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.
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 a maximum of $40,000, which can be used towards the purchase of your first home. We discuss about that here.
Key Details:
- Annual Limit: $8,000 per year, until you reach the total of $40,000
- Tax Benefits: Any contributions are tax-deductible, meaning 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 the years of 2022 – 2025). Otherwise, repayments begin two years following the withdrawal year.
Key Details:
- Repayment period: 15 years, with equal payments made each year
- Tax benefits: contributions to RRSP are tax deductible
- Eligibility: Must be a first-time home buyer
Land Transfer Tax Rebate
First-time buyers are eligible to receive a Land Transfer Tax rebate of $4,000 in Ontario. Furthermore, if a first-time homebuyer is purchasing in the City of Toronto, they can receive a maximum of $4,475 in the form of a rebate from 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 price of the home.
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 downpayment amount. (i.e. CMHC insurance on a $1,000,000 home with a $75,000 downpayment is $37,000)
Buying your first home is exciting and can get emotional. It’s important to consider all of the tools and resources that are 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.