When you’re thinking about buying a house, one of the first things to consider is your down payment. Depending on the price of your home, you will have to pay a minimum of 5-20% upfront when purchasing a home – which is often a considerable amount of money. For more details on how to calculate your down payment, see our down payment guide.
The most common form of sourcing a down payment is personal savings. An efficient way to do this is to put money into a TFSA or an RRSP (if you’re a first-time home buyer). These registered accounts can allow you to make the most of your savings and choose what you want to invest in. Another common down payment source is gifts from family members.
Remember that before you make plans to purchase a home, you need to have a general idea of what you can afford. The size of your down payment, your household income, monthly expenses and expenses associated with owning a home, all affect your affordability.
The mortgage pre-approval process can help you find out valuable information, including:
When applying for a mortgage pre-approval, your lender will be able to calculate the maximum mortgage you can afford based on factors including your down payment, income, credit score and existing debt.
Another thing to keep in mind is that you will have to choose a mortgage rate: fixed or variable. A fixed mortgage rate means that your rate and monthly payment will stay the same for the entirety of your mortgage term. On the other hand, a variable interest rate changes with the prime lending rate, which is set by your lender. For example, your variable rate will be stated as “prime + or -“ a certain amount.
When deciding between a fixed and variable rate, you may want to consider that:
Fixed rates are easier to manage, and if interest rates are low and unlikely to fall further, you may want lock in your rate before an interest rate hike. Another reason to consider a fixed rate is if you are close to your maximum affordability and cannot afford to cover an interest rate hike during the period of your mortgage term.
Variable rates have proven to be less expensive over time, but fluctuations can also make the process more stressful for some home buyers. If you believe interest rates will fall, this is the ideal option, as you can benefit from lower rates during your term.
Major costs to expect on the closing date of your home include:
Legal Fees: Depending on the complexity of the transaction as well as your lawyer’s expertise, you will have to pay a legal fee along with disbursements, and registration fees.
Land Transfer Tax (LTT): Buying property or taking the transfer of a property’s title means that you will have to pay a provincial tax depending on where you live and the value of your new home. For more information on the LTT by province, see our Land Tax Transfer page.
PST on CMHC Insurance: If you’re planning to purchase a home with a down payment of less than 20%, you will have to purchase mortgage default insurance, also called CMHC insurance. In Manitoba, Ontario and Quebec, the PST on default insurance must be paid with cash at closing.
If you’re a first-time home buyer, you may qualify for the First-Time Home Buyers’ Plan. If eligible, you are allowed to withdraw up to $25,000 tax-free from your individual RRSP, or $50,000 for a couple, to use towards buying a home.
The Home Buyers’ Plan is considered a loan and will need to be repaid. One-fifteenth of the amount borrowed needs to be paid each year for 15 years, with the first payment due two years after you withdrew the money.
The First-Time Home Buyers’ Tax Credit is a tax credit available to eligible first-time homebuyers purchasing qualified homes. At current taxation rates, the credit is the equivalent of a $750 rebate, which can be claimed when you file your personal income tax return.
If you’re a first-time home buyer buying a home in Ontario, British Columbia or Prince Edward Island, you may be eligible to receive a land transfer tax (LTT) rebate. Eligibility requirements and rebate amounts differ by region. For Ontario, you may be eligible for a LTT rebate equal to the full cost of your LTT, up to $4,000. For Toronto specifically, first-time home buyers are able to receive a refund of their municipal land transfer tax up to $4,475. If you’re a first-time home buyer in British Columbia or Prince Edward Island, you may be eligible for a LTT rebate as well.
Beyond the regular mortgage payments for your house, there are also on-going expenses associated with home ownership and maintaining your property. On-going costs to keep in mind include:
Home Insurance: If you have a mortgage, the lender will likely require you to have home insurance coverage to protect your property. For more information on, see our home insurance page.
Utility Bills: Bills to expect to pay as a house owner include hydro, heating, water and garbage removal.
Property Tax: Municipalities across each province will determine their individual property tax rates each year. The rate often falls between the 0.5-2.5% range, which is then multiplied by the assessed value of your property and is payable annually.