Marly’s husband recently passed away from a sudden illness. She is a single mom caring for her daughter Emma, who is 4 years old. Marly received the proceeds from her husband’s life insurance policy in the amount of $100,000 which she prefers not to touch but to use this money for Emma’s future education in a Registered Education Savings Plan (RESP).
Marly has always rented, and she would like more stability for Emma. She recently made an offer on her first home which was just accepted! The condo was listed at $250,000 but the sellers accepted $20,000 below their list price (which is in fact market value). Based on her budget in trying to make ends meet, Marly only wants to put a down payment of 5% which she knows results in the requirement for mortgage loan insurance from the Canada Mortgage and Housing Corporation (CMHC) at 4% of the mortgage plus 9.975% Quebec sales tax on the CMHC mortgage loan insurance.
Marly is also aware that she needs to pay Property Transfer Duties (also called “Welcome Tax”) on this condo:
a) Her brother is a real estate agent who helped her find the condo. He also agreed to help her calculate the amount needed to cover the Property Transfer Duties under the city of Montréal and the CMHC mortgage loan insurance (she decided to pay the CMHC as a lump sum even though she knows she has the choice of either paying the mortgage loan insurance as a lump sum or increasing her mortgage payments). (2 marks)
Show the calculations for the CMHC mortgage loan insurance: (1 mark)
Mortgage amount = $250,000 - 5% down payment = $250,000 - $12,500 = $237,500
CMHC mortgage loan insurance = 4% of the mortgage amount = 4% * $237,500 = $9,500
Quebec sales tax on the CMHC mortgage loan insurance = 9.975% * $9,500 = $948.38
Total CMHC mortgage loan insurance = $9,500 + $948.38 = $10,448.38
b) Show the calculations for the Property Transfer Duties: (1 mark)
Property Transfer Duties in Montréal are calculated as follows:
0.5% on the first $50,000 = $50,000 * 0.005
+ 1.0% on the amount over $50,000 and up to $250,000
Amount over $50,000 = $250,000 - $50,000 = $200,000
Property Transfer Duties = ($50,000 * 0.005) + ($200,000 * 0.01)
Property Transfer Duties = $250 + $2,000 = $2,250
So, Marly needs to cover $2,250 for the Property Transfer Duties in Montréal.