First Time Home Buyers
Advice you will…
Everyone you know is suddenly an expert on purchasing YOUR first home
Everyone will have an opinion on what they think YOU can afford and should purchase
Go with your gut and rely on advice from real experts you TRUST….
You, and only you, have to be responsible for this purchase, so prepare yourself with what you need to do to make it a reality…
You’ve heard about the switch mortgage and know that it means moving your mortgage to another lender but perhaps you don’t quite have a complete understanding of the whole story.
I believe that the best way to tackle the switch mortgage subject is to answer some of the many questions we’ve had over the last little while.
To begin with, when you get that renewal notice in the mail, do yourself a favor and don’t just sign it and accept the lenders interest rate and terms without giving us the opportunity to search our portfolio of lenders for a better deal for you.
Lenders in general make very good money with renewals when people just sign the renewal and send it back. Remember, there’s no cost or obligation to explore your options and have us take a look.
What is CMHC Mortgage Insurance?
Canada Mortgage Housing Corporation is a crown corporation of the Federal Government of Canada that acts as Canada’s National housing Agency. It operates as a private sector corporation and plays a very important role for Canadian Homebuyers.
When you buy a home in Canadawe are fortunate enough to be able to put as little as 5% down.
CMHC what we call default insurance and protects the banks mortgage loan in the case where the mortgage loan goes into default and cannot be paid back. This means if you cannot pay the mortgage then the bank is paid back all their costs in full after the home is taken back and sold. In Canada, you are required to pay default insurance when you do not have the 20% to put down on a purchase. It offers a way for borrowers to get into the housing market with as little as 5% down. It’s one way to boost home purchases in Canada.
There is also competition for CMHC as there are three mortgage default insurance providers in Canada. The other two are Genworth and Canada Guarantee. They are private companies and each determine their own set of rules regarding the types of mortgages they will provide insurance on for the banks. This means if your application is declined with one insurer then the lender can go to another insurer for approval. Each lender does work with a preferred insurer so working with a mortgage broker can be very crucial to the success of your application. Not only do you need the right lender but you will also need the right insurer. For example, a self employed client that wants to buy a home, may be declined with one bank but approved with another bank with the same interest rates because of their risk tolerance and then the insurers product offerings. The insurers carry many products that differ but the banks may only carry a few of them. The bank may also require more due diligence or stricter guidelines for those products being offered.
Each mortgage lender will set with their investors and look at all the products available in Canada based on the Federal regulations. They will select what makes sense for their investors and then they will decide how to underwrite it and what rate they want to price it at. Then they have to select the insurer based on their regulations and guidelines. Each insurer has different risks, products, and options however the insurance premiums are equal. The cost to have insurance is the same for each insurer. Its based on product and down payment.
The insurance premiums that are being charged for purchases are rolled into the overall borrowing amount. So for example : if you are buying a home for $400,000 and your down payment is 5% ($20,000) then the total loan is $380,000. The CMHC premium is 4% of that total loan of $380,000 which is $15,200 . The total mortgage is now $380,000 plus $15,200 which is $395,200 . When you are using any mortgage calculator then you don’t want to double count the CMHC or forget about it. Check with your mortgage broker to see what the applicable taxes are being charged on the premium as that will need to be paid on closing as part of the closing costs.
See scaling Chart for Purchases on traditional lending programs :
Its important to know that default insurance is there only to protect the bank and not the client. The client is responsible to pay for it. You need a min of 20% down payment to avoid it unless you are getting into a specialized product such as self employed or stated income.
There are three types of mortgages in Canada :
Insurable mortgages are when you have been able to meet the 20% down on traditional lending / programs and the bank can go to CMHC/ default insurance to get insurnace for their loan at their expense. The client does not pay. Lenders will want to have insurance on their loan even if they are paying for it. They want their loans fully securitized. This means if you have just enough to bypass CMHC then the bank has to go purcahse insurance for you and they pay the cost on your behalf. The more down payment you make then the cost becomes less for the banks. This typically results in a slighly higher mortgage rate. Once you make the 35% down then the risk starts to get better for the banks and the insurance cost is negible. This back end insurance is also called “ bulk insurance”
Insured mortgages have the lowest mortgage rate options. The borrower is putting less than 20% down on a purchase and you are being charged full CMHC / Default insurnace premium. The lender has the lowest risk as the mortagage loan is fully paid by the insurer. If the insurer is insolvent then the loan is backed by the Government.
Non insurable mortgages
Non insurable mortgages resulted in January 2018 when the Federal Government made massive changes to the banks securitization. They grouped several mortgage types into a catergory that will not allow the banks to get any insurance at all. The client cannot pay nor can the bank pay on their behalf. This means that the banks must price the mortgage rates slighly higher to offseet risk if they are going to provide a mortgage to the consumer.
List of mortgage types not eligible for default insurance :
This is why its is so important to call the Wilson Team Ottawa Mortgage Brokers because these are all very complicated and each lender has as many as 15 interest rates based on the above information. They are support different documents, property types, risk assessments, rates, products and options. When you hire a mortgage broker then you are securing your best interest and making sure they look at the entire market on yoru behalf.
- Purchased of Propertys over 1 million dollars>
- Non owner occupied single unit rental properties
- Refinances ( when you replace and exsiting loan for a new mortgage amount or you may not have a mortgage on your home but you want to put one on )
- Amortizations over 25 years
First Time Home Buyer Incentives
Home Buyer Incentive Share Equity Program
The first-time buyer incentive is a federal government 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 program 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.
There are a few caveats. 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 $565,500 for a 14.99% downpayment. The maximum downpayment for the 10% incentive is 9.99% and 14.99% for 5% down. 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.
Note: Since repayment is based on market value at the time of repayment, you may want to repay early if your home is increasing in value quickly, or prior to conducting major renovations.
RRSP Withdrawal As Down Payment: $35,000
The Home Buyers Plan allows first-time home buyers to withdraw up to $25,000 PER BUYER, from an RRSP to purchase a home without having to pay tax on the withdrawal. The federal government recently increased the maximum amount to give additional access to their registered retirement savings plans (RRSP’s) for home purchases. The $25,000 per buyer does not HAVE to be used solely for down payment – it can be used for closing costs, paying off some debt, moving expenses, furniture, or even a vacation to celebrate!
First Time Home Buyers’ Tax Credit: $750.00
Through Canada’s Economic Action Plan, the federal government has introduced a First-Time Home Buyers’ Tax Credit (HBTC) to help with the purchase of a first home. This will assist first-time Home Buyers with the costs associated with the purchase of a home, such as legal fees, disbursements and land transfer taxes. The HBTC amount will apply to qualifying homes purchased after January 27, 2009. The $5,000 non-refundable tax credit provides up to $750 in federal tax relief.
Green House Program
Homeowners purchasing a qualifying energy-efficient home with an insured mortgage are eligible for up to a 25% mortgage insurance premium refund, which can be a substantial savings! If you buy a home and renovate it to make it more energy-efficient you can also apply for this refund.
GST/HST New Housing Rebate
If you are purchasing a new construction home or performing substantial renovations to an existing home, you can recover some of the tax that you paid if all eligibility conditions are met. Canada Revenue Agency’s Guide RC4028 – GST/HST New Housing Rebate – has all of the specifics. Submit the form applicable to you along with your personal income taxes within two years of the actual closing date.
Ontario Land Transfer Tax: $4,000
Ontario’s Land Transfer Tax is a provincial tax payable by the purchaser of a property. Therefore, if you purchase a property or land you are responsible for paying Land Transfer Tax to the Province at the time the transaction closes. First Time Home Buyers receive a reduction of up to $4,000.00 on Ontario Land Transfer Tax. Please note that there is also Toronto Land Transfer Tax payable if purchasing in Toronto “proper” however First Time Home Buyers do not pay on the first $400,000 value. For more information contact The Wilson Team or call 1-855-6959250