So, you want to buy your first home – let’s save thousands by taking advantage of all the resources Canada has to offer you.
As a first-time buyer in Canada, you’ve got several tools at your disposal that will make your first home purchase more affordable. Namely, we’ve got the First Home Savings Account (FHSA), the Home Buyers’ Plan through your Registered Retirement Savings Plan (HPB & RRSP), Land Transfer Tax credits (LTT) and several new mortgage rules that can make your first home purchase more affordable. Let’s dive into these.
Leveraging a First Home Savings Account
As the name suggests, this is an account you can open with an institution that is a registered account and used towards your first home purchase. You are allowed to contribute up to $40,000 toward the purchase of your first home. We discuss that in more detail in another blog.
Key Details:
- Annual Limit: $8,000 per year, until you reach the total of $40,000
- Tax Benefits: Contributions and growth are tax-deductible, giving you tax-free dollars towards a home purchase.
- Eligibility: Must be a Canadian resident, 18 years of age or older, and have not lived in a home that you have owned or jointly owned in this calendar year or in the previous four years
Home Buyers’ Plan
The Home Buyers’ Plan allows you to withdraw up to $60,000 from your RRSP for the purchase of your first home, tax-free. This has to be paid back over 15 years, for which the payment period begins in the fifth year following the year the withdrawal was made (for those who withdrew from their RRSP between 2022 and 2025). Otherwise, repayments begin two years following the withdrawal year.
Key Details:
- Repayment period: 15 years, with equal payments made each year
- Tax benefits: Your initial contributions to the RRSP are tax-deductible, and your withdrawal is tax free, assuming you meat the repayment requirements.
- Eligibility: Must be a first-time home buyer
Land Transfer Tax Rebate
First-time buyers in Ontario are eligible for a $4,000 Land Transfer Tax rebate. Furthermore, if a first-time homebuyer purchases in the City of Toronto, they can receive a maximum rebate of $4,475 from the Municipal Land Transfer Tax, in addition to the Ontario amount. Land transfer tax is typically calculated as a percentage of the purchase price, which varies depending on the home’s price.
New Mortgage Rules for First-Time Home Buyers
You’ve probably heard the buzz around the new rules for first-time buyers or buyers of new construction. I’ve broken it down below by each notable development.
30-year Amortizations Available for First-time Buyers
Now, as a first-time home-buyer, you can opt for 30-year amortizations for your insured mortgage. This means lower monthly payments as you pay off your loan over a longer period of time.
- Benefits: Lower monthly payments allowing you to afford a larger home than before, or afford a home in general
- Considerations: Longer amortizations come with increased interest rate risks, since you are paying more interest over time. Fluctuations in interest rates will have a greater impact on your mortgage, especially if it is a variable rate mortgage
Insured mortgage cap increased from $1 million to $1.5 million
If you’re considering buying a home over $1 million, you can now do so with less than 20% down. Previously, for a $1 million home, you would be required to put down $200,000. Now you can put down as little as $75,000 (5% on the first $500K, and 10% on the remainder up to $1.5m). Listen to our podcast to hear even more in-depth.
- Benefits: Lower downpayment required for homes up to $1.5m, making the upfront cost of home ownership more affordable
- Considerations: Higher monthly mortgage payment due to higher loan amount. Since it’s a high ratio mortgage (over 80% of the home value borrowed), CMHC insurance will be added to the mortgage. The amount depends on the price of the home and the down payment amount. (i.e. CMHC insurance on a $1,000,000 home with a $75,000 down payment is $37,000)
Buying your first home is exciting and can be emotional. It’s important to consider all the tools and resources available to you. If you’d like to speak to a real estate agent about navigating this important decision, feel free to give me a call at (647) 762-0495. I’d love to guide you on your journey into home ownership.
