Housing Recovery? We May Have To Wait…
It’s Tax Time Once Again!
Around this time, the government has probably collected the first installment of your 2016 property taxes. For the majority of people, personal federal and provincial income taxes for 2015 will be due by April 30th. Borrowers should educate themselves about why lenders are always very concerned that both property taxes and income taxes are kept thoroughly up to date and what solutions are available to you if you are experiencing difficulty making these payments in a timely manner.
Understand the Relationship Between Your Mortgage And Property taxes
Most of my clients are able to secure a great mortgage at the lowest interest rate available and make all of their scheduled payments on time and as agreed upon. The majority of borrowers will have an amount added to their monthly mortgage payment to cover their property taxes. When your payments are set up in this fashion, there is rarely a problem with property tax arrears because the tax portion of your payment will be adjusted periodically to ensure that any tax increases are covered and there will never be arrears to the municipality.
Borrowers may also choose a second option which is to pay their own property taxes given that they have sufficient equity in their home, usually 25 per cent. This lets them keep their money in their own bank account invested however they want until the municipal property tax is due. With this option, it is much more likely for property taxes to fall into arrears because of unexpected circumstances which can dramatically affect a borrower’s ability to pay.
What happens when tax arrears occur on a property is that overdue interest starts to accumulate very quickly. The debt to the municipality has priority over any other debt registered against that homeowner. The low interest rate mortgage lender now has a new mortgage ahead of them in the amount of your tax arrears. The municipality now holds your first mortgage and the mortgage lender now holds a second mortgage. Lenders do not like this scenario! If the borrower can’t cover the overdue taxes, the municipality will call on the lender to update the account. The lender will add the arrears to their mortgage balance. The debt on the house is now going up and the equity in the home is going down.
How Property tax Impacts You
Even if you have a completely clean and up to date mortgage payment record, you may find it a challenge to renew your mortgage or borrow money for a new car or other purpose if your property taxes or your personal income taxes are in arrears. Certain lenders will not let you refinance a home if there are tax arrears of more than one year. Arrears on personal income tax can be troubling because of the fact that interest and penalties accumulate extremely quickly and Revenue Canada is an agency of great power and has the ability to lock down assets and seize accounts. This is a bumpy road you do not want to go venture on!
Solutions For You
If you find yourself in a situation where you are overwhelmed by overdue taxes, many mortgage professionals like myself have solutions that can minimize the impact on you and your loved ones. Taking the right steps and getting to it quickly is an important part to focus on. If you find that you are having trouble handling your taxes, your mortgage broker may be able to have a monthly tax portion added to your mortgage payment which will aid to cover your ongoing taxes while also bringing arrears up to date. In the situation where arrears are sizeable, professional help may be required to refinance your mortgage in order to bring you up to date and on a solid path to move forward with an affordable payment plan which would include a portion for property taxes.
It is best to plan for tax season and ensure that all areas are covered according to plan. Give me a call with any questions or if you would like assistance creating a plan for property taxes.
Looking for a mortgage? Wondering if you qualify? Interested in refinancing? For all other inquiries call 613-627-1041 or email me at irina@capitalmortgages.com
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