Do you dream of becoming a homeowner? Between the down payment, associated fees, monthly mortgage payments, and unforeseen expenses, buying a home is a significant financial challenge for young families and professionals just starting out in their careers. For this reason, the Canadian government has implemented several measures to support first-time home buyers.
A new way to reduce the cost of your mortgage
After saving for years to buy your first home, you're finally ready to make the leap. Good news! As of November 1, the federal government may be able to help you reduce your mortgage.
If you qualify for the First-Time Home Buyer Incentive, you can apply for a loan valued at 5% or 10% of the home's purchase price, depending on the property type, from the Canadian Mortgage and Housing Corporation (CMHC) to make your down payment. Why? Because the more money you put down up front, the less you need to borrow.
Thanks to the CMHC, you can now benefit from reduced costs when buying a home and smaller monthly mortgage payments, not to mention a lower mortgage loan insurance premium. With this newfound financial flexibility, you can choose to pay off your mortgage faster or invest your extra funds in other passion projects.
This incentive is available to first-time home buyers, individuals who are recently divorced or separated, and all other individuals who have not occupied a home in the last four years that they or their current spouse or common-law partner owned. In all cases, the down payment must be less than 20% of the property value. The mortgage cannot be more than four times your qualifying income, which must not exceed $120,000.
While this incentive is not interest-bearing and does not require repayments in the short term, you must pay back the amount borrowed after 25 years, or if the property is sold. The amount to repay will be calculated based on the property's fair market value at the time of repayment, so 5% or 10%, depending on the property type. You can, however, choose to repay the incentive at any time without a pre-payment penalty.
It should be noted that the incentive may be associated with additional costs at the time of purchase and repayment.
First, when you acquire your new property, your lawyer/notary, who has been at your side throughout this important life step, will need to close two mortgages instead of one, so you may be charged higher fees. The CMHC's incentive is treated as a second mortgage.
What's more, when you sell your property, you may need to have an appraisal done to determine the fair market value of your home. The same applies if you've owned your home for 25 years or more.
For example, if you'd like to buy a $400,000 house with a 5% down payment ($20,000) and a CMHC First-Time Home Buyer Incentive valued at 5% ($20,000), your mortgage will be $360,000 instead of $380,000.
With a 3.5% mortgage rate amortized over 25 years, your monthly payments will be $1,853 instead of $1,973 without the incentive. You'll save $120 per month, or $1,440 per year, for a total of $36,000 over the full term of your mortgage.
Now, imagine that you sell your house a few years later and that it is valued at $460,000 at the time of sale. Since you were allocated a 5% incentive at the time of purchase, you must pay back 5% of your property's fair market value, which is $23,000.
The HBP limit has been raised from $25,000 to $35,000
The Home Buyers' Plan (HBP) just got a $10,000 upgrade. First-time home buyers can now withdraw up to $35,000 from their registered retirement savings plan (RRSP) to make a down payment or cover expenses related to the purchase of their first home. A couple can withdraw up to $70,000, or $35,000 per person.
Much like the First-Time Home Buyer Incentive, this limit increase is designed to reduce your monthly mortgage payments and make homeownership more accessible.
The HBP is available to first-time home buyers and all other individuals who have not occupied a home in the last four years that they or their current spouse or common-law partner owned.
The repayment conditions are unchanged, which means that new home buyers still have 15 years to pay back the amount withdrawn from their RRSP without penalty.
The First-Time Home Buyer Incentive and new-and-improved HBP could be the boost you need to become a homeowner.
If you're thinking about taking this big step, working with a Multi-Prêts mortgage broker has many benefits. They'll negotiate the best interest rate for you and help you put together your mortgage application, making sure the entire process is as quick and smooth as possible.
- The First-Time Home Buyer Incentive allows you to reduce your monthly mortgage payments.
- As part of the HBP, you can now withdraw up to $35,000 from your RRSP. Couples can withdraw up to $35,000 per person, for a total of $70,000.