Tag Archives: Best Mortgage Rate

Should I Use RRSPs For A Down Payment?

Bulk up your down payment with help from your Registered Retirement Savings Plan.

Loan AppThe Home Buyers’ Plan (HBP) is a program from the Government of Canada that allows first time home buyers to withdraw up to $25,000 from their RRSP towards their Canadian mortgage rate down payment for their first home, tax free.

How Does the Home Buyer’s Plan Work?

You can use your RRSP to help buy a new home, but in order to ensure the withdrawals are tax free, there are a number of conditions and requirements that apply.

  1. You must be a first time home buyer, and a Canadian residentTo participate in the Home Buyers’ Plan (HBP) for your best mortgage rate, you must be a first time home buyer and a resident of Canada at the withdrawal time. You may only be considered as a first time home buyer if you, and / or your spouse haven’t owned and lived in a primary residence for at least four years before the date of the RRSP withdrawal.
  2. You and your partner can both withdraw up to $25,000.
    If you are purchasing the home with a spouse, you can both withdraw $25,000 each from your RRSP accounts under the Home Buyer’s Plan. This means you could potentially have up to a total of $50,000 towards your first home, reducing your mortgage rate amount and payments, along with overall interest requirements.
  3. The deal must close within one year.
    The home must be purchased or built within one year of the withdrawal to apply for the Home Buyer’s Plan.
  4. You have up to fifteen years to repay the amount
    You have up to fifteen years to repay the amount you withdrew starting the second year after you made the withdrawal. Each year, you must pay a minimum of 1/15 of the withdrawn amount. For example, if you withdrew $15,000, then each year you would have to pay back $1,000 to your RRSP. If you skip a payment, then the payment amount will be counted as income and you will need to pay taxes on it.

Restrictions of the Home Buyer’s Plan

Any RRSP contributions made less than 90 days before the withdrawal date cannot be used towards the Home Buyer’s Plan.

For Sale By Owner – How Does This Change The Home Buying Process?

The DIY guide for selling and buying a for sale by owner property

female teen girls holding notepad with pros consWhen it comes to selling your home, a growing number of people are opting for the do it yourself approach.

The private sale of homes is becoming relatively common thanks to advances in Internet technology and an increase in For Sale By Owner (FSBO) companies.

If you are successful in making the sale, you could save yourself a real estate commissions of 3-5 percent.

How For Sale By Owner Works

Generally, private sellers will make use of one of the various For Sale By Owner network websites. These companies will provide different service plans to assist you in selling your home. Standard plans consist of exposure through their website, lawn signs, and a personalized consultation with sales representation. The premium plans provide additional advertising support (i.e. in local papers, or real estate magazines), and they perform a competitive market analysis.

According to research studies, 45 % of Canadians would consider bypassing real estate agents to sell privately with the guidance of a real estate lawyer. A good lawyer can make all the difference for a private seller.

This system also weighs heavily on the communication between the seller and their lawyer. A lawyer is best equipped to manage situations of legal concerns.

Considering Selling Your Home Privately?

When it comes to deciding whether to try and sell your home without the services of a real estate professional, consider the following:

The Pros

  • You could possibly save thousands of dollars in commission fees.
  • You’ll be able to maintain control over all aspects of the sale.
  • You’ll have the flexibility to show the house at your own convenience.
  • You have the opportunity to highlight, from your experience, everything your home has to offer to prospective best mortgage rate home buyers.
  • More buyers are internet savvy and are familiar with private sales sites, as well as online auctions and complimentary classified websites.
  • If you pass some of the savings onto the buyer you open up your reach to buyers at lower price points.

The Cons

  • Prospective buyers might not find your home.
  • Real estate agents understand the market and what price points will sell.
  • Upfront advertising costs, without any guarantee of visibility.
  • Potential low mortgage rate buyers have to call you.
  • No one to prepare agreements or advise you on negotiating.
  • You might have to negotiate a commission for the real estate agent of a potential buyer.

·        The Safety of an Agent

For many, a real estate agent is the most comfortable choice when making such a substantial transaction. They can guide you through the process and negotiate the sale on your behalf.

Essentially, only you can make the decision if the service of an agent is worth the fee.

Understanding Mortgage Insurance and CMHC

Do I really need mortgage insurance?

Scrabble MortgageA down payment serves as a form of security– so the larger your down payment, the better. If you have a greater amount of equity built up in your home, unforeseen circumstances may be managed easier, and you’ll be less likely to default on your mortgage.

Lenders commonly group low mortgage rate shoppers that have a deposit between 5– 20 percent of the home purchase price into the “slightly higher risk” category. In order for the lender to protect against this increased risk, mortgage default insurance is required.

Best mortgage rate shoppers used to be able to secure 100 percent financing in Canada until October 2008 when the government stopped insuring zero down payment mortgages in an attempt to prevent a U.S. style housing crisis.

What is Mortgage Default Insurance?

Default Insurance, also referred to as mortgage loan insurance, offers protection to the mortgage lender. The lender generally requests this form of insurance for mortgage loans with a down payment of less than 20 %.

As of July 9, 2012, any Canadian mortgage rate requiring default insurance is capped at an amortization period of 25 years. This means 30-year mortgages are only a possibility for those placing more than 20 percent down (known as a conventional mortgage).

In the event that you default on your mortgage, the lender will go through the process of collecting the outstanding amount on the loan. If the outstanding loan is still not completely paid off after selling the home, then the insurer will likely provide the difference back to the lender.

Where do I get Mortgage Default Insurance?

This type of insurance is supplied by the government organization Canadian Mortgage and Housing Corporation (CMHC), along with private insurers.

What Will it Cost Me?

When the lender insures the loan, they transfer the insurance premium to the homeowner. The premium is a percentage of the mortgage value based on your Loan-to-Value ratio (LTV). This premium may be paid in a single lump sum or it can be included in your monthly mortgage payments. To calculate your Loan-to-Value ratio, take the mortgage amount and divide it by the property value.

Advantages of Having Default Insurance

It is a win-win situation for both the lender and potential homeowner as the insurance protects the lender and the borrower. The lender is able to provide the same great mortgage products and rates to borrowers that are at a slightly higher risk of default.

Disadvantages of Having Default Insurance

Default Insurance helps make it possible for a homeowner to buy a property with a lower down payment– this indicates they have little value in their home and they will end up paying even more interest on the home loan. If the homeowner would like protection they will need to purchase additional mortgage insurance.

Why Your Down Payment Matters

Is it actually that big of a deal?

Piggy Bank with savings messageAll lenders assume that you will put some money down on your home purchase. The minimum down payment in Canada is 5 % of the purchase price. The amount of insurance expenses charged is relative to your best mortgage rate and your down payment amount. So keep in mind, the more cash you are able to save and put towards your down payment, the lower your mortgage monthly payments are going to be.

Down Payment Due Diligence

This ends up being considerably crucial if your credit history is less than spotless. Some lenders will likely disregard previous credit blemishes, not confirm earnings and various other financial conditions, if you have 35 % to 40 % of the purchasing price available upfront as part of your down payment.

What you may not know about your down payment is that this equity goes to the banks in the unfavorable event of foreclosure. For this reason, the bigger the down payment the more protection the banks have. Make sure to have your down payment available at least 30 days prior to applying for a mortgage loan.

Ways to Accumulate a Down Payment

If you have already spoken with low mortgage rate lenders and they have notified you that your down payment is not quite enough, make it a top priority to find a way to save your money such as postponing a brand-new vehicle or a vacation.

If you have sufficient equity in your RRSP, you are able to get a loan from this investment account in order to help improve your down payment. Canadians are allowed to borrow as much as $25,000 from an RRSP. In addition, down payment funds can be borrowed from a secured line of credit or can be given from a family member.

Why do Mortgage Rates Change?

Understand why rates change and how you can adapt to increases.

There are many factors that influence the health of the economy: unemployment, inflation, consumer confidence, and the housing market are just a few. Let’s take a look at the ways these factors are able to impact your mortgage rate.

Factors Affecting: Fixed Mortgage Rates

A fixed best mortgage rate usually moves in alignment with government bond yields of the same term.

GrowthBond Prices and Bond Yields (Negative Relationship)

When bond prices increase, bond yields decrease, and when bond prices decrease, bond yields increase. Bonds are typically considered safer investments than stocks.

Bond Yield: the return an investor will receive by holding a bond to maturity.

Bond Yields and Fixed Rates (Positive Relationship)

Typically fixed rates have a positive relationship with bond yields. They increase and decrease together with bond yields.

Stock Market is Booming– Bond Prices Decrease, Bond Yields Increase, Fixed Rates Increase

Whenever the stock market is booming, investors are far more likely to make a higher return on investing in equities (i.e. the stock market) than investing in bonds. Thus the demand for bonds decreases, meaning that the price of bonds decreases, and the bond yield increases. Therefore, fixed rates will likely increase.

Stock Market is Dipping– Bond Prices Increase, Bond Yields Decrease, Fixed Rates Decrease

When the Canadian economy becomes less stable, investors generally have the tendency to invest in safer financial commitments such as bonds.

Factors Affecting: Variable Mortgage Rates

The overnight rate changes the cost of lending/borrowing short-term funds and therefore affects the Prime Canadian mortgage rate. The Bank of Canada regularly updates this rate based on economic conditions.