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Blog by Linda M Linfoot

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Stated Income - Does Rate really matter?

Why is the Self Employed Borrower fixated on Rate? 

 

Let's face it, everyone wants the lowest rate possible for their mortgage.  However, is the lowest rate always worthwhile?  Let's take a look at an example:

 Bob Smith is a Business owner in Vancouver.  He has a modest business that is experiencing growth year after year.  Bob enjoys the many perks of being a business owner, especially the tax breaks that come along with it!  Since Bob is able to work with his certified accountant, and considerably write down his income, he often saves thousands of dollars a year on taxes. 

 Bob would like to purchase a new home.  He has 20% down payment to place on a home, and knows that he grosses more than $100,000 per year in his business.  However, since he currently writes down his income to $20,000/year, his mortgage broker has just informed him that he will need to state his income with a 'Non Prime' lender for approval.  

 Now if Bob claimed $100,000/year for the last 2 years -- he may qualify for the best rate out there!  However, lets look at what that really means: 

 

Income claimed

$100,000/year

$20,000/year

Taxes paid

$25,060/year

$1,761/year

 

Bob has saved  $23,299/year because of the advantages the government has allowed for self employed borrowers. 

 Now lets compare the interest on a 'typical' verified-income loan, and a 'non prime' stated-income loan. 

 

Loan Type

'A'

'B'

Mortgage

$200,000

$200,000

Rate

2.99% 

4.35%

Term

1 year

1 year

Interest - Term

$5,869

$8,533

 

 ** For ease of comparison to BC yearly tax rate-- 1 year term has been used.

Rates are approximations for example purposes.**

Yes, Bob is paying $2,664 more in interest per year, but with his tax savings of $23,299/year, he is actually saving $20,635/year more than the typical 'verified-income' Employee that was able to receive a 2.99%!

 I understand my clients entire scenario

 Contact me today to learn more about the Stated Income Program!