First, you may want to contact a mortgage professional to help you calculate your net worth. Your mortgage lender will certainly want this information and it will give a quick insight into how much of a down payment you can afford. Along with your net worth, you’ll also need to add up your non-discretionary monthly expenditures. This will help you see how much you can manage for mortgage payments. After this, add up your non-discretionary purchases for a month. This should give you an idea of what you can allow for payments during the mortgage.
First you have to choose conventional or high ratio. A conventional mortgage is a mortgage for less than 80% of your home. A high ratio mortgage is above 80% and less than 95%, which by law needs to be insured. From here you can choose fixed rate or variable rate, short-term or long-term, closed or open.
A fixed rate mortgage locks down your mortgage rate at a set rate, during which your monthly mortgage payments would remain the same and give you peace of mind in the event mortgage rates do increase.
A variable mortgage rate doesn’t lock down your mortgage rate, but gives you the flexibility to monitor rates especially if they are decreasing and lock down the best available rate, based on current market conditions.
Short-term mortgages are typically less than three years and preferable if you think interest rates are likely to remain low or fall in a few years. Long-term mortgages are the better bet if you foresee interest rates rising over the long term and are typically for three or more years.
Your third option is an open or closed mortgage. Open mortgages allow you the freedom to make prepayments and lump sum payments without penalties, while closed mortgages cannot be paid off without penalty and are typically attached to longer term mortgages but have lower rates.
To find out what’s best for you, we recommend seeing a mortgage specialist for more details about what suits you best.
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Once you have decided on the price range of your home and calculated your mortgage payments, you’ll still need to assess all the associated costs of home buying to ensure you can manage the financial load.
The first possible extra is mortgage insurance. If you pay less than 20% of the property’s value for your down payment, you’ll have to get insurance from Canada Mortgage and Housing Corporation (CHMC). It usually costs between 3.10% and 0.5% of the mortgage amount depending on the amount, of your down payment.
Next is the appraisal fee. Your mortgage lender may require that the property be appraised at your expense.
Property insurance is another additional cost. The mortgage lender requires the home to be insured because it is security for the mortgage. Also, your Legal Fees and Disbursements must be paid upon closing and they’ll cost a minimum of $500. Other up-front costs may include Property Transfer Tax and prepaid vendor costs such as fuel and utility bills.
If you’re buying new, the builder may offer optional upgrade packages. This will increase the purchase price of the home but can be rolled into the mortgage and be amortized over the life of the mortgage. After final completion, you’ll be facing ongoing payments such as annual property taxes. And if you’re moving into a strata corporation, monthly strata maintenance fees are obligatory.
It depends. First-time homebuyers may be exempt from paying the Property Transfer Tax. Please refer to BC Real Estate Lawyers Website for further details on taxes on property priced under $500,000. For other buyers, the fee is 1% on the first $200,000 and 2% on the balance. As well, a newly built home qualifies for the Newly Built Home Exemption.
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One way to add to your down payment amount is to tap into your RRSPs. While it’s true that normally you’d probably pay penalties and income tax on any RRSP withdrawal, there is an exception to the rule. As a first-time homebuyer, you may withdraw up to $25,000 ($50,000 per couple) from your RRSPs under the Home Buyers’ Plan. These funds can be used to increase your down payment and are not counted as income and subject to income tax. But there are some conditions attached that you should be aware of:
- The amount withdrawn must be repaid within 15 years from the date of withdrawal.
- You must purchase your home by October 1st in the year following your withdrawal.
- You must start repaying your withdrawal in the second year after your withdrawal.
- Repayments are not tax-deductible.
For complete details please visit the Canadian Revenue Agency website.
If you’re buying a home within a strata corporation, be sure to check the disclosure statement to see what is included in your strata fees. The level of services and amenities they cover will vary from community to community.
As a general rule, strata fees include maintenance of common property – usually everything not inside the residences; if your fridge breaks down, for example, that’s your responsibility if your warranty has expired. They will also cover insurance for common areas, landscaping of the grounds, and garbage and snow removal, as well as membership in the community clubhouse, if one exists.
Strata corporations always have a contingency fund for major repairs and a percentage of the fees will be earmarked for that. If you’re going to be a second or third owner in a strata corporation, be sure to check out the amount inthe contingency fund and consider the age of the building.
Unfamiliar legal and financial phrases are very much part of buying a home. You may encounter the term ‘closing in escrow’ if one or more of the stipulated conditions for the completion of the contract have not been met. This could be as simple as unforeseen delays at the land title office or in the transfer of funds. Until these conditions are met, a third party holds the money or documents in escrow. Escrow closes when all of the conditions of the transaction have been met and the title of the property is transferred to the buyer.