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Prince Edward Island, is the smallest of the Canadian provinces both in size and population. It is one of the Maritime provinces (along with New Brunswick and Nova Scotia) and one of the Atlantic provinces (the Maritimes plus Newfoundland and Labrador). The island resembles a crescent, and it lies in the Gulf of St. Lawrence between 15 and 32 km from New Brunswick and Nova Scotia across Northumberland Strait. The provincial capital and largest city is Charlottetown.
Agriculture, tourism, fishing and forestry are the economic mainstays of the PEI economy. Agriculture is the largest industry on PEI. Prince Edward Island has exceptionally fertile soil, which is ideal for mixed farming. The chief crop is potato, for which the Province is famous. The Province's spectacular scenery, sandy beaches and gently rolling hills have contributed immensely to tourism. This industry is the second largest and fastest growing industry in PEI. A 2001 real estate survey has estimated the population of Prince Edward Island at 135,300.
For those wanting a steady return on their money, homes and cottages can be a sure bet. When the baby boomers started madly buying houses in the 1980s, suddenly real estate seemed like the path to instant wealth. The real estate markets fluctuate constantly, and Prince Edward Island is no exception. There have been times when house prices have gone down. However if you look at the overall price of homes in your area over the last 10 years, in most cases, (depending on your region) prices have risen.
Where is the housing market headed? Nobody can accurately predict. But even if house prices don't rise phenomenally, a home has two strong things going for it as an investment. First, any capital gains on your principal residence are tax-free in Canada. If your house appreciates by 6 per cent, you get to keep every cent of your gains.
Now 6 per cent may not sound like much, but in terms of how much you end up with, you'd have to earn as much as 12 per cent on a fixed-income investment such as a GIC to match that return, after tax.
Second, you don't have to come up with the full purchase price, meaning you're able to harness leverage. The conventional mortgages require a down payment of 25 per cent of a house's appraised value. Where as the High Ratio Mortgage, requires only 5% down payment. For example, if you buy a $200,000 home, you need to come up with around $50,000 for a conventional mortgage. If the home's value rises to $220,000, that's an increase of 10 per cent. But what's really happened is you've put up $50,000, and made $20,000. Your real gross return on your invested funds is around 40 per cent. But notice the word “gross”. Don't forget that your real return will be less. Buying a home and having a mortgage is also a tremendously powerful forced savings program.
Making Extra payments
Paying extra amounts on your mortgage can make a big interest saving over time. When we select a mortgage company, privilege payments options are something that we look for. A 20% privilege payment will allow you to pay off up to $20,000 per year on a $100 000 mortgage. It is important that the privilege payment also be flexible to allow you to pay smaller payments on the mortgage and as often as you wish. An extra $1000 periodically paid on a mortgage can help you become mortgage free faster.
Bi-weekly and weekly payments
Most mortgages have the option to allow payments to be made on a weekly or bi-weekly basis. This option may be desirable for two reasons. The first is it can save you money as you can expect to pay off your mortgage about 4 years sooner. This can save you dramatically over the life of your mortgage. The other reason why these options are so popular is that if your employer pays you on a weekly or bi-weekly basis, you can simplify your budgeting by making the payment line up with the way you paid.
Advantages of Bigger Down Payments
As mentioned above, when you put a 25% down payment on your purchase you can avoid the CMHC premium. More importantly the larger the down payment, the lower the amount of interest you will pay over the life of your mortgage. It is important to note that it may not be wise to stretch yourself to increase your down payment and end up borrowing on credit cards or a line of credit at a higher rate.
