Buyer Resources and Tips

 

Resources

RRSP Home Buyers’ Plan

The Home Buyer’s Plan (HBP) enables you to use up to $25,000 in a calendar year from your registered retirement savings plans (RRSPs) to purchase or construct a house for yourself or a related person with a disability. You and the home must meet certain requirements. Refer to the link below for more information.

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html

 

Land Transfer Tax Rebates

Individuals buying land or an interest in land in Ontario is required to pay land transfer tax. However, first-time buyers may qualify to receive money back for all or some of the tax paid. Refer to the link below for more information.

https://www.fin.gov.on.ca/en/bulletins/ltt/1_2008.html

 

Ontario’s Energy and Property Tax Credit & Sales Tax Credit

Ontario offers an Energy and Property Tax Credit as well as a Sales Tax Credit. Refer to the link below for more information.

https://www.ontario.ca/page/ontario-trillium-benefit#section-2

 

Mortgage Loan Insurance Rebate for Energy-efficient Housing

Canadian Mortgage and Housing Association Green Homes may be able to give you a percentage of the mortgage loan insurance you paid back if you purchase, construct or renovate for energy efficiency. In fact, you may even qualify for a refund of up to 25 % of your premium. Refer to the link below for more information.

https://www.cmhc-schl.gc.ca/en/buying/mortgage-loan-insurance-for-consumers/cmhc-energy-efficient-housing-made-more-affordable-with-mortgage-loan-insurance

 

Owning a Condo in Ontario

For information on owning a condo, refer to the link below.

https://www.ontario.ca/page/owning-a-condo

 

First Time Home Buyers’ Tax Credit

A maximum tax relief of $750 can be claimed by first-time home buyers through the First Time Home Buyers’ Tax Credit. The non- refundable credit is computed by doing the following calculation: (the credit amount of $5, 000) x (the lowest personal income tax rate of 15%). This is only applicable to first-time home buyers who purchase a home after January 27, 2009. Refer to the link below for more information.

https://www.fin.gc.ca/taxexp-depfisc/2018/taxexp1805-eng.asp#First-Time-Home-Buyers--Tax-Credit

 

HST New Housing Rebate

The HST new housing rebate enables some recovery of the goods and services tax or the federal part of the harmonized sales tax (HST) paid for a new or substantially renovated house. For the provincial part of the HST, other provincial new housing rebates may be obtained even if the HST federal part is not available. Refer to the link blow for more information. 

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/gst-hst-home-construction/gst-hst-new-housing-rebate.html

 

Mortgage Tips

The following information is for knowledge purposes only; it is not legal advice. Please consult a Mortgage Specialist.

Mortgage Stress Test

Effective January 1st, 2018, Canadians are required to undergo a stress test to show proof of having financial stability if interest rates were to rise considerably above their mortgage rate. During the beginning of this year, new federal guidelines have been put forth that obligates financial institutions, looked after federally, to screen borrowers’ applications with use of a minimum qualifying rate equivalent to the greater of the Bank of Canada’s five-year benchmark rate (which is 5.14 per cent as of now) or their contractual rate, plus two percentage points.

All six of Canada’s big banks are subject to these rules. There are some provincially regulated lenders who willingly follow these procedures such as credit unions.  

The given rules mean the amount of money you can borrow might be less than what you could have borrowed prior to the beginning of this year. Choosing a less-expensive home may be an option when searching for houses. There’s a chance you may have to remain with your current lender if you’re thinking about having your mortgage renewed. Staying with your lender grants permission for you to avoid the stress test, though it also means you won’t be able to continue looking for a more preferred mortgage. Additionally, if you want to refinance, it might not be possible to raise your loan by the amount you wish, or at all.  

Knowing all of your options before walking into your bank, talking to a mortgage broker or meeting with a real estate agent might be of help to you.

Canadians can use an easy guide to approximate the outcome of their stress test. For those who are able to make a down payment of 20 per cent or more, they are currently looking at approximately $500 in monthly mortgage payments for every $100,000 of mortgage debt, with the expectation that it’s a 25-year amortization period. These new regulations detail that you must be able to afford $600 in monthly mortgage payments for every $100,000. So, think about what would happen if you were to pay $600 a month for every $100,000.

To determine what amount you can afford, lenders look at some main metrics, specifically the gross debt service ratio (GDS) as well as the total debt service ratio (TDS).

  • Gross Debt Service Ratio
    • GDS is the percentage of your income, before taxes, required to pay for your housing costs. As well as the stress-tested monthly mortgage payment, the monthly cost of your property taxes or half of your condo fees and your heating costs will also be examined by your bank. They add everything then divide by the amount of the gross monthly payment you possess. If the ratio that’s been determined is 30 to 32 percent, most lenders will approve your mortgage application.
    • Condo fees constantly contain cable, insurance, and electrical costs, which is why financial institutions only use half of them in GDS calculations. However, these condo fees tend to push many over the 30-32 per cent threshold.
    • Underestimating your condo fee estimate is a common mistake that happens when doing your calculations. It’s good to keep in mind that these fees usually increase with inflation, typically by 1.5-2 per cent per year.
    • On the other hand, some individuals underestimate their own income. Those who get paid bi-weekly usually calculate their monthly pay as two times their bi-weekly pay, but that’s not the case.
  • Total Debt Service Ratio
    • With TDS, lenders would like to know about the amount of income directed towards your debts. Credit cards, lines of credit, car loans and other secured and unsecured debts are examples of debt payments. These costs should not equal out to more than 42 per cent of your pre-tax monthly pay.
    • The TDS requirement may not be met even though you passed the GDS test. For example, car loans are a fixed debt cost that could hugely affect that ratio and disqualify borrowers. That’s when people are the most surprised.
    • In contrast, owing $1000 worth of credit card charges every month but always paying off the full balance means your credit card debt will show up in your TDS as zero. Lenders make their decisions based on what is shown on the credit bureau. Ensure that you keep up with credit card payments after you received the mortgage.

When you fail the test, the numbers have to be changed. You may have to deal with a smaller mortgage or find another alternative before applying again.

Source: https://globalnews.ca/news/4097215/canada-new-mortgage-rules-stress-test-2018/

 

Larger Down Payments

If you make a larger down payment, you will pay less interest over the duration of your mortgage. However, try not to stretch yourself to make a bigger down payment as it may result in having to take more from your credit or line of credit at a higher rate.

For mortgages of more than 80 % of the purchase price of a property, it is mandatory that they are insured by CMHC or GE Mortgage insurance. Larger down payments will result in premium decreases.

 

Other Payment Options

Paying weekly or bi-weekly can shorten the amount of time it will take to pay off your mortgage

An accelerated payment option lets you make weekly or bi-weekly payments approximately equivalent to the amount of a monthly payment. When it comes to interest charges, these types of payments can help you conserve money. Accelerated payments make it so that the amount of money you're spending on your mortgage is the same as making an extra monthly payment per year. When choosing Mortgage companies, look for privilege payment options.

 

Short Term Rates vs Long Term Rates

For many individuals shopping for mortgages, it can be extremely difficult looking at available mortgage options. There are numerous variations in terms between variable and fixed rate, from 6-month terms up to 10-year terms. Usually, when a term or rate guarantee is shorter, the rate will be lower though it does not always happen since it does rely on the economy as well as the marketplace. The variable rates have an upside in which it has a greater possibility for interest rate savings. In addition to all upsides, there is a downside where you are agreeing to the interest with no guarantee. With consideration of a variable rate mortgage, your own risk tolerances and cash flow availability need to be looked at in the event that payments might increase. Noticing where interest rates are heading with regards to rate projections may be imperative to this decision. Prior to making this decision, please speak with an expert.    


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Mississauga Real Estate Board
3450 Ridgeway Dr #1
Mississauga, ON L5L 0A2, Canada
Phone: 905.608.6732
Fax: 905.608.9988