Buying a home is an exciting time! It’s also a daunting time so start the process by having a conversation with me. I’ll give you the facts and step by step processes you’ll need to know about financing your first home.
When you apply for a mortgage, you have the choice of getting either a fixed or variable interest rate.
A fixed-rate mortgages are constant for the duration of the term whereas variable-rate mortgages fluctuate with the bank’s prime rate.
The advantage of a fixed-rate mortgage is that your mortgage payments won’t change your rate won’t increase even if the prime rate increases. Because of this, the interest rate on fixed-rate mortgages tend to be higher than variable-rate mortgages.
With a variable-rate mortgage, your interest rate will decline if the bank’s prime rate falls. However, if the prime rate increases, so will the interest rate on your mortgage.
A down payment refers to the money a purchaser must pay upfront when buying a home. The percentage you must put down depends on the purchase price of the home:
In Canada, any purchaser who has a down payment of less than 20% is required to purchase mortgage default insurance. This protects your lender in the event that you end up defaulting on your mortgage. The amount you pay declines as your down payment increases. Mortgage default insurance isn’t needed if your down payment is 20% or greater. And it’s not available on homes that cost more than $1 million.
The Home Buyers’ Tax Credit, at current taxation rates, works out to a rebate of $750 for all first-time buyers. After you buy your first home, the credit must be claimed within the year of purchase and it is non-refundable. Click here for more information http://www.cra-arc.gc.ca/gncy/bdgt/2009/fqhbtc-eng.html
The Canadian government’s Home Buyers’ Plan (HBP) allows first time home buyers to borrow up to $25,000 from your RRSP for a down payment, tax-free. However, since the HBP is considered a loan, it must be repaid within 15 years.