approximation of the cost of the mortgage, it may also have some limitation and may not give you the exact figure.

This will be the information that the mortgage calculator can not provide us with:

  • Changes in interest rates on variable mortgages: the mortgage calculator will not give the exact value of all the mortgage’s life installments, because you do not know how much the Euribor will quote in the future. Therefore, to calculate the amortization table of the mortgage, you should take an average value of the Euribor, which can be 3 %. In this way, if we see that the result we can assume we will be ensuring that we can pay all fees even if the Euribor starts to rise.
  • Ability to borrow: all those who are thinking of buying a house and mortgaging must consider their financial capabilities to adjust them to the price of the house they can afford. The Bank of Spain recommends that the mortgage fee cannot exceed 35% of monthly income. The mortgage calculator will give information about the fee to pay, but it will not say if it exceeds the limits of our credit capacity.

If you think that you are paying more in your contract you can calculate the floor clause, in this way you will be able to know what is the amount that the bank has to return to you.

How can I be sure that I am contracting a cheap mortgage?

Before signing a mortgage it is advisable to check the conditions of several mortgage loans to make sure that we can face the debt in different cases and that the conditions that the bank asks for benefit us. Therefore, we should compare at least three mortgage loans and make numbers with an online mortgage calculator to know how much we would pay each month and in total with each product.

The differential is not the only thing that we must set when hiring a mortgage and may mean an error since the total cost will determine more variants. Therefore, we must observe the fine print and take into account the commissions, the linked products provided by the same entity, as well as the high opening costs.

A cheap mortgage will always be one that does not include any abusive clauses such as the floor clause since with it one ends up paying more. A very useful tool for those people who have the floor clause in the contract is to use the floor clause calculator. The information you will not provide us will be the amount of money we have overpaid for that abusive clause. This calculation can be done easily using one.

In this way, knowing how much money we need for the new house, that is, calculating the cost of buying a home and applying for a mortgage, will be much easier.

Is it better to hire a short or long term?

Many of those who sign a mortgage to finance the purchase of a home wonder what can be more on the account, if amortize the product in a short time or do it in more time. However, there is no single answer, since it will always depend on the employment and economic situation of each: some people will need more time to pay a reduced monthly payment, while others will be interested in paying off the debt as soon as possible.

To answer this question we can use the mortgage calculator changing the years of amortization:

  • With a variable mortgage: the most interesting thing is to find a balance between a period as short as possible but that the resulting installments are comfortable to pay. If we say to pay the mortgage for many years, it would be interesting that the mortgage had no amortization fee, so the years can be reduced without additional costs. We must consider that the mortgage payments will be lower if we extend the term, but in return, we will pay more interest in total.
  • In the case of a fixed rate loan: it would be advisable to choose the payment of the installment with a short-term to pay less interest, as long as the monthly payment does not exceed 35% of the monthly income. In addition, in this case, we would apply a lower rate since banks usually apply a lower interest rate for short terms.

Compare offers and then use the mortgage calculator

If we want to buy a home and finance it through a mortgage, the most interesting thing is to inform us of what the banks offer and start comparing, at least, between three offers. Thus, knowing what our financial profile is, we can find the best mortgage loan and, above all, the one that best suits our pocket. Then, knowing all the mortgage requirements, we can make numbers with the mortgage calculator.

The six hidden costs of a car purchase

Buying a vehicle is an investment, and like any investment, it will be expensive. Even before proceeding with such a transaction it is necessary to recognize that it will be expensive. Not only will you pay the price you see on the label at the dealership, but you must also consider several additional expenses that will be associated with your purchase.

By being aware of these hidden costs, you will be better prepared as you develop your budget – that is, you will have a better idea of what is truly affordable. Be aware of the following expenses and avoid finding yourself with a vehicle that makes your budget too tight.

1. Car insurance can often be very expensive; it may even end up costing you more than your monthly payment for the vehicle itself. This is not an optional expense, either: if you own a vehicle, the law requires you to ensure it.

Your insurance fee depends on many factors, including your car’s year and model, age, driving experience, and claim history. It is therefore very important to know this charge before completing your purchase because a vehicle that you are not able to provide will not be very useful.

2. Maintenance and repair costs can sometimes become unbearable and most vehicle owners are not prepared for the assumes as they become necessary. An accident, a piece that is missing … It does not take much to generate significant costs and unexpected. It is therefore imperative to have enough funds set aside to cover such an eventuality before signing a purchase agreement. In addition, it is suggested that you inquire as to the model and year of the vehicle you are interested in: what is the experience of other owners? Do the parts wear out quickly? Is the vehicle reliable? Better know it before spending your money!

Also, think about the use you will make of the vehicle. Are you going to make short walks on the highway with your family? Will, he use to go to work, caught in congestion every morning and evening? Do you buy it to be able to do your commissions? These factors will have a direct impact on the frequency and maintenance costs, and therefore on the amounts, you will have to pay. Keep them in mind as you decide which vehicle will be yours.

3. The price of gasoline cannot be underestimated when buying a vehicle. Every week, we all witness the relentless increase in the price of fuel. You must, therefore, inform yourself about the fuel consumption of whatever vehicle you are thinking of buying. Different car models will have different volumes of fuel tanks and different fuel consumption – the frequency and cost of each full will have a significant effect on your weekly and monthly budgets. Take the time to make the smart choice for your budget; avoid having to choose between what is expensive and a simple tank of gas!

4. The purchase of an extended warranty may be a necessary expense or a loss of money, and the only way to be sure is to take the time to find out. There are several factors to consider when assessing whether a warranty is necessary in your particular case. If, for example, you do not plan to keep your car for a very long time, an extended warranty will not help much and you will be able to avoid a significant increase in your monthly costs. This is because your vehicle will probably be protected by the manufacturer’s warranty for the duration of your possession.

If, however, you plan to be the owner of your vehicle, in the long run, it might be very interesting to look for the prices of different guarantee packages. Depending on your needs, there are several types of guarantees on the market that may be sufficient for your needs. It is therefore important to make a wise choice. Remember, a guarantee is an added expense. Be wise and choose a guarantee that, for you, will be worth it.

5. The interest rate on your car loan can make your purchase more affordable or extend the life of your car while increasing the total cost of your car. It is important to not only rely on the price displayed but to consider the effect of vehicle financing on its monthly price, as well as its total price.

If you see that the financing of the vehicle would make it too expensive, consider waiting for the time to save a deposit that will reduce the monthly payments of the purchase. Your patience will be rewarded with an affordable monthly payment and, of course … A new car!

Before moving on to the last hidden cost, we must mention that there is no risk in trying to negotiate a lower interest rate. You may not be able to get it, but you have nothing to lose, either.

6. The manufacturer’s options can make your car an ideal vehicle, but they can also add significant amounts to the total price of your purchase. If you are looking for a sunroof and air conditioning at no additional cost, you will have to expect a bad surprise. Calculate the price of these additions as you prepare your budget for your purchase.

As you can see, hidden costs can accumulate very quickly. That being said, by being informed and saving a down payment, you will be able to ensure that your purchase will be both useful and affordable.

How much can I deduct for amortizing my mortgage?

Now that we are in the middle of the 2017 Renta campaign, many mortgaged people are wondering how much money they can save if they apply the deduction for investment in a home on what was paid last year to pay off the mortgage. In this article, we will explain in detail in which cases this relief can be practiced, as well as what are the limits set by the Treasury.

Up to 15% of the amortization of the mortgage loan, but with limits

Before explaining all the details about the deduction for investment in habitual residence, it should be noted that not everyone can deduct the mortgage. This tax benefit was abolished in 2013, so it can only be applied by those who bought their home before January 1, 2013, and practiced the deduction on what was paid for the mortgage prior to that date.

That said, the deduction for investment in a home allows us to deduct up to 15% of the amount paid during the year to amortize our mortgage. Yes, that percentage can be applied to a maximum limit of 9,040 euros, which amounts to 18,080 euros if we share the ownership of the mortgage loan with our partner and we decided to make a separate statement.

Thus, if throughout the year we have paid a total of 20,000 euros in amortization of the mortgage loan, we can save a maximum of 1,356 euros in IRPF, which is 15% of the maximum of 9,040 euros. If we make the declaration separately from our partner, we can double the reduction, which will reach 2,712 euros.

What happens if I changed my bank mortgage from 2013?

Another point to keep in mind about this deduction is that it can also be applied if a mortgage subrogation or a cancellation was carried out to change banks. The Tax Agency itself ensures that these operations are aimed at modifying the conditions of the mortgage loan that was used to acquire the home before 2013 so that the taxpayer who practices them does not lose his right to benefit from the tax relief.

It can also be applied to amortize the mortgage in advance

In addition, if during 2017 we have advanced all or a part of the capital of our mortgage loan, we can also benefit from this deduction, since it applies to everything paid for the mortgage per year, including early repayments. Of course, the reduction, in this case, will also be limited to the 9,040 or 18,080 euros mentioned.

For this reason, before amortizing a mortgage in advance (either totally or partially), it is advisable to assess whether it exceeds the limit of 9,040 euros per annum. In the current scenario of low rates, the savings we can obtain with this operation will not be very high, so it may be more profitable to invest that money in a short-term depositor in a similar product that gives us a higher return than that we would save on interest.

One of the best one-year deposits that we can find within the market is the Bulgarian American Credit Bank (BACB), where we can invest through the Raisin platform, which offers a profitability of 1.15% APR, requires a minimum of 5,000 euros and is backed by the Bulgarian Deposit Guarantee Fund, and when we open it we will receive a welcome gift of 50 euros.

Mortgage Rates Of Second Rang

Second mortgage rates vary across the country. Among the larger cities (Vancouver, Calgary, Toronto, Montreal), you may find that rates and fees are consistent. However, elsewhere in Canada, second mortgage rates tend to fluctuate.

Who are the second lowest mortgage lenders in Canada?

Usually, second mortgage lenders are private lenders. This is because regulated banks fear the risks associated with second mortgages. A second mortgage is a loan that is second on the list of priorities in case of default, which means that if the borrower does not honor his obligations, it is his first mortgage that must be cleared before the second mortgage.

Private lenders are capable of assuming this type of risk, but they play according to their own rules. Private lenders are scattered all over the country and are not huge credit institutions. Click here to find out more about the second mortgage lenders. 
The second mortgage lenders are geographically sensitive with their loans. That means they have regional preferences when it comes to tariffs.

Rural Rates vs. City Rates

The second mortgage lenders want to be close to the properties to which they lend. They do not have the national presence of the big banks in Canada; therefore, the rules on rates are somewhat inconsistent. We can easily illustrate this by looking at the differences between the second mortgage rates of cities and those of rural areas.

These lenders are more likely to offer better rates to those living in the city since lenders tend to settle in big cities, a place conducive to business. A borrower who has a property lying far from the second mortgage lender will cause the lender to a headache if the borrower defaults. Those who provide these loans tend to offer them at higher rates than those in cities.

Other Costs associated with Second Mortgages

Many of these lenders will charge fees in advance for a second mortgage. They will usually charge 4% of the value for a second open term mortgage and 3% for a second term mortgage.

Other fees that you will probably have to pay: 
– Notary fees 
– Legal Fees 
– Evaluation costs 
– Insurance costs

Lenders will offer at most 70% or 80% of the loan-to-value ratio. If you have a house that is worth $ 200,000 and a first mortgage of $ 100,000, then a lender will only offer $ 60,000 (since $ 100,000 + $ 60,000 = $ 160,000, or 80% of the loan-to-value ratio). However, they will subtract an initial fee of 3% or 4% (depending on the type of mortgage). 
The terms of the second mortgage tend to be more succinct; generally, the terms are set at one year, but these can fluctuate from customer to customer.

Mortgage change to another bank – How much does this process cost?

Changing the mortgage to another bank is a procedure that entails a cost, so before carrying it out we must check whether it will be profitable in the short and medium term. Below, we show some of the best mortgages in the market to change the bank mortgage.

What costs does the change of mortgage bring to another bank?

The costs of a subrogation will depend on the outstanding capital to be amortized of the mortgage loan and the change of conditions that we carry out in the process. Below, we show the approximate costs involved in a mortgage change to a different bank:

  • Commission by subrogation. It is regulated by law and has a cost of 0.50% over the capital for the first five years and 0.25% from the sixth. The subrogation fee is applied to the outstanding capital, that is, for a mortgage with a balance to be amortized of 150,000 euros, it implies an approximate cost of 750 euros.
  • Notary. Between 0.2% and 0.5% of the outstanding capital, so for the previous example would mean about 525 euros.
  • Gestoría. Elo charged by managers to process a change of bank mortgage is usually approximately 200 euros.
  • Appraisal. To calculate the price of the house we must pay between 200 and 400 euros, depending on the appraiser.
  • Property registration. It is a cost that is also regulated by law and is not usually more expensive than 100 euros.

As we can see, to carry out this operation there is no need to pay the tax on documented legal acts (IAJD). Also, we must bear in mind that when the new mortgage regulation is enacted, a new commission will be established for the change from the variable rate to the fixed rate, which may be a maximum of 0.25% and may only be applied if the change is made during the first three years of the loan’s life.

When is it convenient to subrogate the mortgage?

  • If our bank does not accept to carry out a novation of the conditions. If we want to improve some condition like interest, and our bank does not accept to modify the contract.
  • If it is profitable in the short and medium term. It may not be profitable to pay a subrogation if the changes we are going to make will not bring us benefits in a short time. We must calculate that we will compensate for all the expenses in subrogation in a few months.
  • If we want to cancel the mortgage to open another and avoid paying taxes. Canceling the mortgage and opening a new one supposes a high cost because we have to face the payment of the Tax of Documentary Legal Acts (IAJD). On the other hand, if we subrogate the mortgage, we can save this tax.

How is the process to change the bank mortgage?

If we want to transfer our mortgage loan to another bank, to improve the conditions. We will have to follow the following steps:

  • Find a bank that accepts us as customers and whose offer improves our mortgage
  • Wait for the binding offer of the new entity and decide if we like it. If they accept our request, the bank has seven days to submit an offer. Once we arrive, we will have 10 days to decide if we are interested.
  • Wait for the counter offer of our entity, which will have a period of fifteen days to present it. If the equals or improves (enerva the offer) we must stay with our bank and make a novation.

What can we change with a subrogation?

With the change of mortgage bank, we can improve everything that is related to the interest of the mortgage loan and the term.

  • Differential If we hire the mortgage in full economic crisis with the differentials through the clouds, with a subrogation of mortgage we can lower them and adapt them to the average spreads that banks offer today. For example, we can go from a Euribor plus 3.00%, it is possible to achieve a differential to Euribor plus 1.25% or even lower and pay a much cheaper monthly payment. If we have a fixed-rate mortgage, we can also reduce interest, for example, moving from 5% to 3%.
  • Reference index. The interest on variable mortgages is constituted by the sum of the benchmark plus a spread. In our country, the most used index is the current Euribor, although there is also a 10% of variable mortgages linked to IRPH, an index whose validity has been questioned repeatedly by the courts.
  • Interest rate If we want to change the bank mortgage we can move from a fixed to a variable and vice versa. We must know that if we move from a fixed rate mortgage to a variable one, we will have to pay a commission for interest rate risk compensation.
  • Modify the term. By changing the bank mortgage, we can take advantage of and increase the term of our mortgage loan up to the maximum allowed by the new entity (normally the maximum term is 30 years for a first mortgage). In this way, we can lower the monthly amount of the mortgage payment. However, we must bear in mind that if we stretch the life of a mortgage we end up paying more in interest.

On the other hand, if we want to change a clause that is not related to the aforementioned issues, we must agree to the modification with our bank (novation) or we will have to sign a mortgage with the new conditions to cancel the current one.

How to obtain an agricultural mortgage

Canada is and has always been dedicated to its farming communities. Although the rural population lives mainly in our three prairie provinces of Alberta, Saskatchewan, and Manitoba, there are ranches, nurseries, agricultural co-operatives and farms across the country. Prince Edward Island, for example, is known to supply about 25% of Canada’s potatoes and Quebec has the largest number of dairy farms in the country, producing more than 30 million hectoliters (100 liters). ) of milk per year. Agriculture can be an extremely profitable business in the right conditions. So, for those who like to work outdoors and have the energy to get up at four in the morning, seven days a week, agriculture could be the right path.

Again, it is not always easy to establish and maintain a farm of any type, and it is not always profitable. Not only does the operation of a farm require work and constant supervision, but getting a mortgage is a task in itself. Since farms need such dedication and manpower to survive, many creditors do not lend money to anyone who arrives with a parcel of land. In fact, the process of approving mortgage loans for any rural property, whether for agriculture or residence, tends to be a bit more complicated and expensive than for an average urban household. However, if you are a potential farmer who is trying to make a name for himself, do not let that stop you from pursuing your dreams. Getting a mortgage for a rural property is possible and we will prove it to you.

What is the difference between a normal area mortgage and an agricultural mortgage?

Recent studies have shown that housing rates are on the rise in many Canadian provinces. In fact, some urban areas, such as Metro Vancouver, have become so expensive to live that many citizens have to travel outside the city to find more affordable housing. The closer you get to the Pacific coast, the more expensive the houses become. So going to the countryside is sometimes the only choice for people who do not want to leave the province. In many cases, it may be cheaper to buy a vacant lot in a place like Chiliwack and build a house there than to mortgage an existing home in Vancouver. You may even be able to make a decent profit by buying a rural property, building a house, and selling it when the land has gained value.

Fortunately for residents of British Columbia, the province has a large number of rural cities to choose from. However, mortgaging a rural property does not necessarily mean that you have to build a stable and fill it with horses. There are some notable differences between using a rural home for business purposes and simply living in that house.

The biggest difference between an agricultural mortgage and what is known as a normal area mortgage is the intended use for the property. In other words, buying a rural property for subsistence or farming purposes are two different things. Regardless of the type of mortgage loan, the borrower will have the option of mortgaging a property with an already built home or mortgaging a plot of gross land (no building), with the intention of building a house on that property.

Normal surface mortgage

With a normal area mortgage, the property can not be used to generate a profit and must generally be 10 acres or less to be approved. As with a normal mortgage, borrowers seeking to buy a piece of land or land with an existing home can pay a down payment of only 5% (depending on the lender). And just like a normal high-ratio mortgage, the borrower will have to buy default mortgage insurance if they make a down payment of less than 20%. Obtaining a mortgage for a normal-sized property will also be easier because, in the event of default by the borrower, a lender must only give him 3 months to leave the property before the seizure, while he must leave 12 months before the seizure of an agricultural property.

Agricultural mortgage loan

The mortgage approval process for farm properties, on the other hand, will be a bit more complicated. First, agricultural mortgages generally require a down payment of 25% or more. The lender is going to take a much higher risk with borrowers looking to cultivate land for farming. After all, much more time, money and resources would go to financing a functioning farm than in a typical property, which means that the borrower might have more trouble making his mortgage payments.

For agricultural land, borrowers/investors are allowed to purchase as many acres as they wish at the time of sale. However, depending on the lender, these borrowers will likely only get a mortgage covering a period of the first 10 acres, usually with a house and a garage. Funding for any other land beyond those 10 acres and any other building beyond that house and garage will come out of the borrower’s pocket unless he makes a larger down payment.

Municipal Assessment and Zoning

Now, for any type of rural mortgage, whether it’s a farm or a normal acreage, potential borrowers will need to have their property assessed before they can do anything more. The lender will want to make sure that the property is worth its investment so that the area is respected. The appraiser will review the property, checking houses and/or garages already built (appraisers are normally responsible for not taking external buildings, such as barns or other structures, into account when assessing the property. ). However, what is even more important is the location of the property. For example, an extremely remote rural property will be much harder to resell if the borrower goes into default and the property has to be seized. The closer the property is to a municipality, the more valuable it is.

The evaluator will also inspect the drinkability of the water and the skeptical system. In a typical suburb, water and sanitation capabilities are generally not a problem. On the other hand, with rural land, whether or not the area has drinking water is certainly important. If the land is vacant, the construction of a well and a skeptic pit should be considered. The same can be said of a rural house already built with a drinking system and/or skeptic pit that should be repaired or fully replaced. So, to get approval from most lenders in this area, the borrower will need to acquire three documents:

  • A “water portability certificate” not more than 60 days old (verification that the water is fit for human consumption).
  • If the skeptic pit is new, a certificate confirming compliance with provincial or municipal rules must be obtained. The certificate must also certify that the design and installation of the system do not exceed an acceptable level of soil and water contamination.
  • For new wells, a “Pummeler’s Certificate” is required, specifying flow and portability. If the property already has a well on site, the appraiser must review its flow and its portability and then report it to the lender.

Municipal zoning is another distinct part of the assessment of rural property and its future use as a residence or farm. Essentially, how the property is zoned will determine how the borrower uses it.

  • If the property is listed as “residential county”, it means that the land is not licensed for agricultural purposes, so it will be easier to get approval from the lenders.
  • If the property is classified as “agricultural”, agriculture is permitted, but approval will be more difficult to obtain because any agricultural activity on the land must also be approved by the municipality in which the property is located. For this reason, normal residential mortgage regulation is more limited in terms of properties that can be considered agricultural zoning, reducing the size of the area.

Program of the Canada Agricultural Loans Act

For borrowers seeking mortgages for farming or other types of farming, the LCPA program is the most used secured loan system. This government-supported program is set up to help farmers and agricultural cooperatives obtain loans to create and develop new farms or to improve their existing farms. Farmer cooperatives can use these loans to produce, market and distribute their agricultural products. Most mortgage lenders, such as banks, credit unions and credit unions, issue and administer these types of loans and provide them within 60 days of approval.

With this program, a single farm can obtain a loan of up to $ 500,000 to invest in land, farm equipment, and construction or improvement of agricultural structures.

For example, if a farmer needs $ 350,000 to finance the construction of a barn and a grain elevator, he can still purchase an additional $ 150,000 to buy a plow or other equipment for his fields or livestock. This same transaction may also have access to an additional $ 350,000 for any other loan purpose, such as consolidation or refinancing. After obtaining the approval of the Minister of Finance, only one agricultural co-operative can receive a loan of up to $ 3 million for his organization. This loan guarantee program is also for the lender, as the Canadian government will reimburse up to 95% of the net loss from a Canadian farm loan.

Know what you’re getting into

If you read this article, you are probably thinking of investing in rural or agricultural land someday. Whether this land is used for agricultural purposes or as a principal residence, it is best that you do a lot of research to find out what you are getting into. As mentioned above, the purchase of real estate in rural areas may seem financially more sound than the purchase of real estate in an urban setting, this also entails its fair share of risk, regardless of the province or territory in which it is located. which you live.

Real estate investing, includes a number of different factors that must be considered when dealing with a property, even if it is just a vacant parcel of land. However, if you do the calculations and have a good investment strategy, you can certainly buy farm real estate, provided you are careful and patient enough to keep your commitment to the end.

Get mortgages 100% financing: a difficult task, but not impossible

Many consumers, despite having a good level of income, do not have enough savings to pay a percentage of the value of the home they want to acquire, so they apply for mortgages 100% financing. Banking entities, however, are not usually willing to grant this type of product, although there are certain cases in which they can finance the entire value of the property.

Mortgages 100%, almost exclusive for bank floors

Before the outbreak of the economic crisis, hiring a 100 mortgage, that is, a loan that covered the entire purchase value of the home was a fairly common operation, but after the hardening of access to credit, it is now more difficult to get these products. In fact, at the moment, banks could only grant mortgages 100% financing if we wanted to buy a floor of the bank itself or, to a lesser extent, if we had a perfect financial profile.

Therefore, if we decide to acquire a home that belongs to the bank, we will have more options to get 100% of its value. In addition, although the amount financed is greater, in many cases, we can enjoy the same conditions. For example, if we hire the Orange Sareb Mortgage from ING Direct, an interest from the Euribor + 0.99% will be applied (the first year we will apply a fixed rate of 1.99%) and we will not be charged commissions of any kind. In order to benefit from this offer, it is essential to have the payroll domiciled and to take out a home insurance and a life insurance policy, which is mediated by the entity.

Of course, we must be clear that the fact of buying flats from banks does not guarantee us to be able to get a mortgage 100. It is true that, in these cases, banks are more willing to negotiate the financing of more than 80% of the value of the property, but the amount of money they will offer us will always depend on their risk criteria.

To take into account when contracting mortgages 100% financing

Another important point to keep in mind before ordering a 100 mortgage is that hiring these products is a greater risk for both the bank and the consumer since the amount financed is higher. In addition, these mortgage loans have other characteristics:

  • Mortgages at 100% usually have the same conditions as the rest, but in the long run, they can be more expensive. As the amount financed is higher, interest is accrued on a higher capital and, consequently, the cost of the mortgage is higher.
  • The term offered may be longer, but that is not always convenient. Remember that the longer the amortization period is, the more interest will be generated, so the mortgage loan will be more expensive.
  • The constitution and purchase and sale expenses are not included in the financed amount. Therefore, we must have some savings that allow us to deal with this item. Before the crisis, the banks did finance more than 100% of the value of the house to cover these expenses, but at the moment it is practically impossible to obtain it.