First-Time Buyers

Read through the following frequently asked questions to learn more about buying your first home.

1. Why are there a variety of mortgages?
2. What can a mortgage broker do for me?
3. How much can I afford?
4. What is a down payment?
5. How can I acquire a home with as little as 5% down?
6. What will my mortgage payments be?
7. How can I pay off my mortgage sooner?
8. How can I use my RRSP to help buy my first home?
9. What are the costs associated with buying a home?
10. How can decreasing my amortization period reduce my interest costs?
11. What should the length of my mortgage term be?
12. What is a cashback?
13. What are the monthly costs of owning a home?
14. Where can you find money for your down payment?
15. Should I have my mortgage pre-approved before I look for a home?
16. Should I go with a short or long-term mortgage?
17. What is a fixed rate mortgage?
18. What is a variable rate mortgage?
19. Can I take my mortgage with me if you move?
20. How often can I refinance?
21. Can consolidation of my debts save you money?

1. Why are there a variety of mortgages?

Everyone’s a little different, with different goals, aspirations and a tolerance for risk. Because of this, there are a variety of mortgages customized to meet your personal needs. There are short, medium and long-term mortgages with fixed and variable rates. As your mortgage broker we will help you decide which one is right for you. You might also want to factor in your personal and family short and long term goals.

Contact us at your earliest comfort and convenience that we may endeavour to obtain the “best” mortgage product available for you. Remember, the institutions pay us*, our service to you is free.

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2. What can a mortgage broker do for me?

Buying a home is probably one of the largest investments you’ll ever make. That’s why as your mortgage broker we can help you make your dreams a reality. We will guide you through your purchase from start to finish – whether you are buying your first home, your second home or refinancing. We just want the initial opportunity to serve you as our client, and you will never be disappointed you did.

We’ll look at your purchase from every angle to help you choose the best mortgage for your financial situation and your goals. A mortgage customized with the right combination of options and features. As a mortgage broker we are aware of ever-changing (daily) market conditions. We have extensive knowledge and education with the focus of getting you the client, the “best” available mortgage. We are not bound to any financial institution, as your broker we “shop” the market for you.

We are committed to making your dreams a reality. We can offer you valuable assistance with things like home appraisals, realtors, lawyers and anything else that has to do with the purchase of your home. We can show you ways to pay down your mortgage as quickly as possible, like the financial benefits between bi-weekly mortgage payments over monthly mortgage payments.

When it’s time to renew, we want you to contact us for assistance in the decision process. If you’re refinancing, we’ll help you determine what the best option is for you – exploring all the possibilities available.

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3. How much can I afford?

Buying a home could be the largest purchase of your life. That’s why you want to be sure that your financial institution is compatible to you. Do not fall into the “trap” that you are to be compatible with the lending institution.

The simplest way to determine this is to compare your gross income to your total debt. It’s something you can do using the calculator we provide. Don’t get all bent out of shape. This is only a preliminary “guide”. If things seem truly out of whack, contact us to clarify.

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4. What is a down payment?

Very few home buyers have the cash available to buy a home outright. We want you to turn to us as “mortgage brokers” in the first step to a potentially long-standing relationship. But even with a long-standing relationship, we will need to know how much money we have for a down payment.

The down payment is that portion of the purchase price you provide yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting. The larger the down payment, the less your home costs will be in the long run. With a smaller mortgage, interest costs will be lower and over time this will add up to significant savings.

Compare how an average homeowner saves over $25,000 in interest costs on a $100,000 home by making a down payment of 25% versus the minimum down payment of 5%.

Total Purchase Price: $100,000

* Total interest paid by the homeowner assuming a constant interest rate of 8% repaid over a 25-year amortization period. The interest rate is calculated semi-annually, not in advance.

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5. How can I acquire a home with as little as 5% down?

Most institutional lenders now offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages – as low as 5%. Low down payment mortgages must be insured to cover potential borrower (you) default in mortgage payment, and their carrying costs are therefore higher than a conventional mortgage because they include the third party insurance premium.

Low down payment mortgages are often referred to as High Ratio mortgages. Both the Canada Mortgage and Housing Corporation [CMHC] and GE Capital offer default insurance to the lender.

With all low down payment insured mortgages, you are responsible for:

• appraisal and legal fees
• an application fee for the insurance
• the payment of the mortgage default insurance premium (although the amount of the premium may be added to the mortgage amount).
• • The first time buyer incentive, was launched on September 2, 2018 as a shared equity program designed to reduce mortgage payments for qualifying first-time buyers who have the minimum 5% downpayment required for an insured mortgage. The Canada Mortgage and Housing Corporation (CMHC) will provide 5% of the cost of an existing home, or 10% of a new home. This incentive isn’t payable until you sell the property and is not charged interest.Mortgage Payments – CMHC’s First-Time Buyer Incentive
    

    	No Incentive	5% Incentive	10% Incentive
    Purchase Price	$500,000	$500,000	$500,000
    5% Down	$25,000	$25,000	$25,000
    Incentive	$0	$25,000	$50,000
    Mortgage	$475,000	$450,000	$425,000
    Mortgage + Mortgage Insurance	$494,000	$463,950	$436,900
    Monthly Payment	$2,310	$2,170	$2,043
    Monthly Savings		$140	$267
    Yearly Savings		$1,680	$3,024

    Assumes 25 yr am, 5 yrs, 2.89%

    There are a few restrictions. If your household income is more than $120,000, you aren’t eligible for the program. And your total borrowed amount (including the incentive portion) can’t be more than four times your household income. With a household income of $120,000, the maximum purchase price would be approximately $505,000 with 5% down, and about $565,000 for a 15% downpayment.

    You are required to pay the incentive back after 25 years or when you sell the home, with the repayment amount based on the property’s fair market value, whether it has increased or decreased in value. If you received a 5% incentive and your $500,000 home increases in value to $600,000, then you are required to repay $30,000. If the value deceases to $450,000, you’ll repay $22,500. You can repay the incentive at any time without penalty.

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6. What will my mortgage payments be?

What you pay each month for your mortgage will depend on several things: the size of your mortgage (total purchase price minus down payment amount), the amortization period and the interest rate.

You can use this handy calculator to determine your mortgage payment.

Mortgage Calculator

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7. How can you pay off your mortgage sooner?

There are ways to reduce the number of years to pay down your mortgage. You’ll enjoy significant savings by:

• Selecting a non-monthly or accelerated payment schedule
• Increasing your payment frequency schedule
• Making principal prepayments
• Making Double-Up Payments
• Selecting a shorter amortization at renewal

In fact, you may be able to prepay as much as 15 – 20% or more of your original mortgage balance each year depending on the institution and mortgage product chosen.

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8. How can I use my RRSP to help me buy my first home?

Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. With the federal government’s Home Buyers’ Plan, you can use up to $20,000 in RRSP savings ($40,000 for a couple) to help pay for your down payment on your first home. You then have 15 years to repay your RRSP.

To qualify, the RRSP funds you’re using must be on deposit for at least 90 days. You’ll also need a signed agreement to buy a qualifying home.

Even if you have already saved for your down payment, it may make good financial sense to access your savings through the Home Buyers’ Plan. For example, if you had already saved $20,000 for a down payment – and assuming you still had enough “contribution room” in your RRSP for a contribution of that amount you could move your savings into a registered investment at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers’ Plan.

The advantage? Your $20,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home.

While using your RRSP for a down payment may help you buy a home sooner, it can also mean missing out on some tax-sheltered growth. So be sure to ask your financial planner whether this strategy makes sense for you, given your personal financial situation. For more information, visit Canada Customs & Revenue Agency web site.

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9. What are the costs associated with buying a home?

First and foremost, you have to make sure you have enough money for a down payment – the portion of the purchase price that you furnish yourself.

To qualify for a conventional mortgage you will need a down payment of 25% or more. However, you can qualify for a low down payment insured mortgage with a down payment as low as 5%.

Secondly, you will require money for closing costs (up to 2.5% of the basic purchase price).

1. Registration:     starting at $70.00 each
2. Execution Searches:     from $60.00 to $120.00
3. Title Searches:     from $75.00 to $100.00
4. Land Transfer Tax:     based on purchase price of home (see our tab “Land Transfer Tax”)
5. Title Insurance:     from $100.00 to $350.00
6. Incidentals:     from $50.00 to $100.00

DON’T FORGET……PST and GST are charged on certain items.

If you want to have the home inspected by a professional building inspector – which we highly recommend – you will need to pay an inspection fee. The inspection may bring to light areas where repairs or maintenance are required and will assure you that the house is structurally sound. Usually the inspector will provide you with a written report. If they don’t, then ask for one.

You will be responsible for paying the fees and disbursements for the lawyer or notary acting for you in the purchase of your home. We suggest you shop around before making your decision on who you are going to use, because fees for these services may vary significantly.

There are closing and adjustment costs, interest adjustment costs between buyer and seller and (depending on where you live) land transfer tax – a one-time tax based on a percentage of the purchase price of the property and/or mortgage amount.

Finally, you will be required to have property insurance in place by the closing date. And you will be responsible for the cost of moving.

Remember, there will be all kinds of things you’ll have to purchase early on – appliances, garden tools, cleaning materials etc. So factor these expenses into your initial costs.

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10. How can decreasing my amortization period reduce my interest costs?

If you choose a shorter amortization period, you can save a lot of money and live mortgage-free sooner.

Just take a look how much you will save on your total interest costs on an $80,000 mortgage amortized over 15 years versus the same mortgage amortized over 25 years.

Mortgage $80,000, 25-year amortization:

Mortgage $80,000, 15-year amortization:

* Calculated assuming a constant interest rate throughout amortization period over the life of the mortgage. Compounded half-yearly not in advance.

You can also accelerate payment frequency, increase amount of mortgage payments, make principal prepayments or make Double-Up payments to further reduce amortization period.

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11. What should the length of my mortgage term be?

The length of mortgage terms varies widely – from six months right up to 25 years. As a rule of thumb, the shorter the term, the lower the interest rate therefore the longer the term, the higher the rate.

While four or five year mortgages are what most home buyers typically choose, you may consider a short-term mortgage if you have a higher tolerance for risk, if you have time to watch rates or are not prepared to make a long-term commitment right now.

Before selecting your mortgage term, we suggest you answer the following questions:

1. Do you plan to sell your house in the short-term without buying another? If so, a short mortgage term may be the best option.
2. Do you believe that interest rates have bottomed out and are not likely to drop more? If that’s the case, a long mortgage term may be the right choice for you. Similarly, if you think rates are currently high, you may want to opt for a short to medium length mortgage term hoping that rates drop by the time your term expires.
3. Are you looking for security as a first-time home buyer? Then you may prefer a longer mortgage term, so that you can budget for and manage your monthly expenses.
4. Are you willing to follow interest rates closely and risk there being increased mortgage payments following a renewal? If that’s the case, a short mortgage term may best suit your needs.

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12. What is cashback?

Cashback gives you cash that you can use towards anything you want! Use the money for renovations, closing costs, furniture, appliances, or anything else you choose. You can even apply it to your mortgage as an immediate prepayment of the principal. That could potentially save you thousands of dollars in interest!

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13. What are the monthly costs of owning a home?

Needless to say, you’ll have financial responsibilities as a home owner. Some of them, like taxes, may not be billed monthly, so do the calculations to break them down into monthly costs. Below you will find a list of these expenses.

• • The Mortgage Payment

For most home buyers, this is the largest monthly expense. The actual amount of the mortgage payment can vary widely since it is based on a number of variables, such as mortgage term or amortization.

• • Property Taxes

Property tax can be paid in two ways – remitted directly to the municipality by you, in which case you may be required to periodically show proof of payment to your financial institution; or paid as part of your monthly mortgage payment.

• • School Taxes

In some municipalities, these taxes are integrated into the property taxes. In others, they are collected separately and are payable in a single lump sum, usually due at the end of the current school year.

• • Utilities

As a home owner, you’ll be responsible for all utility bills including heating, gas, electricity, water, telephone and cable.

• • Maintenance and Upkeep

You will also have to cover the cost of painting, roof repairs, electrical and plumbing, walks and driveway, lawn care and snow removal. A well-maintained property helps to preserve your home’s market value, enhances the neighbourhood and, depending on the kind of renovations you make could add to the worth of your property.

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14. Where can you find money for your down payment?

For a conventional mortgage, you’ll need a down payment of 25% or more of the purchase price of the home. Or, you can apply for a low down payment insured mortgage with as little as 5% down.

But regardless of the type of mortgage you choose, you still need to come up with the down payment. Here are some common strategies to assist you in raising it:

• Set up a bi-weekly automatic savings plan.
• Use your RRSP’s as a down payment. Cash in up to $20,000 per person of your RRSP’s and receive 100% of the value – provided you put it toward a new home purchase. You then have 15 years to repay your RRSP.

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15. Should you have your mortgage pre-approved before you look for a home?

Once you apply for a pre-approved mortgage, you’ll know how much you can reasonably borrow to buy a home. It tells you what your payments will be, and it defines a realistic price range for your financial situation.

With a pre-approved mortgage, you can lock in at today’s rates.

If rates go down before you complete the purchase, you will automatically get the lower rate for the term you selected. This protection could save you a substantial amount of money if interest rates fluctuate while you’re house shopping.

With a pre-approved mortgage, you’re much better prepared to shop for a home:

• You’ll have a clear idea of what you can afford in terms of price, down payment, legal fees and other expenses
• You’ll be able to make an offer when you find a perfect home.

Because you have all the financial facts in hand, your purchase commitment is far more likely to be one you can live with comfortably.

Once you have finalized your offer to purchase, contact us and your mortgage can be quickly processed into a commitment.

A pre-approved mortgage puts you under no obligation and is available to you at no cost.

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16. Should you go with a short or long-term mortgage?

A longer-term mortgage is worth considering if you have a busy life and don’t have time to watch mortgage rates. The 4, 5 and 7-year mortgages let you take advantage of today’s rates, while enjoying long-term security knowing the rate you sign up for is a sure thing.

If you want to keep your mortgage flexible right now, you can explore a shorter-term mortgage that usually allows you to take advantage of lower rates and save.

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17. What is a fixed rate mortgage?

The interest rate on a fixed-rate mortgage is set for a pre-determined term – usually between 6 months to 15 years. This offers the security of knowing what you will be paying for that term selected.

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18. What is a variable rate mortgage?

A mortgage in which payments are fixed for a period of one to two years although interest rates may fluctuate from month to month depending on market conditions. If interest rates go down, more of the payment goes towards reducing the principal; if rates go up, a larger portion of the monthly payment goes towards covering the interest. Open variable rate mortgages allow prepayment of any amount (with certain minimums) on any payment date.

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19. Can you take your mortgage with you if you move?

The mortgage portability option lets you transfer the terms and conditions of your current mortgage to your new home, subject to a credit review and property appraisal when you make the new home purchase. You may also qualify to Add-On to the mortgage if you require a larger mortgage amount.

Please note the mortgage portability option may not be used in combination with the assumable mortgage option.

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20. How often can I refinance?

There is no maximum for how many times you can refinance. But you must qualify each time you apply. For more information, contact us.

Remember, you can use our mortgage add-on option to borrow up to 90% of the appraised value of your home at the time of the Add-On, minus the amount of your outstanding mortgage (CMHC/GEMICO fees may apply).

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21. Can consolidation of your debts save you money?

You could save a substantial amount by consolidating your outstanding high interest loan and credit card balance. Take a look or contact us for more information and examples.

1. Based on 6% annual interest.
2. Based on 28.8% annual interest.
3. Based on 7% annual interest.

Plus, you’ll also enjoy the added convenience of paying all your debt in one monthly payment.

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