Tag Archives: Mortgage Down Payments

Should I Use RRSPs For A Down Payment?

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

The 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.

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.
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.
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.
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 Each year, you must pay a minimum of 1/15 of the withdrawn amount.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.

Understanding Mortgage Insurance and CMHC

Do I really need mortgage insurance?

A 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.

Should I Rent Or Buy?

Are you ready to take the leap into homeownership?

Weighing out the pros, cons, costs, and considerations is the best way to help you determine if you are ready to own a home.

Renting

Pros

Renting is a wonderful first step to living on your own. Given that it lacks long term commitment many rental agreements generally only last one year. Renting is an affordable and accommodating option for most people.

Cons

You’re essentially paying off someone else’s Canadian mortgage rate, as opposed to investing in your future. In addition to this, your rental agreement will have its own set of rules that you will be required to follow during your tenancy.

Buying

Pros

The current best mortgage rates enable you to borrow money cheaply right away. Furthermore, owning a home will help to provide you with a sense of security and comfort. You have freedom to update it as you please and improve on your investment.

Cons

You will need to be personally and financially prepared for homeownership. Expect your stress levels to increase given your monthly budget.

Costs

Renting

Renting provides low initial costs. Your costs are a predictable expense and thus easy to budget around.

Buying

Saving up for a down payment requires substantially more money. Also, there are hidden expenses that turn up unexpectedly. Finally, if you secure a low mortgage rate today, you will need to keep in mind that your payments may go up when it comes time to refinance.

Investment

Renting can be considered an investment if the money that you’re saving is going towards a future down payment. Buying a home can be considered a good investment only if the property value increases. It could also provide a possible source of income if you choose to rent out a room or convert the basement into an income suite.

Buying a home is a big investment. Make sure you’re ready to make the commitment. Contact a mortgage broker to learn more about the pros and cons of homeownership.

Mortgage Fundamentals: Pre-Approved Vs. Pre-Qualified

What’s the difference?

Loan App There are several stages of the Canadian mortgage rate approval procedure when you apply for a mortgage. It is essential to understand what they are and what they really mean.

What is Pre-Qualification?

This is the initial step of the low mortgage rate approval process wherein your mortgage broker takes a look at your overall earnings and financial obligation. The broker will determine your affordability by taking a look at your debt ratios (Gross Debt Service GDS and Total Debt Service (TDS)).

There are going to be a variety of conditions that you will need to meet in the pre-qualification before it is fully approved.

What is Pre-Approval?

Once accomplished, the mortgage broker will send your application to a lender who confirms your information with a certificate of approval. This generally includes a Canadian mortgage rate guarantee, which is typically valid for 60 and 120 days. You must comply with all the terms and conditions prior to approval.

What is Approval?

You have been fully approved for the mortgage at the best mortgage rate detailed in the agreement.

Advantages of a Mortgage Pre-Approval

A mortgage pre-approval enables you to lock in an interest rate. It offers additional security in understanding that you satisfy the initial financing requirements. It also enables any seller to understand that you are a serious buyer.

Most importantly, you understand clearly what you are able to purchase when you are buying a home.

Documents Required for a Pre-Approval

Personal identification
Income information
Bank accounts
Loans and other financial obligations
Proof of financial assets
Confirmation of the deposit and funds to pay for the closing cost

Each and every house hunt begins with a mortgage pre-approval. Start your quick online application today.

Making a Budget

Make a budget and find out the best ways to manage your mortgage money better

We recently took a look at the expenses beyond securing a low mortgage rate, the purchase price that you should anticipate to pay, and the expenses related to moving in. Now it is time to have a look at your ongoing month-to-month expenses, ways to pay off your Canadian mortgage faster, and the renewal process. This handy checklist will help keep you organized.

Budgeting for Home Expenses

Budgeting for home expenses calls for organization and some degree of restraint. Also, you will want to have funds reserved for unanticipated maintenance expenses.

Monthly expenses includes things like:

Property taxes
Maintenance and upkeep
Insurance
Mortgage payments
Heating and cooling
Hydro
Condo fees (if applicable)
Internet
Water
Cable
Telephone
Appliance rental (if applicable)

Budget Your Monthly Expenses

Beyond the expense of your monthly best mortgage rate, it is essential that you are aware of exactly what you are spending and where you are able to cut expenses. Budgeting can be time consuming and tedious! Making use of an online budgeting tool like Mint.com will help you save money and time as it automatically tracks your expenses and allocates them against your budget.

How Can I Save Money?

High Interest Savings Account
Make your savings work harder for you.

Save Money on Credit Cards
Altering your credit card can help save you money by providing you with a lower interest rate.

Paying off Your Mortgage Faster
Having your very own house is both thrilling and gratifying. Spend some time putting together a strategy to pay it off as quickly as possible. There’s no freedom like financial freedom.

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