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ESSENTIAL MATHEMATICS 40S
Home Finance
Page 1 of 46
Name:__________________________
Home Finance LESSONS
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 2 of 46
Review Lesson: Budgeting
Budgeting is an important first step before looking to rent or buy a home. We will begin to look at the different costs of renting and homeownership, including affordability. However, before this, we will review how to create a budget. Note: We often create monthly budgets; therefore, it is important to know how to convert expenses into monthly amounts. $1200 annually (yearly) → $ ________________ monthly $150 quarterly (four times a year) → $ ________________ monthly Example 1: Brent wants to make a monthly budget. He has the following expenses: He owns a house worth $160 000 and a monthly mortgage payment of $800. He pays $75 quarterly for water. His hydro bill is budgeted monthly at $170. He pays $1100/year in house insurance. What are his household costs per month?
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 3 of 46
Lesson 1: Affordability & GDSR How Much Can You Afford? If you are considering buying, the initial one-time costs associated with the purchase of a home can add up surprisingly quickly. Home-buyers must also be aware of some of the more major regular on-going house costs, which include:
• Property taxes
• Heating costs and other utilities
• Mortgage payments (house loan repayments)
Gross Debt Service Ratio (GDSR) Generally, financial institutions state that house expenses should not exceed 32% of your gross income. This is called Gross Debt Service Ratio (all figures are monthly).
*If you are considering renting, affordability calculations are similar, however, monthly mortgage costs are replaced by monthly rent payments. Home-buyers can most realistically find ways to ____________________ their monthly
mortgage payments or ____________________ their gross monthly earnings.
Expecting to significantly lower heating costs or decrease property taxes are not
____________________.
Describe two ways to target the factors that can decrease GDSR.
1. ______________________________________
2. ______________________________________
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 4 of 46
CALCULATING GDSR Example 1: The Nicklaus family is considering buying a two-story house with a purchase price of $210 000. The family can make a down payment of $25 000 and they have determined the monthly mortgage to be $675. The family’s gross monthly income is $6500. The annual taxes on the property are $2500. The annual heating costs are $1500.
a) Calculate the Gross Debt Service ratio. b) Can this family afford this house?
Solution:
a) In order to calculate GDSR, we need the following:
The mortgage payment is: ___________________ The monthly property taxes are:____________________________________ The monthly heating costs are:_____________________________________
GDSR =
b) Can this family afford this house?
(Hint: Does the Nicklaus family’s GDSR exceed 32% of their gross monthly income?)
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 5 of 46
CALCULATING AFFORDABILITY Maximum Affordable Monthly Mortgage Payment Example 2:
Your gross monthly income is $3000. The monthly property taxes are $125. The heating costs are $150 per month. Calculate the maximum monthly mortgage payment.
Solution: Remember, the maximum GDSR is 32% for housing. Since we are looking for our maximum affordable house, we substitute 32% into the formula, along with heating cost, property taxes, and gross monthly income.
GDSR formula
32% = 𝑀𝑀𝑃 + 125 + 150
3000× 100%
Substitute values into the GDSR formula
Note: Maximum Monthly Mortgage Payment (MMP)
0.32 = 𝑀𝑀𝑃 + 125 + 150
3000
Divide both sides of the equation by 100.
0.32(3000) = 𝑀𝑀𝑃 + 125 + 150 Multiply both sides by the Gross Monthly Income (3000)
960 − 125 − 150 = 𝑀𝑀𝑃 Subtract both sides by the heating and property tax costs (125 and 150)
$685 = 𝑀𝑀𝑃 Total Monthly Mortgage Payment Your maximum Monthly Mortgage Payment is $685.
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 6 of 46
The Home Buyer’s Plan (HBP)
The Home Buyers' Plan (HBP) allows FIRST TIME HOME BUYERS to withdraw money from your Registered Retirement Savings Plan (RRSP) tax-free to use for a down payment.
Lesson 2A: Mortgages: Definitions Mortgage A mortgage is a loan (secured by the house
itself).
Down payment A down payment is that portion of the purchase price you pay yourself toward the price of your home.
The remainder is a mortgage loan from lender.
The amount of the down payment represents your equity in your new home (building with each monthly mortgage payment).
Minimum down payment allowable today is 5%. Any down payment less than 20% is often subject to mortgage insurance.
Note: The larger the down payment, the less your home will cost you in the long run since interest costs will be lower (this means significant savings!)
Consider the following examples: Total Selling Price: $250 000
Down Payment Amount
Mortgage Loan
Mortgage Insurance Payment
Total Mortgage Repayment*
5% 10% 20%
$12 500 $25 000 $50 000
$244 031 $229 500 $200 000
$6 531 $4 500 Not required
$425 789 $400 435 $348 963
*Total interest paid by the homeowner is assuming a constant interest rate of 5% repaid over a 25-year
amortization period.
The Total Mortgage Repayment with a 20% down payment is $______________________ less than with a 5% down payment.
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 7 of 46
The fundamental components of a mortgage are: Principal The amount of money you borrow.
Principal = Selling Price – Down Payment
Interest The amount you will pay for borrowing money.
Interest (monthly) = Principal x Rate x Time
*To calculate Total Interest you need to create a
mortgage table/chart.
Mortgage Payments
Regular installments (usually monthly) to repay the loan and pay the interest.
Mortgage Payment = Principal Portion + Interest Portion
Over time,
Mortgage payment constant amount $
Loan repayment amount (principal payment) increases
Interest portion amount decreases
Amortization Period
The number of years to repay the entire mortgage (minimum 5 years; maximum 25 years).
Use an Amortization
Table to find the
mortgage payment
per $1000.00
Term The length of time for a specific mortgage agreement before renegotiating (terms between six months and 10 years).
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 8 of 46
Equity The value of the property, you outright own above and beyond the loan.
The Down Payment is the initial equity amount Your mortgage payments will contribute regularly to building your equity, as the loan balance decreases.
Equity = Down Payment + Mortgage Payment (Principal Portion only)
Loan Balance = Original Loan – Mortgage Payment (Principal Portion only)
Equity Mortgage (Loan)
Year 1
Year 2
Year 3
Year 1
Year 2Year 3
EQUITY GROWING
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 9 of 46
FINDING UNPAID BALANCE AND OWNERS EQUITY
EXAMPLE 1:
The sale price of the home is $178 500.
The buyer has saved up 5% of the sale price as a down payment towards the
purchase of the house.
a) Determine their down payment, in dollars.
b) Determine their initial equity (ownership) in the home.
c) Determine the mortgage (loan) they require.
EXAMPLE 2:
The unpaid balance last month was $23 472.
The owner's equity last month was $18 785.
The principal paid this month is $75.68.
Calculate the new unpaid balance and the new owner's equity.
Solution
New Unpaid Loan Balance = Past Unpaid Loan Balance - Principal
The Unpaid Loan Balance ____________________ (increased/decreased)
New Equity Balance = Past Equity Balance + Principal
The Owner’s Equity Balance ___________________ (increased/decreased)
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 10 of 46
Lesson 2B: Mortgages: Calculations
Looking at the Amortization Period of Mortgage Loan Table
You will always owe ________ to the bank than the initial amount
you borrowed.
This is because there is a cost to borrow the money (__________).
The _____________________ and the ________________________will
both affect your actual total cost of your home.
What happens to the dollar amounts inside the table as the interest rate
increases? _____________________
What happens to the dollar amounts inside the table as the length of time
increases? _____________________
What does the dollar values inside the table represent?
the amount you pay you borrow.
This loan repayment covers:
the ____________________________ AND the ________________ you owe.
This reflects what you pay overall (not simply the sale price)
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 11 of 46
Would you rather pay $18.40/month for 5 years
or $5.26/month for 25 years?
FINDING THE MONTHLY MORTGAGE
EXAMPLE 1:
If you were to mortgage (borrow) $200 000 at 4% over 25 years, calculate the
monthly mortgage amount.
Using the table, locate 4% and 25 years. What dollar amount do you find?
$ _______________________ / per thousand per month
If you owe $200 000, then you must multiply by the amount of thousands you are
borrowing.
___________________________________ / per month
You pay this amount every month for 25 years.
FINDING THE TOTAL MORTGAGE COSTS
EXAMPLE 2:
Calculate the total amount you will have paid at the end of the 25 years.
____________________________________________________________
The actual repayment total would be $______________. To summarize:
Total mortgage (borrowed) ___________________
Total repayment (after 25 years) ______________________
Total interest overall (cost to borrow) _______________________
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 12 of 46
Practice Question:
You take out a mortgage of $75 000 from the credit union for 25 years at a rate
of 4.75%.
a) Find the monthly payment (see example 1).
b) Find the total amount you pay at the end of the 25 years (see example 2).
WHAT DOES OUR MONTHLY MORTGAGE PAYMENT TELL US?
After we find the monthly mortgage payment, we will be able to find out how much we pay for interest and principal. We will also be able to find the unpaid balance and the owner's equity.
Monthly Mortgage Payment
Owner's Equity
Prinicpal Portion
Unpaid Loan
Balance
Interest
Portion
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 13 of 46
CALCULATING THE INTEREST PORTION
EXAMPLE 3:
You owe $45 000 on your mortgage loan. The interest rate is 8.25%.
Find the interest portion for the month.
Solution
We find interest for the month on $45 000 using I = Prt
I = ??
P = unpaid balance of the mortgage loan $45 000
r = rate of interest (written as a decimal, not as a %) 0.0825
t = time (in years, so 1 month is 1/12 of a year) multiply by 1
12 (or divide by 12)
FINDING THE PRINCIPAL PORTION
EXAMPLE 4:
The total mortgage payment per month is $361.80. The interest portion is
$200.00. Find the portion paid toward the principal.
Solution Monthly Mortgage Payment = Interest Portion + Principal Portion
Principal Portion
Interest Portion
Monthly Mortgage Payment
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 14 of 46
Lesson 2C: Mortgages: Spreadsheets In the previous lesson, we took a look at how to find the monthly payment, the
interest, the principal, the unpaid balance, and the owner's equity in a mortgage. At
this time we will produce a spreadsheet to do the same.
Circle the options that decrease the overall mortgage cost: Amortization
Period Monthly
Mortgage Payment Interest Portion
(month) Principal Portion
(month)
Long
or
Short
Large
or
Small
High
or
Low
High
or
Low
Overtime, home-buyers want the unpaid balance to _____________________
and the owner’s equity to _____________________.
Example 1:
Mary and Bob just bought a house for $115 000. They had a down payment of
$25 000 and had to borrow the rest from the bank at an interest rate of 4%
amortized over 20 years. Fill in the missing information and the chart below.
Selling Price:_______________ Down Payment:______________
Mortgage Principal (total loan):______________
Amortization Period:___________ years Interest Rate:_________%
Payment #
Monthly Mortgage Payment
Interest Portion (month)
Principal Portion (month)
Unpaid Balance (Mortgage Principal)
Owner’s Equity (Down Payment)
Amortization Table
(rate x loan 1000) (Payment-Interest)
1 (Previous Balance-
Principal) (Previous Balance+
Principal)
2
3
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 15 of 46
Filling in the Mortgage Spreadsheet First we need to determine the amount of the mortgage. Since,
Mortgage Loan (principal) + Down Payment = Selling Price We can calculate the mortgage value as:
___________________________________________________________ Next, we can begin to fill in the Mortgage Spreadsheet (month-by-month). Step 1: Determine Monthly Mortgage Payment using the amortization chart.
Trend: This number will stay constant. Monthly Mortgage Payment = table value x mortgage ÷ 1000 = ($_______* $__________________) ÷ $1000
Step 2: Determine the Interest Portion using I = Prt, where P is the previous Unpaid Balance
and t is 𝟏
𝟏𝟐 (you can divide
by 12).
Trend: This should decrease slowly.
Interest Portion = (interest rate * previous Unpaid Balance) ÷ 12 = (__________ * previous Unpaid Balance) ÷ 12
Step 3: Determine the Principal Portion by finding the difference between the Mortgage Payment and the Interest Portion
Trend: This should increase slowly. Principal Portion = monthly mortgage payment – interest portion
Step 4: Determine the Unpaid Balance by subtracting the Principal Portion.
Trend: The starting amount is the mortgage and this should decrease slowly. Unpaid Balance = previous unpaid balance – principal portion
Step 5: Determine the Owner’s Equity by adding the Principal Portion.
Trend: The starting amount is the down payment and this should increase slowly. Owner's Equity = previous owner's equity + principal portion
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 16 of 46
Example 2:
Casey and Evelyn bought a house for $65 000. They had a down payment of
$15 000 saved. They borrowed the rest from the bank at 5.25% over 25 years.
Fill in the spreadsheet below for the first 3 months.
Payment #
Monthly Mortgage Payment
Interest Portion (month)
Principal Portion (month)
Unpaid Balance (Selling-Down Payment)
Owner’s Equity (Down Payment)
Amortization Table
(rate x loan 1000) (Payment-Interest) 1 2
1 3 4 5 6 7
2 3 8 9 10 11
3 3 12 13 14 15
1. Determine the mortgage (total loan) initial balance.
2. Determine the initial equity balance (down payment).
3. Determine the monthly mortgage
payment (same each month)
4. Determine the interest portion
5. Determine the principal portion amount
6. Update the mortgage (total loan) balance.
7. Update the equity balance.
*Repeat steps 4 – 7 for each month
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 17 of 46
Lesson 3A: Home Buying Additional Costs: Land Transfer Tax and Adjustment Calculations Additional One-Time Costs (initial costs)
Other than the down payment, there are many other costs that must be paid one-time upfront (not on-going).
Sale Closing Costs and Extras Most people are aware of saving for the down payment. The other initial costs associated with the actual purchase are often overlooked. These extras can easily add 1.5% to 2% to the basic purchase price.
*we will cover more additional costs in Lesson 3B
Sales Taxes (GST/HST)
When buying a newly built home, GST is charged,
whereas the purchase of a resale property is
exempt.
------------- OR ----------------------
Land Registration Fee and Land Transfer Tax
Sometimes known as the "Welcome Tax," most provinces levy a one-time tax based
on a percentage of the purchase price of the property. In Manitoba, you pay this to
the Manitoba Land Titles Office at the time the title to your home is registered.
Property Tax and Utility Bills Adjustments
These costs are payable, usually through the
lawyer, when the sale is closed.
Typical adjustment costs include property taxes
that may have been paid by the seller prior to
the sale. These adjustment costs are pro-rated,
based on your move-in date. The buyer is
responsible for reimbursing the seller these
amounts.
Property Insurance Adjustments
All homes should have adequate insurance
coverage against fire, and other risks of loss,
theft, and liability. Your mortgage lender requires that you provide your lawyer
with proof that your insurance is in place by the closing date. You can’t get a
mortgage without property insurance!
City of Winnipeg
Property Taxes
When calculating the Property tax adjustment, the city of Winnipeg’s due date is June 30th for that calendar year’s taxes (from January to June). Therefore, when you pay your taxes, you are paying for the previous 6 months and the next 6 months.
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 18 of 46
CALCULATIONS You will be expected to calculate:
1. Land Transfer Tax
2. Property Tax and Utility Bill Adjustments
3. Property Insurance Adjustments
Land Transfer Tax Calculations The following chart is used in order to calculate the amount of Land Transfer Tax
that must be paid in the purchase of resale home.
Note: In the case of a newly built home, the owner must pay 5% GST (rather than
a Land Transfer Tax).
There is also a standard $80 land registration fee in addition to the calculated
land transfer taxes in Manitoba.
Value of Property Rate
On the first $30,000
0%
On the next $60,000 (i.e. $30,001 to $90,000)
0.5%
On the next $60,000 (i.e.$90,001 to $150,000)
1.0%
On the next $50,000 (i.e. $150,001 to $200,000)
1.5%
On amounts in excess of $200,000
2.0%
*Table from http://www.gov.mb.ca/finance/landtransfertax.html
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 19 of 46
Land Transfer Tax Example A
What is the Land Transfer Tax on a house purchased for $225 000?
Solution
$0 - $30 000:
0
x 30 000 =
$0
On the next $60 000: 0.005 x 60 000 = $ 300
On the next $60 000:
On the next $50 000
0.010
0.015
x 60 000 =
x 50 000 =
$ 600
$ 750 On the amount in excess of $200 000
(in this case $25 000): 0.020 x 25 000 = $ 500
Cost of the House $225 000
Total Land Transfer Tax $ 2 150
Land Transfer Tax Example B
Calculate the land transfer tax on a home with a purchase price of $325 000.
On the first $30,000: 0 X =
On the next $60,000: 0.005 X =
On the next $60,000: 0.010 X =
On the next $50 000:
On the amount in excess of $200 000:
0.015
0.020
X
X
=
=
Cost of the House
Total Land Transfer Tax
Land Transfer Tax Example C
Calculate the land transfer tax on a home with a purchase price of $125 000.
On the first $30,000: 0 X =
On the next $60,000: 0.005 X =
On the next $60,000: 0.010 X =
On the next $50 000:
On the amount in excess of $200 000:
0.015
0.020
X
X
=
=
Cost of the House
Total Land Transfer Tax
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 20 of 46
Cost Adjustment Calculations Property Tax Adjustment Example A:
Lannis Jones has just purchased a new
home (possession date is Sept 1st).
Annual property taxes of $2878 were
paid by the seller.
a) State who paid the property taxes.
b) Calculate the portion of property taxes that Lannis’ owes the seller.
Property Tax Adjustment Example B:
Howard Almdahl has just purchased a new home (possession date is May 1st).
Annual property taxes are $2563.
Calculate Howard’s property tax adjustment owed to him from the seller.
---------------------------------------------------------------
Property Insurance Adjustment Example A:
A homeowner increases their annual insurance premium to $590 from $425
per year. They pay the additional amount for the remaining five months of
the policy year.
a) Calculate the property insurance adjustment amount they must pay.
b) State one reason why the annual insurance premium increased.
c) State what happens if the annual insurance adjustment is a negative
value.
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 21 of 46
Lesson 3B: Home Buying Additional Costs
Sale Closing Costs and Extras
Sales Taxes (GST/HST) Mortgage Application Fee
Appraisal Fee Home Inspection Fees
Deposit Legal Fees & Disbursements
Insurance Costs for High Ratio Mortgages
Land Registration Fee and Land Transfer Tax
Service Hookup Fees New Home Costs
Property Insurance Additional Costs
Moving Costs Mortgage Interest
Prepaid Property Tax, Mortgage Interest, and/or Utility Bills Adjustments
Appraisal Fee
The financial institution where you purchase the mortgage will hire an appraiser to
ensure that the property you are buying meets its criteria for a mortgage. You are
generally responsible for the cost of the appraisal.
Deposit
This is the amount paid to the seller when you sign the Offer to Purchase. The
deposit shows the buyer how serious you are about the purchase and demonstrates
your financial “health”. It also offers the seller some security because in the event
the buyer changes his/her mind about buying, the seller keeps the deposit.
Home Inspection Fees
It is recommended that you have an inspection performed by a professional
building inspector before you finalize your offer to purchase. The inspection may
bring to light areas where repairs or maintenance are required and will assure you
that the house is structurally sound. Often the inspector will provide you a written
report.
Legal Fees & Disbursements
You will be required to retain a lawyer to act for you in the
purchase and mortgaging of the property, and you will be
responsible for payment of the legal fees and disbursements.
Fees for these services may vary significantly, so shop around
before you make your decision!
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 22 of 46
Mortgage Application Fee
Some financial institutions will charge a mortgage application fee for processing
your application. If your request for a mortgage is turned down, the mortgage
application fee is returned to you. This application fee is also charged by some
institutions each time your mortgage is renewed.
Insurance Costs for High Ratio Mortgages
If your mortgage is a high ratio mortgage, there are insurance
fees to be paid. High ratio mortgages are mortgages where you
have less than 20% of the original cost of the home to apply as
a down payment. The cost for this insurance is usually about
1.25% - 3% of the total mortgage, depending on the amount of
your down payment.
Service Hookup Fees
Hookup fees can be charged for utilities and will be reflected in your first bill.
Mortgage Interest
Sometimes the closing date of your home and the first payment date of your
mortgage leave a gap in interest payments. For instance, your takeover date is
January 3rd but your mortgage payments are due on the 10th of each month. Since
your payment is not due until January 10th, there are seven days on which you
would be expected to pay interest.
Moving Costs
Whether the move into your new home is a do-it-yourself affair
or you hire movers, there will be costs involved.
New Home Costs
Most new homeowners will need to buy certain items early on – kitchen appliances,
tools, gardening equipment, cleaning materials, renovations or repairs, perhaps
some new furniture, carpets, or curtains. It's a good idea to tally up the costs of
items you think you will need in the short term and factor these expenses into your
initial costs.
Additional Costs
Depending on the type of mortgage you decide upon and the province in which you
buy, there could be additional costs; e.g., default insurance premiums (for low down
payment mortgages), cost of a land survey of the property or the purchase of title
insurance, or a new home warranty fee.
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 23 of 46
Example 1: State four (4) ongoing or daily expenses of maintaining a house. Choose from the list of expenses below:
Lawyer’s fees
Down payment
Mortgage payment
Movers Insurance
Utilities
Yard care
Interest adjustment
Property tax
1. _____________________________
2. _____________________________
3. _____________________________
4. _____________________________
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 24 of 46
Initial Home Buying Costs Chart
Initial Costs Example A:
Using the chart given, calculate the total Closing Costs and Extras:
The Baileys live in Dauphin and are relocating to Winnipeg. They purchase a
house for $320,000 and hire a mover to move their personal belongings.
The movers charge $1500.
They hire a lawyer to look after legalities for a fee of $800.
An appraisal is done of the property at a cost of $120.
A survey of the property is done for a cost of $450.
The Baileys' possession date is July 7th. The mortgage interest adjustment
is $440.
Annual property taxes are $1750, for which the Baileys agree to pay for the
six months of July to December.
Before moving in, the Baileys have the yard re-sodded for $3500 and
replace the stove and fridge for $750 and $900, respectively. They split
the costs of the appliances with the seller.
Mrs. Bailey replaces the drapes in the living room for $500 and has the
master bedroom painted for $350.
The Baileys need to increase their homeowner's insurance. They decide to
upgrade their existing policy and apply it to their new home for the
remaining four months of the policy year. The old annual premium was $264
and the new annual premium is $680.
The cost to hook up the phone is $65 and to activate the natural gas costs
$45.
Show your work using the chart on the next page…
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 25 of 46
*newly built homes only
/ Land transfer tax
and Mortgage application fees
*if down payment <20%
(including mortgage interest adjustments)
(including home insurance adjustments)
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 26 of 46
Initial Costs Example B:
Claire Bland and John Dull are a married couple who have just purchased a 2-storey
house in Winnipeg. The purchase price of their new home is $114,500.
Before finalizing their offer on the house, Claire and John have a
professional building inspector inspect the house which costs them $275.
The couple obtains a fixed mortgage from their financial institution. They are
charged $60 for a mortgage application fee and $45 for an appraisal fee.
The couple retains a lawyer to act for them in the purchase of their house.
Their lawyer’s fee is $300. Other legal disbursements are $172.
They need to pay the land transfer tax is $545.
They need a property survey of their new property which costs $300.
Claire and John’s possession date for the home is August 1. Property taxes
for the year are $2640.
Their home insurance is renewed November 1 each year. They have to increase
their home insurance from $390 to $480 per year.
The cost to hook up the phone is $65. The cost to activate the natural gas is
$45.
Claire and John hire movers to move their possessions to their new home. The
mover charges them $600.
Before they move in, the couple wants to install new carpeting. The cost of
the new carpeting is $2085. The couple purchases a new refrigerator at $960
and a new oven at $725. They also have the house painted and new curtains
installed at a cost of $2514.25.
Calculate the couple’s total closing costs and extras to purchase their new home.
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 27 of 46
(including home insurance adjustments)
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 28 of 46
*newly built homes only
/ Land transfer tax
and Mortgage application fees
*if down payment <20%
(including mortgage interest adjustments)
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 29 of 46
Lesson 4: House Energy Efficiency and Maintenance
Preventative Maintenance Small repairs and upkeep done to keep maintenance problems from becoming larger and more expensive to fix. Preventative maintenance keeps a house in good working order. Examples of preventative maintenance include, furnaces and air conditioners need filters changed, cleaning gutters and eaves free from debris, yards need mowing and maintenance, and driveways shoveled and cleared. *When renting, you may have some responsibilities related to preventative maintenance depending on your tenant contract.
Emergency Repairs will also arise. These repairs
often cost a lot more and need to be taken care of immediately. It is very important to set aside savings (around $3000 – 4000) specifically for emergency repairs. If you do not put money aside for these repairs your only other option is to borrow from the bank with a loan or a line of credit. Examples of emergency repairs include, replacing damaged
shingles on the roof after a storm, old furnaces that break down and need to be replaced, leaking or old hot water heaters, and in Winnipeg there can often be foundation issues (i.e. cracks, leaks, etc.). *When renting, emergency repairs are usually the responsibility of the landlord, however, it can depend on the cause of the repair.
House Energy Efficiency This is NOT the same as energy saving decisions you can make (for example, “turning off the lights” or “putting on a sweater”). When building a new house or when it is necessary to replace appliances, you will then need to make a decision on energy efficiency. Newer items are usually more efficient than older ones. How can I increase the efficiency of my house??
1.
2.
3. Remember: Home Energy Efficiency is focusing on how the house runs, not things you can do to save energy.
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 30 of 46
In order to encourage house owners to make energy efficient upgrades or changes, Manitoba Hydro offers multiple savings and rebate programs.
Retrieved August 20, 2018 https://www.hydro.mb.ca/your_home/savings_home.shtml
ESSENTIAL MATHEMATICS 40S
Home Finance
Page 31 of 46
Lesson 5: Homeowner and Tenant (renter) Insurance
You want to be insured in the event of a
catastrophe such as fire, burglary, or storm
damage. You must have insurance if you have
a mortgage. It insures the contents, the building, outbuildings, living expenses,
and covers you against 3rd party liability.
Tenant/Content Insurance - A landlord should carry insurance on an apartment
building and any items (e.g., fridge, stove, furniture, etc.) supplied by him/her to
the tenants. But if you rent an apartment, you want to insure your personal
belongings against fire, theft, or other insurable damage.
Homeowner's Insurance - covers the contents, the building, and liability related to
your property. If you have a mortgage on your house, the mortgage lender will
require you to have homeowner's insurance.
There are two basic types of home and contents insurance: Standard (or Broad) Insurance - covers only specific perils.
Comprehensive Insurance - covers many more perils (eg. mysterious disappearance or accidental mishap)
Deductible - the amount you must pay in the event of a claim before the insurance
company pays anything. Most deductibles are between $200.00 and $500.00. Too
many claims may cause your insurance premium or deductible to rise or the
company may decide not to insure you anymore.
Premium – the amount you pay to have insurance. Often paid annually (although you
can opt for monthly payments).
Why Insurance? The major purpose of
all insurance is to protect individuals
and families against unexpected
financial loss.
ESSENTIAL MATHEMATICS 40S
Home Finance
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ESSENTIAL MATHEMATICS 40S
Home Finance
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Tenant Insurance In the table labeled "Tenants Package Policy" you will find the premiums for
coverage of personal belongings, with a $500.00 deductible. The note at the
bottom of the table shows that you can reduce this deductible to $200.00 by
paying a 10% higher premium.
Tenant Insurance Example 1:
Marlene Grant rents an apartment in Brandon. Her personal possessions have a
replacement value of $30 000. If Marlene chooses Comprehensive coverage with a
$500 deductible, calculate her annual insurance premium.
Tenant Insurance Example 2:
Sharon Bee has rented an apartment and wants to insure her personal belongings
for $25,000.00 with a Standard form policy and a $200.00 deductible. What will
Sharon's annual premium be?
ESSENTIAL MATHEMATICS 40S
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Homeowner's Insurance
There are five main factors that determine the cost of
homeowner's insurance:
1. Replacement cost of the home
2. Location of the home
3. Coverage required
4. Amount of claim deductible
5. Available discounts
1. Replacement Cost
When you purchase a house, you will need to determine what it will cost you if the
house burns to the ground. To help you decide the amount, many places that sell
homeowner's insurance have a computer program called the Boeckh EvaluRater.
After you answer some questions about your house, this program, which is designed
to classify houses, then calculates how much it would cost for you to replace your
house.
Homeowner's insurance usually includes the following coverage:
• building (house) - replacement cost
• contents - up to 70% of replacement cost
• outbuildings - for example, a shed or garage
- up to 10% of replacement cost
- more coverage may be purchased
• additional living expenses - while your home is being rebuilt
• third party liability - protection against another person injured on
your property
Note: Replacement cost is not the same as the market value. Replacement cost
is the cost to rebuild if there is a total loss; market value is the amount that the
house would sell for.
ESSENTIAL MATHEMATICS 40S
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2. Location
Manitoba is divided into four areas by the insurance
companies.
• Area 1
Metro Winnipeg - homes located within the city of
Winnipeg.
• Area 2
Protected - homes located outside
Metro Winnipeg, but within 1000 feet
of a fire hydrant.
• Area 3
Semi-protected - homes located outside the areas
designated in Areas 1 and 2, but within 10km of a
fire hall.
• Area 4
Unprotected - homes located more than eight miles from a fire hall.
3. Types of Coverage
Both Standard/Broad and Comprehensive policies are available. Comprehensive
insurance provides more coverage and therefore is more expensive.
4. Amount of Deductible
Most insurance policies have a deductible amount of $500.00. In other words,
you must pay the first $500.00 of any insurance claim you make. Many
companies will allow you to reduce the amount of the deductible to $200.00 but
this means that the premium will increase.
5. Available Discounts
Some insurance companies will allow a discount on the premium for various
conditions. Common discounts are for:
• burglar alarm
• claim free for three years or five years
• new home
• purchaser is over 50 or 60 years old
ESSENTIAL MATHEMATICS 40S
Home Finance
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Winnipeg (Area 1) - homes located within the city of Winnipeg. Area 2 - homes located outside Metro Winnipeg, but within 1000 feet of a fire hydrant. Area 3 - homes located outside the areas designated in Areas 1 and 2, but within 10km of a fire hall. Area 4 - homes located more than eight miles from a fire hall.
ESSENTIAL MATHEMATICS 40S
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Home Insurance Example 1
Mr. and Mrs. Szabo buy a house in rural Manitoba, but within eight miles of the
nearest fire hall. The house has a Boeckh replacement value of $90,000.00. The
Szabos decide on a Comprehensive policy with a $500.00 deductible. What will
their premium be?
Home Insurance Example 2 - $200 Deductible
Paul and Mary wish to insure their house in Metro Winnipeg. The Boeckh
replacement cost is $65,000.00. What will the premium be if they decide they
want the $200.00 deductible and Comprehensive coverage?
Home Insurance Example 3 – Additional Premium (beyond $200 000)
Pierre and Suzie Garneau have purchased a home with a Boeckh replacement cost
of $375,000.00 just outside Winnipeg. They are 800 feet from the nearest fire
hydrant. They wish to purchase Standard coverage with a $500.00 deductible.
Calculate their annual premium.
ESSENTIAL MATHEMATICS 40S
Home Finance
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Lesson 6: Property Taxes
Property Tax is a method of taxation at the ______________________ level.
The required municipal revenue determines the
amount of property tax needed from the city
property owners. In order to determine property
taxes, each municipality must establish a
____________________ expressed as a
____________________.
The amount of property tax collected from individual property owners is based
on the value of your buildings and land (i.e. more expensive/valuable property
equals higher taxes). Property values are assessed by the city or municipality.
This dollar value is referred to as the _______________________________
or the assessed value of the property (this can be
_____________________ than the property buying or selling price).
Properties are classified, ranging from residential to commercial and industrial
(see next page). The various classifications are taxed different amounts, with
some being _________________________(i.e. churches, public schools).
Each classes is given a portion percentage and residential properties in
Manitoba are given a portion percentage of 45%. This means 45% of the value
of the property is ____________________. This taxable portion is referred
to as the __________________________________ of a property.
In the case of Manitoba Residential Properties, this is always…
Portioned Assessment = 45% x Market Value Assessment
ESSENTIAL MATHEMATICS 40S
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PROPERTY CLASSIFICATION CODES for properties in Manitoba:
ASSESSMENT PORTIONING for properties in Manitoba:
SAMPLE TAX BILL
In this course, we will
primarily use 45%.
ESSENTIAL MATHEMATICS 40S
Home Finance
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FINDING THE PORTIONED ASSESSMENT
Example:
Sarah Mahler owns a home in Flin Flon. The market value assessment of the land is
$50 000 and the building is $125 000.
a) Find the portion percentage for the property.
b) Find the total market assessment of the property.
c) Find the portioned assessment of the property.
Solution:
Check tables on the previous page.
a) The classification code of one dwelling unit is __________.
The portion percentage for Residential 1 property class is _______%.
b) Total market assessment of the property
= _______________ + _______________
= _______________
c) Portioned assessment of the property
= Portion Percentage x Market Value Assessment
= _______________% x _______________
= _______________
= _______________ (rounded up to the next $10)
Note: Your answer in part c is the taxable portion of the property known as the
Portioned Assessment. This is NOT the amount of the property tax.
ESSENTIAL MATHEMATICS 40S
Home Finance
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FINDING THE TAX RATE (OR MILL RATE)
The Mill rate is the tax rate used in order to calculate property taxes. Mill rate
is the amount of tax to be paid for every $1000 of the portioned assessed
property value.
The city determines the tax rate (in mills) based on the following formula:
Mill Rate = Total Revenue Required x 1000
Total Portioned Assessment
Note: Consider how you calculate percentage. Do you see any similarity between
calculating your percentage on a test and calculating the mill rate?
Example:
A municipality requires revenue of $4 500 000 to be raised from property taxes.
The total portioned assessment of all taxable properties is $200 000 000.
Find the tax rate as a mill rate.
Solution:
Mill Rate = 𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑑
𝑇𝑜𝑡𝑎𝑙 𝑃𝑜𝑟𝑡𝑖𝑜𝑛𝑒𝑑 𝐴𝑠𝑠𝑒𝑠𝑠𝑚𝑒𝑛𝑡 x 1000 = ___________________ mills
The mill rate is used to calculate the taxes owing, however, it is converted back
into a dollar value for property owners on their tax bill.
How does the mill rate effect a property owner’s property taxes?
As the mill rate goes up, the property taxes __________________________.
(increase/decrease)
Why would the mill rate increase?
______________________________________________
______________________________________________
ESSENTIAL MATHEMATICS 40S
Home Finance
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CALCULATING PROPERTY TAX AND LOCAL IMPROVEMENT TAXES
o Property taxes are due each year in June and consist of both municipal and
education taxes.
Municipal / Education Taxes = Total Portioned Assessment X Mill Rate 1000
o Municipal taxes may also include Local Improvement taxes. They are based
on the frontage (width) of your lot.
Local Improvement Tax = Frontage foot x Cost of Improvement per Frontage foot
Property taxes are the sum of ________________________ + __________________________.
A __________________ is the amount that the provincial government discounts each property. It is subtracted from your taxes owing. An amount in ________________ is the amount owing from the previous tax year and has yet to be paid. Property tax bills are due in _______________ every year and cover taxes for January through December of that year (the calendar year). The table on the following pages outlines:
What types of local improvements are presently available; The estimated cost per frontage foot; The time period allowed to pay for the local improvements after construction.
Note: (1) The rates for these improvements are estimated only. Actual assessments will be based on
the average actual costs for similar improvements constructed in the same year. All other rates are fixed by by-law and represent the actual assessable rates.
(2) The estimated rates reflect the City subsidizing 50% of the estimated costs.
ESSENTIAL MATHEMATICS 40S
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RATES EFFECTIVE UNTIL January 1, 2017
LOCAL IMPROVEMENT
ESTIMATED COST
PER FRONTAGE
FOOT $
TERM
YEARS
ESTIMATED
RATE/LEVY PER
FRONTAGE FOOT
PER TERM YEAR
Asphalt Surface Roadways (Rural Areas Only With
Ditches) 1 250.00 10 32.38
Boulevards – 12.5' to 20.5' wide 1 30.00 to 50.00 3 10.76 to 17.93
Concrete Sidewalk 5'x 4" (Depends if one or both
sides of the street are subject to frontage levy) 1 45.00 to 90.00 5 10.04 to 20.07
Concrete Street Pavement 25'x 6" (including
boulevards) 1 425.00 10 55.04
Concrete Street Pavement 25'x 6" (only) 1 375.00 10 48.56
Concrete Street Pavement 33'x 8" (including
boulevards) 1 525.00 10 67.99
Concrete Street Pavement 33'x 8" (only) 1 500.00 10 64.75
Granular Surface Lanes 1 35.00 3 12.55
LDS (Laterals & Trunks) 95.00 20 8.97
LDS (Laterals) 40.00 20 3.78
LDS (Trunks) 55.00 20 5.19
Lane Lighting on Wood Poles 1 10.00 3 3.59
Lane Oiling (10' to 12') 1 15.00 to 18.00 1 15.00 to 18.00
Asphalt Lane Pavement – 10’ X 5” to 20’ x 5”1 60.00 to 110.00 2 10 7.77 to 14.25 2
Concrete Lane Pavement – 10'x 6" to 20'x 6" 1 170.00 to 280.00 20 14.23 to 23.43
Ornamental Lights – Lane 1 30.00 3 10.76
Ornamental Lights – Street 1 40.00 3 14.35
Road Oiling 20' - Type II 1 10.00 1 10.00
Wastewater Sewers 1 122.00 20 10.21
Watermains 1 97.00 10 12.56
ESSENTIAL MATHEMATICS 40S
Home Finance
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CALCULATING THE TOTAL PROPERTY TAX BILL Example:
John Fraser owns a home with a total portioned assessment of $52,600. The
frontage of their home is 60 feet. Their annual municipal tax rate is 22.525 mills.
The annual education tax is 28.924 mills. His property taxes include local
improvement taxes for both boulevard construction ($3.50/ft) and concrete lane
paving ($1.80/ft). Calculate his annual municipal taxes.
Municipal Taxes = Total Portioned Assessment X Mill Rate
1000
=________________ X ________________
1000
=___________________________________
Education Taxes = Total Portioned Assessment X Mill Rate
1000
=________________ X _________________
1000
=___________________________________
Local Improvement Tax = Frontage foot x Cost of Improvement per Frontage foot
Boulevard = __________ X _______________
=____________________________
Concrete Lane Paving = __________ X_______________
=____________________________
Total Local Improvements =____________________________
Total Taxes =________________________________
ESSENTIAL MATHEMATICS 40S
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Statement and Demand for Taxes Complete the following Statement and Demand for Taxes for the following home. Property Frontage: 50 feet
Land Assessment: $35,900
Building Assessment: $102,500
General Municipal Tax Rate: $24.615 Mills
Property Improvement Tax: Concrete sidewalk
Provincial Education Tax #1: 8.346 Mills
School Division Tax: 19.842 Mills STATEMENT AND DEMAND FOR PROPERTY TAXES
PROPERTY DESCRIPTION
ROLL NUMBER WARD LOT/SECTION BLK/TWP PLAN/RANGE FRONTAGE/AREA
DWELL UNITS
CIVIC ADDRESS
TITLE OR CURRENT ASSESSMENT STATUS TOTAL PROP. PORTION TOTAL PORT
DEED NO. LAND BUILDING CODE ASSESSMENT CLASS % ASSESSMENT
DESCRIPTION TOTAL PORTIONED MILL RATE LEVY
ASSESSMENT
MUNICIPAL GENERAL MUNICIPAL
TAXES BY-LAW NO TERM TYPE FRONTAGE
LEVY COST/FOOT LEVY
DESCRIPTION TOTAL PORTIONED MILL RATE LEVY
EDUCATION ASSESSMENT
TAXES Provincial Education 1
Provincial Education 2
School Division Tax
(SEE MANITOBA DESCRIPTION LEVY
PROVINCIAL ENCLOSURE FOR
TAX CREDITS ADDITIONAL MANITOBA RESIDENT HOMEOWNER TAX ASSISTANCE $250.00
INFORMATION)
TOTAL TAXES DUE
Municipal Tax Education
Tax Total Taxes Prov.
Credits Net Taxes Arrears/Taxes Added Taxes Taxes Due
250
ESSENTIAL MATHEMATICS 40S
Home Finance
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Lesson 7: Renting Versus Buying
To rent or own a house is always a difficult decision and each has its benefits and drawbacks.
Caution: “Buying” should not always be associated with houses and “renting” with apartments. You can buy an apartment style condo or rent a house.
Benefits of Renting: Disadvantages of Renting:
Benefits of Buying: Disadvantages of Buying:
One option that you may have in this situation is a Condominium.
Benefits of Buying a Condo: Disadvantages of Buying a Condo: