Residential Mortgages

FIRST TIME BUYERS / REPEAT BUYERS

Down Payment Options

1. RRSP Down Payment - High Ratio Mortgage

   *PLEASE NOTE THAT THIS DOES NOT APPLY TO REPEAT BUYERS UNLESS THEY HAVE NOT OWNED A HOME FOR AT LEAST 5 YEARS

   This program is called Home Buyers Plan, which was instituted by the Federal Government to assist buyers with their down payment. Under this program, Canadian Customs and Revenue Agency permits you to use your RRSP funds towards the purchase of your home. Default insurance companies such as CMHC/GE Capital recognize this program as the source of your down payment and there are no penalties for withdrawing, providing certain guidelines are met. These guidelines are as follows:

   • A maximum of $20,000 can be drawn from one individual RRSP and up to $40,000 if both applicants are first time buyers.
   • The owners must occupy the home
   • The RRSP's drawn must be repaid within 15 years with minimum annual payments of 1/15th of the amount. Failure to comply will result in 1/15th of the RRSP amount having to be added back to taxable income in any one year.
   • You must buy or build your home before Oct. 1st, of the year following the withdrawal.

   Other individuals eligible for the Home Buyers Plan are those who are disabled and buying a home for themselves or those who are helping a related disabled person buy a home. The Plan permits a client to establish an RRSP by borrowing the funds and then use the tax refund for all part of the down payment. This is how it works:

   • The individual borrows funds that are contributed to an RRSP
   • After a 90 day minimum period, the RRSP is collapsed to repay the loan
   • The individual receives a tax refund that can be applied to the purchase of a home and other uses

   The tax refund can be used for the following:

   • Clearing balances on credit cards, personal loans or to purchase household necessities such as appliances, furniture, etc.
   • Increasing the down payment to reduce the default insurance premium
   • Closing costs such as legal fees, land transfer, appraisal, etc.

   If your tax assessment notice indicates you are eligible for $20,000 in accumulated RRSP eligibility limits, you are allowed to borrow this amount subject to credit approval to buy the RRSP. Once you claim your eligible deduction against your current year's income, you can use the rebate to pay down the loan or to cover other costs as mentioned above. If you are in the 40% tax bracket, the rebate would amount to approximately $8,000.

2. Zero Down Payment - High Ratio Mortgage

   This option is available to those who qualify in every aspect but haven't been able to save for a down payment. Therefore, the down payment is simply added to the amount of the mortgage and you make monthly payments on the total amount mortgaged. All you have to do is pay the legal and disbursement costs (approximately 1.5%).

3. Cash Back Mortgage - High Ratio Mortgage

   You may want to consider a Cash Back mortgage if you need a little help getting through that first few months in your new home. You would be giving up the discounted rate in order to receive a rebate on your mortgage which you receive after the mortgage closes. This rebate varies depending on the Lender and term chosen, but ranges anywhere from 1% to 6 % of the mortgage amount. The most common is the 4% Cash Back mortgage featured by many of the Banks. This money can come in handy especially for the fist time buyer who needs extra funds to purchase home improvement items.

   It is important to remember that a Cash Back mortgage usually costs you more in the end. The reason for this is the 'discount' in the rate represents the amount the Lender can afford to spend to prompt you to take a mortgage with them, while at the same time maintaining their profit spread over the 5 years of your term. In order to stop clients from asking for further discounts, they started offering rebates up front.

   Also, the Cash Back will be clawed back (on a prorated basis) if you decide to pay off your mortgage, transfer it, or even make a significant change to it within the first term of the mortgage (i.e., first 5 years). The remaining prorated Cash Back amount could be charged back to the sellers of a home if they offer their mortgage up for assumption.

4. 25% Down Payment - Conventional Mortgage

   A conventional mortgage requires a down payment of at least 25% and is offered on either a fixed or variable interest rate basis. Conventional mortgages have the lowest carrying costs because they do not have to be insured against default.

   With all conventional mortgages, you are responsible for the cost of having your property appraised by an independent appraisal company, the legal fees related to registering the mortgage and completing the purchase.