Running the numbers

If you really love strategy, you live and breathe it. Today, I spotted an opportunity to combine my strategic analysis, market research, financial and business skills. The BC government’s new budget proposes to allow families to defer property taxes. The government will charge the prime rate. Some people have suggested this might simply drive families further into debt. But, for families with discipline, it might actually be a way to get ahead.

Say your mortgage rate is 4.1%. I’m not sure what the BC government prime rate is, but let’s say it’s similar to the rate they charge for financial hardship deferment, which is 2.25%. That’s a difference of 1.85%.

If you have discipline, you could take the money you would have paid against your taxes and instead pay it to your mortgage. So, let’s say you were paying $2400 a year in property taxes. You defer payment. Instead, you make a monthly balloon payment of $200 to your mortgage. At the end of the year, your mortgage is $2400 less and you’ve avoided compounded interest on that portion of the principal, saving you even more. Even though you’re accumulating debt to the government, you’re getting ahead on your mortgage and saving 1.85% on your mortgage. That’s a 45% savings on that portion of your mortgage, before we even look at compounding. (I’m assuming the property tax payments are simple interest, whereas the mortgage is compounded and whereas your monthly balloon payments have the effect of dropping the outstanding balance right away.)

If all those conditions are true AND you have the discipline to put the money against your mortgage, then it’s a no brainer to defer your property taxes. And, if it turns out that the government charges the rate for the regular deferment program, which is 0.25%, you’re practically getting a free loan for a portion of your mortgage. This assumes, of course, that you do pay down the mortgage. Otherwise, you’re just taking on more debt.
 

Thank you to Yoyomama.ca for pointing out the program – and kudos on your mention in The Province. (Another great example of how social media marketing trumps the traditional media. I didn’t hear the story via The Province, but through Yoyomama’s Facebook page.)