Are you writing off your chance for low mortgage rates?
According to the government of Canada website (www.ic.gc.ca) In 2011, there were 2.67 million self-employed workers. This represents around 15.4 percent of all employed workers in the Canadian economy.
That number has steadily grown in the last 5 years, and although it may be tempting to use every write off available to lessen your income tax burden. When it comes to mortgages you may be writing yourself out of a great mortgage rate. Here is why:
Mortgage regulations have tightened on the self-employed of Canada. If you want the best mortgage rates around, brokers and lenders must use line 150 of your Notice of Assessment (usually a 2 year average). Lenders usually will allow a 15% gross up of self-employment income. So, if you used your write-offs to decrease your income to say, $5000 the gross up gets you to $5750. Not a great income when trying to qualify for a mortgage.
If you have 20% or more down some lenders will allow a “stated income” mortgage, you give your mortgage professional 3, 6, or 12 months personal or business bank statements and they will calculate or project your income. Most lenders that provide stated income mortgages will allow 75% of the business income going into your bank account. This could to be used as your income for the purposes of qualifying for a mortgage. However, it does come with an interest rate increase. Why? The risk is higher for the lender resulting in higher lending rates.
In conclusion, saving on your income tax now may cost you more in interest. If you are thinking of purchasing or refinancing in the next 2 tax years, speak to your mortgage professional and your accountant to make the decision that is best for you.